How to Plan Personal Finance When Taking Out a Personal Loan
When it comes to finances, ultimately the only person who has control over it is you. That’s why, no matter where you are in life, it’s important to have a viable and realistic personal finance plan. Especially if you are interested in or getting ready to take out a personal loan, having a plan is crucial in ensuring that you are and can stay afloat in the journey ahead.
With taking out a personal loan, you might be thinking about how to plan personal finance. With some valuable knowledge and tips below, you will be on your way to strategizing a healthy financial path for yourself.
Personal Loans: Four Steps to Plan Personal Finance
1. Write Down Your Goals
Start your “how to plan personal finance” journey with a good old pen and paper. Think about your short-term and long-term financial goals (owning a home, getting out of student debt, etc.), and write them down. No matter where you are in life, whether you are single or married, young or old, it’s always wise to have a personal savings plan to carve out a financially independent path for yourself.
As plans change in life, it’s important to take time to reevaluate your financial goals so you can always take ownership of your money.
2. Budget Wisely
Having a budget is crucial not only to save properly but to be able to live within your means. Creating a monthly budget will push you to have a purpose for every dollar. A popular method is the 50/30/20 budgeting rule.
The rule calls to divide and allocate your income (after taxes and deductions) into the following three categories: 50% on needs, 30% on wants, and 20% on savings and debt repayments.
Needs entail things such as:
- Mortgage payments
- Car payments
Wants entail the non-essentials like:
- Movie tickets
Savings and debt repayments can comprise:
- Making IRA contributions
- Adding money to an emergency fund
- Making extra debt repayments to reduce the principal and interest owed
Be sure to set up realistic budgeting goals every month in order to make payments on time. If you need assistance with budgeting, there are several budgeting apps such as EveryDollar and GoodBudget that will help you organize and keep track of your budget, transactions, bank account balances, and savings.
3. Eliminate Debt
A personal loan can be a helpful way to relieve some financial burden. Some people use it to consolidate credit card debt, cover a down payment, or take loved ones on vacation. No matter the reason, you should not take out a personal loan when you are sitting on high-interest rate debts.
The last thing you want is to stack money on top of money. Personal loans do not provide viable long-term solutions; they are more of a short-term option when you might be short on cash. Thus, think of a game plan to pay off any student, medical, or payday loans or any bank overdraft charges that you might have first.
For example, you can follow the 28/36 rule. In other words, 28% of your gross monthly income should go toward housing expenses and you should spend no more than 36% of your income on debt. Try this out and strategically plan how and when you can pay off your debt.
4. Keep an Eye on Your Credit Score
When thinking about how to plan personal finance, you should always keep your credit score in mind. All of your budgeting and payments affect your score. Moreover, when applying for a personal loan, your score plays a huge role in determining your eligibility.
Thus, sticking with your monthly budgeting plan and eliminating debt will help you boost your credit score. Moreover, a high score will give you access to lower interest rates and down payments when it comes to life purchases such as a car or a home.
With these key “how to plan personal finance” tips, be sure to make it a habit to review your plan. There will be times when things will fall through the cracks, but be sure to learn from your mistakes and use them to navigate you toward better practices.
Power Finance Texas understands that unexpected events happen and sometimes people need resources to get back on track. Contact us for more information about how to quickly get the cash you need with a convenient short-term loan.