Most people talk about earning more money, however, not many people talk about how to effectively manage it. While creating wealth is essential, it is equally important to protect your funds and use them prudently. Your hard-earned money needs to be saved, invested, and spent judiciously in a systematic manner in order to ensure long-term stability and liquidity. This can be done through effective money management.
An important aspect of money management is keeping a track of your expenses and reviewing them periodically. This helps you stay in control of your finances. It helps identify and reduce unnecessary expenses and spend on things that are necessary.
Make Clear and Realistic Budgets
For anyone wanting to improve their financial situation, keeping track of how much you are spending and what that spending is going on is absolutely vital. Try downloading a money management app to see if there are any areas you could cut down your spending on, and how much of your money is going on luxuries you could cut back on. From there, you can work out a plan to improve your finances for good and start to build those savings up.
Take a good look at your regular spending habits compared to your pay, to work out a budget that will work for you. Try not to set unrealistic goals, instead make small changes that are sustainable over the long term and can start to make a real difference to your money. You can always make more changes as you go, so don’t start off with overwhelming changes that will make you scrap your whole money-saving plan.
A budget should be there to motivate you into better habits like cooking at home more regularly and spending less on nights out, so make your goals achievable and realistic.
Try to cut back on any recurring charges. Take a look through all of your regular subscriptions and work out if there are any hanging on that you don’t make good use of. Haven’t logged onto Netflix in 2 months? You probably don’t need to be spending money on it every month. Try to keep track of all your subscriptions so that you can identify which ones you are no longer using and change or unsubscribe.
1. Save First And Spend Later
From fig 1.1 you can see how Mr. X did unnecessary expenses such as going out on parties, eating at a restaurant and watching a movie in a theatre, which cost him loads of money. Instead, you should save that money by reducing these extra expenses and put to good use. Also, pay your bills on time to avoid late fees or penalty charges.
Save your hard-earned money when you can to spend it later where you can enjoy your life more.
2. Create a Comprehensive Budget
Many people ignore doing budget as they think it is time-consuming and tedious. If Mr. X had spent some time to budget his spending, he would have saved more than 15%. You have to spend only a few hours of your life to track your monthly budget. Instead of focusing on the process of creating a budget, you should focus more on the value it will bring to your life.
Cut off unnecessary expenses like going to parties weekly or going out to eat, instead reduce your outings. This will not only benefit you financially but your health also.
3. Limit Your Credit Card Purchase
Credit cards are your worst enemy if you are a lousy spender. When you run out of cash, you immediately switch to your credit cards without even considering whether you can afford to pay the debts. You can resist the urge to use credit cards by cutting off unnecessary purchases. Stop purchasing items that you can’t afford, especially those that you don’t need.
4. Set Your Goals
Firstly, set a goal that you want to achieve, it can be anything from going on a Europe trip to providing your child with top-class education. Pen it down and start planning towards achieving your goals.
You can make a habit of setting aside some money each month and pay it to yourself as if it is another bill.
5. Start Investing
From fig 1.1, if Mr. X would have reduced his unnecessary expenses such as going out on parties (from 15% to 5%), eating at a restaurant (from 10% to 3%) and watching a movie in a theatre (from 5% to 2%), he could have saved 35% of his monthly salary i.e., Rs 35,000.
Don’t be like Mr. X; use these money management tips to reduce your extra expenses and increase your savings. Save 35 – 40% of your monthly salary and use it to invest in your and family’s future goals. Investments can also help you save tax and increase cash in hand for more investment and a better lifestyle.
6. Put in the Time and Effort to Build up your Savings
Put together an emergency fund for those unexpected payments that come up in life from time to time. Even if you are contributing small amounts, doing so regularly can build up faster than you expect, and saves you from having to take out expensive loans or missing important payments like rent or bills.
Making contributions to a general savings account can also be a great way to improve your financial security and save for those big life moments, as well as extra money prepared for any unfortunate or unexpected events like unemployment or illness.
Some big purchases like houses or cars can be most easily achieved through the help of loans. However, for some other big purchases, the best option might be to buy in full, in cash. When you buy something outright rather than taking a loan, you avoid generating interest and getting yourself into debt which can hang over your head for years. Instead, save money in an account and only make big purchases when you know you can already afford to.
Even if you don’t currently have a big budget for investing, small, regular contributions to your savings and investment accounts can help you to generate even more income.
Strategies like an employer matching 401(k) can be so valuable, as they are basically donating your money for nothing.
7. Be Consistent in Paying off your Bills and Debts
Keeping a track of your bills and ensuring you pay them on time every month can be an easy way to keep your money under control. Doing so can help you to prioritize bills and essential spending, as well as help you avoid unnecessary late fees. Good credit card management, as well as regularly paying your bills on time and in full can also improve your credit score, improving potential interest rates.
One of the most important things to do if you are trying to effectively manage your money is to pay off your debts as soon as you’re able to. Start with those loans that have the highest interest rates like credit cards or store cards, then work your way down the list of debts until you are back on track. However, don’t forget to pay the minimum monthly premiums for any cards or regular payments you may be obligated to.
Managing your money effectively is so important. Make sure you have a fund ready for emergencies and pay all of your bills and debts on time and in full to improve your credit score. Keep track of your spending and set achievable goals to help to better manage your finances.