Spending money is fun. But all that fun goes away when you find yourself living from paycheck to paycheck—or worse, buried in debt. Managing your finances can be tricky and challenging, but it can be done.
Many people start feeling apprehensive when the topic of money management comes up. This is the time you will realize you do not have an emergency fund set aside, or not enough put up for retirement. Bad habits will also come to light when you start being serious with managing your finances. Are you fond of making purchases on a whim? Are you spending more than what you earn? If you want to have better finances, you should start making changes right now. These essential tips on managing your money will help you have better control of your finances.
Essential Tips on Managing Your Finances This Year
The wealth of information about personal finance online is proof that money management is critical. Personal finance blogs like Money Task Force provide valuable tips and information on various financial topics. If you care about your financial health, you should start taking your money seriously. According to Scott Langdon of Money Task Force, “Once you have secured your financial independence, your future opportunities are nearly limitless.”
- Understand Your Priorities
Before setting your goals and creating a budget, you should take the time to understand your priorities. Understanding your financial priorities lets you align your goals and budget with your decisions and behavior. Analyze what is essential to you right now. For example, if your credit card debt is too high, you should prioritize paying off your outstanding balance.
The key to determining your financial priorities is to look at what needs to be done right now. Urgency matters over preferences. If you have sleepless nights worrying about multiple loan payments, paying off your loans should be number one in your list. It does not mean that you should cease saving for your dream vacation. It merely means that you should focus on things that will give you peace of mind and financial stability.
- Set Achievable Goals
In managing our finances, it is crucial to have a set of goals to guide you in the right direction. However, in our excitement to put our finances back on track, we set goals that are not realistic. Goal setting is an integral part of money management. You must have achievable and actionable goals to manage your money successfully.
If you want to pay off existing loans, for example, it is crucial to make sure that you have enough spending money for your needs and other expenses. Paying off your loan in significant amounts may seem like a good plan. But if you are left short on necessities like utilities and tuition, you will end up getting another loan to get extra cash. Focus on making your goals realistic and attainable to avoid getting disappointed in the end.
- Create a Realistic Budget
A lot of people do not like making or following budgets because of the work it entails. A budget requires you to list down your income and track your expenses. If you are not good with handling money, you need to stick to a budget. If you have difficulty controlling your spending, a budget is an excellent way to develop good personal finance habits. The problem is, many people create unrealistic budgets.
A budget should include funds for your basic needs, payments for existing debt, and money set aside for emergency funds and retirement. Don’t forget to make allowances for your hobbies and extracurricular activities, too. But always remember to keep your priorities in check. Are you one of those who really hate the thought of making a budget? Remember that a monthly budget is the key to more organized and stable finances.
- Monitor Your Spending
Monitoring your spending is a lot of work, but it is essential when you are not good at managing your money. Fortunately, there are many apps that you can install on your smartphone for easier tracking of expenses. These apps even allow you to generate reports every month so that you know whether you are staying within your budget. If you are still going over your budget each month, these expense tracker apps allow you to analyze where you are spending too much. Are you spending a lot of money from eating out? Do you go beyond your allotted monthly budget because of unnecessary purchases like the latest trendy clothes or accessories? You can cut back on certain expenses by generating expense reports each month.
A practical and old-fashioned way of monitoring and staying within your budget is by using the envelope budget system. After creating a budget each month, use envelopes to allot a certain amount for each budget category. For example, an envelope will contain your budget for groceries, while another one may be for your savings. The envelope system requires plenty of discipline because you are not supposed to touch the funds for a specific budget category for another type of expense.
- Pay off Debt
One of the most significant problems in managing personal finance is debt. Not all debt is wrong, but if it is causing you a significant amount of stress, you should start paying off your debt. To pay off debt or multiple debts, you should set aside a specific amount each month for payments. If your mortgage is still manageable, you should continue making payments to your loan or credit card bills regularly. However, if you have several debts to your name, you may want to speak with a credit counselor to help you manage and settle your debt.
Aside from paying off your debt, you should avoid getting new credit as much as possible. Leave all your plastic cash at home, so you are not tempted to use it. Avoid getting payday loans and other high-interest loans to consolidate your multiple debts. If you must refinance your existing loans, seek the help of a reputable loan provider who can offer you a low-interest loan consolidation program.
- Create an Emergency Fund
Ideally, you should set aside an emergency fund amount that is at least three to six months’ worth of your expenses. The primary purpose and benefit of an emergency fund is to have readily available liquid funds. You will never know when you will get sick, injured or lose your job, and with emergency cash set aside, you will have sufficient funds to last you for a few months. Nobody wants to experience an emergency, but life happens no matter how carefully we plan our finances.
An emergency fund helps you and your family feel prepared and secured. Having a financial cushion relieves the stress that comes with most emergencies. One way to start saving up for your emergency fund is by setting aside a certain amount each month towards it. You can also set aside your yearly bonus or your part-time gig salary for your emergency fund.
- Put Your Money to Work
Instead of only saving a certain amount each month, why not set aside some money for investments? No, we’re not talking about get-rich-quick schemes. There are several ways to invest your hard-earned money and gain profit through the process. You can start investing in stocks, bonds, real estate, and more. Investing while you are still young gives you more time to build your wealth. The funds that you invest can grow into a sizable amount through compounded interest. When you start saving and investing early, this allows you to secure your retirement fund and other financial goals.
- Take Advantage of Technology
Technology has brought about different innovations, including programs that can help you manage your finances wisely. You can take advantage of modern apps and plans to make budgeting more comfortable and more convenient.
- Aside from expense tracking apps, you can use an app that reminds you to save money.
- If you need help in creating a budget, there are programs and software that allow you to easily customize a monthly budget.
- Install cost-splitting apps so that you can easily split the bill when dining out with other people.
- If you have a working knowledge of cryptocurrencies, you can start investing by using a platform designed for trading Bitcoin and other digital coins.
- Install an app to remind you about upcoming bills.
- Settle Bills before the Due Date
If you pay past your due date, you will likely be charged a fee for the late payment. By paying your bills and loans before the due date, you avoid spending on new payment charges. Your budget should include the bills that you need to pay each month and make it a habit to pay before the deadline.
Are your finances in good shape? Do you have enough set aside for emergencies? Do you have several loans that drain your wallet every month? Proper handling of funds entails plenty of work and discipline. It requires planning, following a monthly budget, and monitoring your expenses. It may not be simple to do, but it is not impossible. By adopting good financial habits, you will become better at managing your money.