Money. Are you one of those who can never seem to have enough, and no matter how much you earn, you don’t seem to be able to save? We hear from you. It seems increasingly hard for many of us to put money aside or take care of our money properly. So many of us run out of money before the end of each month and have little to show for it. So what are we doing wrong?
Below are some tips from experts in the field of personal finance that can help you organize your money today whilst saving for tomorrow. These are the essentials of financial management.
How To Budget
The first step in proper money management is to learn how to budget. Many of us put together a loose budget and tell ourselves something like, “I’ll only spend $300 this month.” How often do you stick to that budget? The problem is we are not detailed enough with these budgets. Kyle from Money At 30 told us, “budgets need to be meticulous, down to the final cent. Only then will you be aware of where your money is going and why.” Let’s discuss what he means.
Firstly, note down your monthly income and any savings you have. Don’t worry if your savings figure is a big fat $0, we’ve all been there. Secondly, write down your regular outgoings, including any debt repayments. Now you have a figure leftover for disposable income. Now it is up to you to carefully budget where you want that spare money to go. Do you want to spend $40 a week on groceries, $40 on eating out, and $25 on gas? Maybe you want to put $50 away each month towards a holiday fund.
Whatever it is, budget down to your very last dollar. Then, use an app to track your spending through the month. Regularly check back against your budget to see how you’re getting on and adjust accordingly. This sounds like a lot of effort, but you will soon settle into this way of managing your money and see results quickly.
Runway
The financial runway is a concept we recently learned of. This is the idea that you have a certain amount of money set aside for any of life’s problems. Ideally, you would save up around 3-6 months of money to cover the mortgage, bills, and regular outgoings. This way, if you happened to lose your job, get hurt, or have an issue with your home, you’ll have the money there to cover it, without needing to borrow anything. This short-term saving can just be within your bank account and does not need to be invested anywhere – just have the cash ready to go in case of an emergency.
Paying Off Loans
Many of us have loans, credit card debts, and store credit to pay off. It seems easy at first, but if you overspend and get caught with high interest, the bills can add up. One method proven to help with paying down debts is the snowball method. This method says that you should first focus on your smallest debt. Say it’s a store card with a low limit. Paying that one off first gives you a win both financially and mentally.
You see one debt disappear, giving you the motivation to move onto the next smallest debt. Before you know it, you only have one debt left to pay off and only that one bill to focus on. Many have said this method helped them out of financial distress.
What To Invest In
It’s easier than ever to invest these days. Stocks, shares, ISAs, and more are all available at the click of a button on an app or website. But how do you know what’s smart to invest in? Trading stocks or currency for short term gains is risky, and we only recommend that to properly knowledgeable finance professionals. However, investing in a global shares index for the long term is highly recommended for anyone.
It’s important to think of this as a long-term savings plan, not a quick fix. But, paying in just a small amount each week or month over a long time will bring you huge gains – on average 10% per year since their inception! Many finance experts recommend this as the best form of long-term saving.
With these few expert tips, you can start to work your way to financial freedom and security. None of them require much effort, and within a few years, you could see your financial situation completely flipped on its head. Good luck on your journey and learning of financial management.
