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Personal Finance Basics: Starting Your Journey to Financial Independence

Mar 24, 2022, 07:47 AM by Kevin Sunderland
Do you find yourself wondering what personal finance is, and why it’s important? Do you want to know how to stay on budget, how to save for the future, or how to pay off debt? We’re here to help!


Do you find yourself wondering what personal finance is, and why it’s important? Do you want to know how to stay on budget, how to save for the future, or how to pay off debt? We’re here to help!

In this guide, you’ll find everything you need to know to get your finances back on track, build equity, and manage savings. So, let’s begin!

What is Personal Finance

Personal Finance means managing your streams of income, debt, investments, and savings in a productive way that builds financial security and independence.

Mastering the basics of personal finance is essential to becoming debt-free, saving for retirement, paying for college, and saving up to buy a house. It requires discipline, effort, and a focus on long-term goals – but that doesn’t mean it has to be intimidating! In fact, managing your finances is something anyone can do, with a little know-how and guidance. Below, you’ll find some tips and tricks to make personal finance a breeze.

Making a Budget

The first, and most important, step in gaining control over your finances is creating a budget. A budget is a tally of all your bills and expenses – including things like groceries, gas, cell phone bills, medications, and rent or mortgages.

To make a budget, add up all your regular purchases, expenses, and bills, to understand how much you spend each month, on average. Then, compare that to how much you take home each month. If you’re spending more than you are taking home, that means you probably need to trim back some of your expenses!

Once you have a good idea of how much you bring home, and how much you spend, it’s time to start creating a budget. Create categories – groceries, gas, bills, etc. – and list a reasonable amount you can spend in each category each month. One of the first rules of budgeting is to “pay yourself first.” Be sure you have a category for long-term savings, emergency savings, and even investing.

It can be hard to par down expenses, especially when money is already tight, but try to make cuts where you can. You’ll often hear financial advisers say, “Distinguish wants from needs” – and that’s solid advice. But if you’re already following this cardinal rule, and are still struggling with finances, it may be time to try another tactic: savings.

Building Your Savings

Having a robust savings account is one of the cornerstones of personal finance. This ensures you have enough put aside for a rainy day, retirement, college, or other major events and milestones. To build savings, try depositing a little bit of each paycheck into a separate savings account. No amount is too small – it can be $100, $25, $10 or even $5.

Everyone hits rough patches, where putting aside money can be difficult – especially if you are just starting your personal finance journey – but the important thing is to build a habit of savings. So, even if it’s $1, or 50 cents, putting that aside into a savings account can help you build good habits that will benefit you further down the line.

You should also consider having separate “savings buckets” for different things. You can have one “bucket” for retirement, one for emergencies, and so on. If possible, it can be a good idea to separate these buckets into different accounts, so that you don’t accidentally dip into your retirement savings if, say, you have car trouble.

How to Manage Debt

For many people, the one thing that stands in the way of financial independence is debt – to credit card companies, for medical procedures, from student loans, or from purchasing a house. While it seems like an insurmountable obstacle, paying it down is critical to financial freedom and stability.

Debt can accrue quickly and tackling it can seem like a herculean task – but the key is to take it one bill at a time. By that, we don’t mean ignore your other bills – do all in your power to prevent debts from going to collections, and make sure you are paying the minimum amount.

But if you’re ready to roll up your sleeves and pay down your debt, and have the funds to do so, choose one bill to make extra payments on. This will allow you to pay off the balance more quickly – then, roll the amount you were paying on that debt into your next debt. This method is called a “rolling payment” and allows you to stick to your budget while paying debts off, fast.

After that, it’s important to manage and build your credit. If you have a credit card, never charge an amount to it that you cannot pay off immediately – preferably the same day. Charging small, frequent purchases to a credit card that are paid off quickly helps you build better credit than making large purchases – or never using the card at all. This can help you build a strong credit score, which banks and lenders use when considering loans for big-ticket items such as a mortgage or car loan.

Be careful to keep your credit under control. Don’t have too many credit cards, as the debt can mount unexpectedly. And, if you’re signing up for a card, check the interest rate – a high rate could mean trouble if you don’t stay on top of payments.

Additional Resources

First Merchants Bank has several resources that can help you gain control of your finances and begin your journey to financial independence. Check out our blog on the different types of savings accounts, to see which one is right for you. Or, use one of our handy debt calculators to help become debt-free.

To learn more about saving money, purchasing a house, or budgeting, you can also visit your local banking center to talk to one of our friendly, experienced bankers.