How you spend your money impacts your life in more than one way, including the amount of debt you have, which will, in one way or another, affect your general lifestyle.
Money management, is, however, just more than debt management, but it also involves many other elements.
In the article below, we shall look at some of the essential tips for managing your finances.
Have a Budget
The first thing you need to do is creating a budget if you haven’t already.
Is it necessary? It is, trust me.
While many individuals think crunching the budget numbers is a tedious process, it’s a necessary financial measure.
The primary role of budgeting is that it helps us have clarity and transparency of our current financial situation, which is crucial for the management of your money.
The right budget will, for a start, help us in paying debts and start saving for the future. More importantly, it brings balance to our lives and will give you the much-needed peace of mind.
Understand your Expenses
Now, if someone asks you off the top of your head to tell you the exact amount they spend monthly, they wouldn’t, and it’s not quite rare.
Understandably, few people know the total expenses they generate monthly, but interestingly, there’s an easy solution for the problem.
You simply need to take all your receipts, including groceries and utilities, and then look at your bank statement, before adding up all of your expenses.
You also have to remember tracking the expenses you paid using cash as well as credit cards.
The idea here is to account for all your expenses, and this lets you have a picture of how you henceforth manage your expenses.
While at it, you would also consider comparing your historical performance over time.
Understand your Income
The next step is reviewing your income.
While you might have an idea of your gross income, something you might not be aware of is your net income.
How much do you remain with after subtracting all your expenses?
For instance, if you end up with a negative number, it shows that you spent more than you made. Actions to take here include reducing your expenses, or increasing income.
If you end up with a positive number, that’s a good sign since it shows you spent less on expenses. Actions to take here include increasing your savings or even debt payments.
Generally, once you understand the difference between your income and saving, you’ll be in a better position of understanding the money coming in and out of your life.
Consolidate your Debt
We all dread debt, but at times, debts are unavoidable. If anything, more than 80% of Americans are indebted.
In most cases, individuals that require help with their finances need to get out of debt.
Now, the first thing you need to do with debt is trying as much as possible to get rid of it.
Another great option is consolidating the debts.
If you’ve a student loan, startup business loans, credit card debts and other debts, you can merge them into a single loan, and try to get the lowest interest rate possible.
Debt consolidation is all about taking the proper steps for the management of your finances.
Now, if you’ve a single debt and on a tight budget, you can try to pay at least the minimum amount once you get the credit card bill, and if your finances permit, make a few payments later.
In essence, you should always try to keep the debt repayment cycle going until you clear all your debt.
The Earlier you Save the Better
Saving is probably something we know about, but it’s essence come into reality when you witness the power compounding.
According to Warren Buffet, the biggest money mistake is failing to save.
Savings are probably the most powerful assets you have while you’re young.
Create an Emergency Fund
Emergencies do happen, and you need to be prepared for such eventualities.
Emergency funding is a crucial part of a healthy personal finance plan.
Normally, you don’t touch that money, and let it sit there earning interests.
If you lose your job, or when an unfortunate expense arises, it’s when you tap on your loan.