As the saying goes, money is a tool. Used properly, it makes something beautiful – used wrong, it makes a mess. If you don’t want to make an absolute mess out of your financial life, learn financial management techniques ASAP.
Make Money Is Not Enough: How to Manage Finances In the Right Way
Despite all the 180 ways to earn money you’ve heard about, nobody told how to manage money. You can learn about it using this simple visual aid.
11 Key Aspects of Personal Financial Management
#1 Define Your Financial Goal
In order not to spend irresponsibly, you have to have definite money aspirations. It can either be a sum of money enough for a summer vacation or a safety net enough to have a cushioned retirement.
If you’re not sure what your financial goals are. Here are the first 3 you can start off.
- Short-term (a small amount of money to get you closer to bigger goals);
- Mid-term ( an intermediate phase between short and long term money goals);
- Long-term ( usually saving enough for retirement).
To gain financial security you have to go through all the three steps above. A financial goal has to have a frame for you to start investing in it. It’s also advisable to own individual accounts for all goals.
#2 Build the Budget
To meet the financial goals you have set, you need structure and discipline. Budgeting is the perfect way to grant those aspects.
A personal budget planner can be different – from an old-school one in an actual notebook to a more technological one in the smartphone. There you can specify various items of your financial condition: for example, that you have loan money to relocate.
Just listing all of our expenses seems easy, but you have to behave rationally money-wise.
To keep a budgeting promise to yourself, you have to:
- Set your priorities straight;
- Make budget cuts;
- Use special finance software;
- Create a budget buffer;
- Check the progress.
#3 Making Expenses Smaller
This point deserves a separate section in the money-management plan.
You may not be able to just cut yourself off from the “usual luxuries” you had, but you can manage to cut a little from every expenditure section you have monthly.
Buy in a bundle. Create a list of necessary items to avoid making irrational purchases. If possible sell some of your possessions to make extra money.
Great ways to save are also the following:
- Don’t pay interest on your credit cards;
- Make full use of coupons and loyalty programs;
- Use cash for buying things.
Interesting fact: 43% of spending on food is from take-out and restaurants. This is one big expenditure item that you can cut. Cook yourself and save money.
#4 Get Rid of the Debt
Ever heard of Sisyphean labor? This is what debt really is. In order to get rid of the debt once and for all, you need a plan as well.
The debt snowball method can help with the task. The method implies paying off the debt balance from the smallest to the largest sum of money. This method doesn’t take interest rates into account.
Sometimes a new loan can help consolidate debt and pay it off altogether. You can learn more about cash advance loans online to help you out. Note that even if you have bad credit which sometimes worsens your whole financial status, you can better your credit by paying off a loan in a timely way.
Also, make sure you do the following:
- Cut expenditure items;
- Sell unnecessary things you own;
- Use cash not credit cards;
- Create a debt repayment plan;
- Prevent yourself from getting late fees on debt payments.
#5 Set Up An Emergency Fund
Emergencies can be crucial for even the most perfect budget. You never know what can happen, when it’s going to happen, and how much it’s going to cost.
The best way to be ready for an emergency is to make a safety monetary net. A reasonable amount of money that will protect your budget from getting holes is a 6 months-worth of your monthly income. Move towards that sum as quickly as you can.
#6 Understand What Your Credit Score Is
Depending on what credit score you have, you can count on definite lucrative possibilities (e.g. bigger loans with smaller interest rates).
What you should do:
- Check your credit score;
- Make an optimization of your credit ratio;
- Pay the bills in a regular way;
#7 Purchase Insurance
Insurance has the same unexpected nature as emergencies. However, you can also outsmart the system and prepare yourself by purchasing insurance. In addition to covering medical bills, insurance also helps to save on taxes.
Note that health insurance costs make almost 70% of the cost of medical bills. So it is a reasonable expenditure item.
Choose the insurance plan rationally and compare the plans before purchasing one.
#8 Prepare for Retirement Early
If you have a steady income it’s your duty to set up a retirement fund. The three key aspects of strategic retirement planning are – identifying the sources of income, calculating the expenses, and controlling the risks.
You must set saving goals here as well. Define how much you need and how much you can put aside monthly.
#9 Learn About Strategic Investment
Investing money doesn’t mean just taking money away from the budget. It is giving your money the opportunity to grow. Making an investment plan is researching investment opportunities and investing money in various sources.
#10 Make Personal Finance Automatic
Automating personal finance means using modern software to use the full potential of budgeting, saving, and investment. Invest-plus is a popular choice among users. It does advanced calculating and analyzing. It allows users to utilize advanced software for personal finance management and it’s completely free.
Automations of saving, investment, expenses calculating, bill payments and debt repayment makes personal finance management a lot easier.
#11 Save More
Your top priority should be to figure out the sum of money you want to save. You may think of how to use it later.
When you have a sum of money in mind, it will be easier to come up with ways to put money aside to meet the monetary goal. So, when you start budgeting after reading this article, you should definitely put it into the list to save a definite sum of money every month.
Finance skills are by far the most essential skills to be learned by everyone who wants to gain financial independence. If you have no idea where to start, don’t worry about it! There are many great resources online, such as MNYMSTRS financial literacy for beginners which would be a perfect place to learn new financial strategies.
By following the 11 steps above you will understand that it’s not an impossible task. Just use every tool that you have at your disposal, set up financial goals, and work hard to meet them.