How To Manage Your Finances
Bad finance management is more common than we are willing to admit. You ever wonder why some people always complain of not having enough to spend even though they are earning a good income? This is mostly due to the bad management of their finances.
A person who does not manage their finances properly is likely always going to be in debt, which often leads to all kinds of stress and mental health problems like depression.
If you find yourself in this group, not to worry, there is still hope.
There several strategies (tried-and-tested) that you can use to manage your finances the right way.
Let’s get to it and manage these finances
If you are trying to get your financial life in order, having an effective finance management plan can be the light at the end of the tunnel. Many people have multiple bank accounts, debit and credit cards, mobile money apps, and the like, which could make it difficult for them to have a clear view of the state of their financial state. Without proper management, they expose themselves to financial stress.
Like most things, managing your finances takes some learning and getting used to. And to become a master at it, you need to be committed and have a solid understanding of your finances.
Everyone who has struggled with bad financial management and came out even better used the following tips.
1. Always make a budget
This remains one of the easiest and most effective ways to manage your finances. If you practice impulse shopping and purchase things without planning, you may run into financial problems. A budget lets you identify the things are important. In other words, a budget lets you prioritise your spending.
Most people struggle with sticking to a budget, and soon find themselves overspending again. Not to worry, with time, you will become a master of spending and budgeting. Not only will you be able to keep track of your spending, but you will also be able to achieve full transparency of your financial state, which is an important factor in finance management.
2. Understand your expenses and list your goals
Research shows that most people do not understand how they spend their money. They earn to spend without any plan, so if you asked the average person to give an account of their expenses every month, they may not be able to do so. This is more common than we are willing to admit.
This is a major problem for most people; as they are likely to believe that their income is not enough or they have too many bills to service. While this may be true for some people, it is not always the case. However, there is a solution. In the coming month, keep track of all your expenses. You can achieve this by keep receipts of utilities, grocery shopping, restaurant bills, etc. The next step is to add up these expenses (including cash payments) then take a look at your bank statement.
This process will allow you to have a clear understanding of your finances and help you manage it better. You will also be able to measure your performance in comparison to previous months.
List your financial goals
You are less likely to manage your finances properly without a financial plan than with one. By outlining your financial goals, you are more than a step closer to having a better grip of your financial life. Take time out to write specific goals, and these should include short-term and long-term goals.
Maybe you want to buy a new car or you want to take a lengthy trip to Asia or America or invest in property. These are goals that you must factor in when planning your finances. For example, an early retirement depends on how well you can save money before then. Other goals including getting married or starting a family, home ownership, a career change, are all influenced by how well you can manage your finances.
After outlining your financial goals, your next line of action should be to prioritise them. This allows you to focus on the goals that are most important to you. When prioritising your goals, order them based on urgency. However, long-term goals like retirement need to be work towards while achieving other goals.
3. Understand your income an create a plan
Most people may not be willing to reveal their monthly income when asked, but it is something that they know internally, even to every dime. But, one may wonder why it is so difficult to track expenses or fully understand it.
The idea is to calculate your monthly expenses and subtract it from your monthly income. If after doing the math you end up with a negative figure, this means that your expenses exceed your income. What can you do about it? Reduce your spending until it evens out. You can take it a step further by increasing your savings as months go by.
Create a detailed plan
A financial plan is your path to achieving your financial goals. A detailed plan must include multiple milestones. A simple financial plan includes a monthly budget and spending plan, and debt repayment.
If you can stick to your plan for the next month and you discover you have some extra money, use that to achieve the next financial goals.
Again, it is important to determine which goals are more important to you. While continuing to work towards your long-term goals, also focus on important urgent goals that you have set.
Keep these in mind when creating a financial plan:
- Regardless of your current financial goal, you must continue to contribute to your long-term goals.
- Set aside a fund for emergencies. This is a key strategy for reducing financial stress.
4. Consolidate your debt
Everyone hates to be in debt, but for one reason or the other, many find themselves in various degrees of debt. Most people who need help with their finances have debt problems. Several reports have pointed out that a substantial number of income earners are jumping from one debt to another or servicing multiple debts at the same time. The first thing to do is to have it under control and begin to work to get rid of it. Payday loans, credit card debts, and other debts should be consolidated, but look for the lowest interest rate that you can get.
It all comes down to having solid control over your finances. If you have multiple debts, consolidating your debts allows you to pay them off as one, and not individually which can leave you feeling overwhelmed. If you have a single debt, then consider creating a payment plan that will allow you to pay the minimum amount off, and if you can increase your income you should consider increasing the payment. Keep this payment cycle up until you can pay off your debt fully.
5. Stop unnecessary expenses
Many people prefer to eat out at expensive restaurants all the time even though their earnings can’t accommodate such spending. Some of these unnecessary spending’s may look intangible but when you add up, you may discover that they are eating deep into your income. Having a DIY approach to most things is a sure way to reduce unnecessary spending. Most people can’t believe how much they spend on Starbucks yearly, and this is because they only get to think of this sort of expenses looking at how much a cup of Starbucks costs, which is about £3. When you do the math for a yearly consumption then it’s no longer such a small amount.
The same goes most other things such as gym membership. You should consider doing your exercise at home. What is the point in paying for a gym membership you are hardly going to use?
Still struggling – seek financial advice
Now that you have grown your savings and you are considering multiplying your wealth by investing, you need to speak to a financial adviser to help you invest wisely. A great financial adviser will share the rewards and risks involved in the investment options you have laid out before you. This will help you choose the best option that suits your investment return needs and comfort level. Another reason you need a financial planner is to help to create your budget.
There are other avenues of getting financial advice, such as:
- Talk to a mentor. This could be anyone at your office or someone who you have a friendly relationship with and is business savvy. This individual can help you create a budget or give you advice on business opportunities.
- You can join an online finance related community where you will meet and network with experienced investors and people like yourself who have also gotten help from members of the community. You will be surprised by how much help you can get from these forums.
- Attend finance-related workshops and seminars where you will learn about topics ranging from personal finance to investing.
- If you know a member of your family good with money, talk to them and ask for help. Ask for financial tips that have worked for them and the things they did differently when they were in a similar situation.
Managing your finances can be tough at first because it requires discipline and commitment, but it will soon become second nature and you will begin to scrutinise every penny you spend. If you have future projects and long-term goals, you need to take your finances seriously if you want to achieve them.