Are your finances taking a nosedive, and you can’t figure out why?
Surely you didn’t spend on takeout that much, right? Life goes by a lot smoother if you have good financial skills, and contrary to popular belief, you don’t need to be a math wizard to manage your money.
How you spend your money will impact your credit score and the amount of debt you’ll have to carry on your back. And if you’re struggling with money management even though you’re making more than enough to live comfortably, there are some things you should change.
Here are some money management tips you can try that can help you improve your finances.
1. Work out a budget
Nothing feels like a drag more than budgeting. Not only is it a very boring process involving listing out expenses and adding up numbers. But if you’re someone who isn’t good with money, you have to crack your knuckles and get to it.
And that is why you need to create a personal budget to keep yourself in check.
Those few hours you’ll spend each month sorting out a budget plan will make money management much easier. Don’t focus on the process as much as the great result. You will get to feel motivated.
And don’t just create the budget and have it rot away in your files. Keep referring to it throughout the month to see whether the plan you curated is being followed or not. This will serve as a helpful guide to keep you disciplined and in check with your money.
It’s a good idea to update it whenever you make a new expenditure because you will be able to see how much leftover money you can spend and still stay comfortable until the end of the month.
2. Start an emergency fund
You never know when life might hit you – starting an emergency fund is your countermeasure for the worst-case scenario. No matter how much you’re earning, put some money into an emergency fund every month.
It might seem like a drag at first, but your future self will thank you later because an emergency fund is the only thing that will save you when you’re in any financial trouble. And if you keep up saving in this way, eventually, you’ll have excess money that you can use for retirement or even a fun vacation.
3. Recurring monthly bills are a no-no
There’s one thing to be confident and a completely other something to be overconfident. Don’t get caught up in the haze and let it get the better of you – banks will approve you for a credit card or loans even if you can’t afford them.
Even if your income and credit qualify you for one, you don’t necessarily have to take it. This is because even though the bank knows your income and debt obligations on your credit report, it doesn’t know about other expenses you carry besides that.
So you have to be smart about whether you are financially fit enough to pull through on monthly payments of that kind or if it will end up too much of an expense for you.
4. Master your taxes
It’s good to get familiar with income taxes before getting your first paycheck. The minute you have the numbers of your starting salary, start calculating whether it will be enough after you cut off a chunk for taxes.
You have to think about your long-term financial goals too. Income tax calculators are a useful tool to figure out how much money you’ll be left with. Remember to consider the state and city taxes of your area as well. You may even consider marginal tax rates if you leave one job for another due to a salary increase.
And one last thing to remember is to take the time to learn to do your taxes. It may seem like a headache at first, but you’ll be able to derail the expense of paying somebody else to handle your money. There is plenty of tax and money management software online that can help.
5. Pay off debt – early
What’s your main source of financial anxiety? It’s your debt. You should consider paying off your debt as early as possible. Sure, it sounds easier said than done, but there are two methods to becoming debt-free that you can consider.
There are two things you need to know about this method – first, you make minimum payments on all of your debts. And two, you use your extra money to pay off your smallest balance simultaneously. With this method, you’ll first focus on paying off your smallest balances.
This also means that debts with higher interest rates may take longer to pay off, costing you more in the long run.
Debt avalanche method
This is also called the highest-interest-rate method, and what you do is list all your debts based on the highest to lowest interest rates and put your money towards the highest one first.
Once you’ve paid off the bigger danger, the extra funds you accumulate can be used for the next one on the list. Eventually, you’ll notice your additional payments growing as you conquer each debt on your list.
Always keep one thing in mind; you don’t need to be an accounting or math expert to be able to manage your finances. The whole process seems intimidating at first, but it’s all about how you implement tips for money management.
You can always search up different resources and tools like money management books and money management software to make things easier.