For many people, managing their personal finances can be a massive headache. It tends to be worse when you have a lot of debt and insufficient money coming in, but anyone who struggles to make sense of a bank statement or has no clue what bills they pay each month can easily end up in trouble.
It’s important to have a good grasp of your financial situation. This will help ensure you don’t end up in debt that could have been avoided and that you are maximizing your savings. If you need some help, here are a few useful tips.
1- Create a Budget
Everyone can benefit from having a budget. A sensible budget will stop you from spending more than you earn and prevent you from falling into debt. No matter how high or low your income is, a budget is a fundamental tool in managing your money.
There are various tools available online, such as this one. Choose one that you can use or stick to pen and paper or a spreadsheet. The advantage of using an online tool is that it can be updated while you are on the go, but any budget tool will do as a starting point.
Itemize your income and outgoings, so you know exactly what you are working with. Include all regular and non-regular expenses and income sources. Once you have done this, you should be able to see how much income you have spare at the end of the month (if any).
2 – Reduce Spending
With a budget in place, it’s time to look at areas where you can save money. Most people have payments going out that they are unaware of. It’s easy to fall into the trap of signing up for a service and then promptly forgetting about it. The money goes out each month and you are none the wiser.
Go over your outgoings with a fine-tooth comb. If there are any you can eliminate, cancel them. Look at other areas where you can save money, such as on your grocery bill. There are lots of discounts and coupons available to help shoppers make savings. These help you save on everything from clothes to health supplements and are well worth searching for. Why pay more than you need to?
3 – Minimize Debt
Make getting rid of debt a priority. Look at ways to cut the cost of your debt, such as moving a balance from a high-interest credit card to a low-interest personal loan. If you have some free money left over each month, use it to pay down your debt instead of blowing it on things you don’t need.
4 – Build Your Savings
Having a savings account is important. Savings act as a safety net when life goes wrong. For example, if your car breaks down, you can dip into your savings to cover the repairs. Or if you lose your job unexpectedly, savings will cover the bills until you find a new one.
Once you have reduced your debt, focus on building a healthy savings account. Ideally, have enough saved to cover at least six months of outgoings. Kudos if you can save up more than this.
5 – Plan for the Future
Don’t assume the future is decades away and therefore you don’t need to worry about it now. Retirement plans and college saving funds are best put in place as early as possible. If you start saving regularly from a young age, whether for your retirement or your kids’ college fund, compound interest will make your money work a lot harder and your savings will grow faster.
Once you gain a better understanding of how personal finance works, you will be in a much stronger position to weather life’s storms.
Contributing Author Bio
Jessica Peters is a freelance writer from Melbourne who blogs about health and fitness. Jessica is an avid traveler and regularly crosses the globe to learn about other cultures while blogging from her laptop.