The basics of financial health are easy to master, but unfortunately, many people don’t know how to keep their financial health in check. From paying your credit card on time, to building an emergency fund, there are ways to stave off bankruptcy and debt collectors. Keep reading for 5 tips for financial health.
1. Build an emergency fund.
One of the first things you should do as an adult is build an emergency fund. It’s an easy-to-access savings account containing 3-6 months’ expenses. Emergency funds can be used for a number of reasons — first, if you lose your job, you’ll be able to pay the bills for 3-6 months. But you may need to use your emergency fund for unexpected emergencies, such as replacing an appliance, vet bills, or car repairs.
It’s important to keep your emergency fund in your bank account so it can easily be transferred on the same day when needed. This means you can’t have your emergency fund tied up in investments or stocks. Wait to play with those until after you’ve saved up.
2. Understand credit cards.
Many people do not realize that you don’t need to pay interest on credit cards. If you can pay off your monthly bill in full, the credit card company won’t charge you interest. This is also a surefire way to secure yourself a good credit rating, which gives you access to low-interest credit options such as a line of credit.
If you have already got a balance on your credit card, you may be racking up interest at a higher rate than necessary. It’s a good idea to talk to someone about debt consolidation, as you may be able to secure a lower interest rate and become debt-free sooner.
3. Pay your bills on time.
Paying your bills on time is important because they are tied to your credit rating. Having a good credit rating allows you to have more financial options at any given time. Also, bills can charge you interest for paying late.
When it comes to paying your credit card, make sure to make at least the minimum payment each month on time. Making the minimum payment sends a signal to the bank that you’re on top of things, and it increases your credit score.
4. Don’t use all the credit offered to you.
Most banks will offer their clients access to high credit limits on credit cards and lines of credit. While it may be tempting to “max them out”, it’s important to recognize that the banks want to make money off interest. You should only use credit for important purchases that cannot be delayed, like a mortgage for a house, a loan for a car, or to get yourself out of a financial pickle if necessary. Don’t load consumer debt onto a credit card, or else you’ll end up paying double for the items later.