Being financially secure does not mean you need to be a financial expert or possess a large investment portfolio. However, it is essential you understand the fundamentals of financial planning so you can organise your finances and identify ways of managing your personal finances.
There are lots of reasons way saving money is a good idea, including financial independence, being better prepared for unexpected expenses, having the money for those life changing moments like getting married or having a baby, having a backup if you lose your job, saving for a comfortable retirement, and many more.
By embracing these six money management habits, you can get your finances in order.
Organise your finances
This might sound like clichéd advice but trust me – it works wonders. Having a breakdown of your monthly finances and organising each according to its purpose can be invaluable. Organise bills, allowances, and vehicle maintenance to reduce the risk of indulging in unnecessary expenses.
Being organised helps you get full transparency of your financial situation helping you manage your finances. When you organise your finances, you are taking the first step towards preparing for the unexpected and saving for your future. This will put your finances in order and provide you with peace of mind.
Track your spending
Do not take on debt when you do not need to, even if your income and credit says you can afford it. Many people mistakenly believe that if they request a loan that they can't afford, the bank will instantly deny them. The truth is the bank only knows your stated income and the debt obligations on your credit report.
It does not know about any other obligations that would preclude you from making payments on time. It ultimately depends on you if a monthly payment is affordable based on your monthly income and other commitments.
Nevertheless, when you need money, make sure you research what type of loan you will take first. Trusted websites like CreditNinja.com can help you with your application.
Save up for big purchases
Being prepared to postpone a big purchase until you can afford it will go a long way towards improving your financial situation. Rather than sacrificing more critical necessities or placing a large transaction on a credit card, deferring large transactions gives you more time to consider whether the purchase is worthwhile and more time to compare costs.
By saving up first, you also avoid paying interest for credit card purchases. You also avoid the sizeable penalties that will apply if you can't make a credit card payment on time.
Putting money into a savings account every month helps you develop good financial habits. You can set up automatic transfers of a percentage of your salary each month into your savings account from your everyday account. It's simple to set up and you won't have to remember to do it each month. If the money is transferred straight after payday, hopefully you won't even miss it.
Setting up an automatic transfer makes it easy for individuals who are keen to establish a healthy saving habit to take control of their savings.
Spend your extra income wisely
Put any unexpected income to good use. It may come in the form of an inheritance, work bonus, or a tax refund. Just because it is unexpected, it doesn't mean you should instantly 'splash the cash' and add a fancy new Birkin bag to your Hermes collection.
Putting the money to good use means, paying off your debt. You'd be better off using those funds to pay off your loans or credit card balance rather than simply putting them in a savings account. If you're already debt-free, put the extra money towards your emergency fund. It will come in handy in case of emergency.
Separate your wants from needs
When money is tight, it should not be spent unless it's absolutely necessary. Ask yourself:
- Do I really need it?
- Is it essential?
- How often will I use it?
- After buying it, will I still have funds to last the until my next payday?
Once you have the answers to these questions, you will be in a better position to decide whether or not to buy it.
We often confuse wants with needs, so we end up overspending diverting allocated budget to unnecessary extras. Distinguishing the difference between the two makes a huge difference and can have a powerful impact on your finances.
To sum up
Every financial guru started out just like you and me. What makes them an expert is that they continue learning and educating themselves about money management, turning a passion into a career.
Managing your money properly will make your life much easier and will reduce your financial stress levels. Being well-organised will also save you time and will avoid potential financial headaches.
So, get out there and start planning your personal financial strategy to better control your finances. Many people have done it already and you can do it too.
Copyright 2021. Featured post made possible by Sally Trase of Start Grid/Searchtides.