Personal finance is something everyone must have a good understanding of to reach financial goals, be able to manage financial emergencies and to make ends meet on a daily basis. Since it’s not something that’s taught in school much, many people don’t have a solid understanding of how personal finances work. 

Here we’ve outlined the top do’s and don’ts of personal finance so you can best prepare yourself financially for today and the future. 

Do Create a Budget 

We know most people hate budgets, but they are actually very helpful. A budget is like a map for your money. You wouldn’t travel out of your area without a map, right? The same is true of your money. It needs someone to tell it where to go. When you budget, you tell your money where to go and how it must be used. 

It also tells you how much money you have to play with each month and where you might need to cut back if you’re overspending. 

Don’t Make your Budget Restrictive 

A big reason why many people hate budgets is because they make them so restrictive. It’s like when you go on a restricted calorie diet, knowing you’re restricted just makes you want to eat more, right? 

The same is true of a restrictive budget. If you restrict your spending too much, you’ll just rebel and buy things that aren’t in your budget. 

Instead, try using the 50/30/20 method. 50% of your income should cover your required or fixed expenses/bills; 30% of your income should be for ‘fun’ or unnecessary spending, and 20% should be for debt payoff and savings. 

Do Track your Spending 

It’s impossible to budget and stick to your financial goals if you don’t track your spending. It doesn’t have to be anything complicated or difficult. You can track your spending with pen and paper if you think you’ll write everything down or you can set up an app that syncs to your bank account and tracks your spending in real-time. 

Don’t Give up Budgeting if you Overspend 

Budgets aren’t set in stone and mistakes happen. If you overspend one month it doesn’t mean you’re terrible at budgeting and should give it up. Instead, figure out why you overspent and then adjust your budget accordingly. 

For example, if you find that you spend too much eating out each month, find a time that you can cut back slowly. Maybe you bring a brown bag lunch to work, or you ask your friends if you can meet at one another’s homes rather than at a restaurant. Small changes lead to big rewards, so cut yourself some slack and keep budgeting. 

Do Make Sure you have an Emergency Fund 

Everyone needs an emergency fund with at least 3 to 6 months of expenses in it. This fund should cover you if you suddenly become unable to work or you lose your job. You’ll have the money to cover your expenses while you figure out your next step. 

Don’t Keep your Emergency Fund at the Same Bank as your Checking Account 

It’s best to keep your emergency fund at a different bank, or even an online bank that you can’t easily access. 

Here’s why. 

If your emergency funds are kept with your checking account or even at the same bank, you have easy access to the funds. The lines between what defines an emergency and what doesn’t can easily become blurred, causing you to spend your emergency fund on non-emergency things. 

Do Check your Credit Annually 

During the pandemic (and still now), you can get free weekly access to your credit reports at While it’s not necessary to check your reports weekly unless you think you were a victim of fraud or there are errors on your report, you SHOULD check them annually. 

Checking your credit report ensures all information on it is fair and accurate. It also gives you a chance to figure out what credit habits you might need to change. For example, if you’re constantly going over your credit limit or paying bills late, you’ll need to make some new habits to improve your credit score. 

Don’t Apply for Credit all the Time 

If you have good credit (and sometimes even if you don’t), you’ll get a lot of offers in the mail for ‘great credit cards’ or ‘rock bottom APR loans.’ Just because the literature says you pre-qualify or that the rate can’t be beat, don’t fall for it. 

Applying for credit all the time is bad for your credit score. It lowers your credit’s average age if you take the new loans, it increases your total debt amount, and it puts you at risk of ruining your credit if you can’t pay your bills. 

Instead, only apply for credit when you absolutely need it and before you do, shop around to find the best deal. 

Do Have a Method for Impulse Buys 

We’re all guilty of buying items that weren’t on our list, but if you create a plan for impulse buying, you’ll be in better hands. 

Try the 48-hour rule. If you see something you ‘want’ but isn’t on your list, give it 48 hours. If after that time you’re still thinking about the item, then figure out how to budget for it. But, if you’re like most people, you’ll forget about the item and will have saved yourself money on something you didn’t even need. 

Don’t Restrict your Budget so you don’t have Room for Fun Buys 

Make sure your budget isn’t so restrictive that you don’t have breathing room. You need room to spend on eating out, entertainment, and the occasional impulse buy. This doesn’t mean impulse buys are okay but having some freedom within your budget will make you more likely to stick to it. 

Do Make Room for Investing 

You should invest for short-term and long-term goals. Short-term goals can be saving money for a down payment on a house, buying a car, or paying for college. Longer term goals are usually about retirement. 

When you’re saving for shorter-term goals, you want conservative investments that will grow but not risk your money so much that you don’t have a chance of recouping any losses. If you’re saving for retirement, you can save in a tax-advantaged account, such as a 401K or IRA so that you get tax breaks for your contributions and your funds grow tax-free. 

Don’t Invest Without Knowing what you’re Doing 

Today it’s easier than ever to invest using your phone or computer, but unless you know what’ you’re risking, don’t take a chance. 

Educate yourself as much as possible about investing, risk tolerance, and timelines. Know what you’re getting yourself into and what the worst-case scenario might be. Pay attention to timelines, interest rates, and investment minimums. 

You can use apps or go online to invest, but the more informed you are when you do, the better the situation will end up. 

Do Use Credit Cards Wisely  

Credit cards aren’t as evil as most people make them out to be. When you use them right, they can be a great personal finance tool. For example, rewards credit cards pay you for using your credit card. If you pay the balance off in full each month and earn rewards, you come out ahead, getting paid to shop. 

Credit cards can also be a great way for you to build credit if you make your payments on time and keep your credit utilization rate down (the amount charged versus your total credit line). Good credit habits lead to good credit scores. 

Don’t Use Credit Cards as an Extension of your Income 

Too many people assume credit card lines are there to be spent. 

They aren’t. 

If you have an unused credit line, it actually helps your credit score the most. But the credit lines aren’t meant to help you buy what you can’t afford. You should only charge what you know you can afford to pay off in full before the credit card’s due date. 

Key Takeaway 

Understanding how to handle your personal finances is the key to financial peace. Understand how credit works, how to budget, when and how to invest, and how to tell when you need to cut back. With proper personal finance habits, you’ll reach your financial goals and achieve financial peace as you head toward retirement. 

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