The way you manage, spend and invest your money can have a great impact on your life; yet, not too many schools teach these important skills. Learning to be very financially savvy can take some time; the basics are very simple and the same.
You learnt some basic mathematics while you were growing up, but a lot of people have turned adults without ever learning the basic skills of money management. Many are still unaware of basic skills like budget making, investing for their future, and how to stop buying things on impulse.
The Golden Rules
Managing your finances all come down to paperwork and numbers. If you earn X amount, and spend Y amount, making sure Y amount is not more X amount is the key to making sure your finances are well managed.
However, how you manage your finances are mostly about psychology, habits and the values you choose to live by. Put differently, your mindset matters a lot as much as the math. The budgets would amount to nothing without a proper financial literacy.
The following tips would help you in no small ways.
- Spend less money than you earn: Many people are entangled in this mess. There are people who spend more than they earn monthly. If you earn $30,000 per year, and spend $40,000 per year, you will find yourself in a circle of debt and it may take a long time for you to come out of it. If you end up spending exactly the amount you earn in a year, it is clear that when emergencies come, you will be overwhelmed. The only solution for freedom is to spend less money than you earn. No one deals with unforeseen situations by spending more than they earn.
- Plan for the future: Planning for the future does not necessarily mean retirement. If you are offered to pay for a new car for 2 years without an interest, the first thing is; if the money you have can pay for it out-rightly; if not, walk away. This is one way to plan for the future by not putting yourself in bondage. Having an emergency fund will help you deal with unexpected issues like medical bills. Also, having a retirement plan will ensure that you are buoyant when you are unable to work any longer.
- Make more money: Do you want to know why the rich keep getting richer? It is because their money keeps growing while they sleep. Invested money will make more money over time. Never make the mistake of saving your money in a low interest savings account. Make effort to invest in things that would earn you more money. You can open an investment account for this purpose, or start your business. Personal finance rules do not change. Investing your money will always be better than doing nothing with it.
- Get a bank account: It is not safe for you to keep all your money under the mattress. You will need to open a bank account to save your money. A bank can help you keep your money, and you can always access your money with an ATM / debit card. You can apply online or go to the branch of your preferred bank, and ask for documents to open an account.
- Make a budget: Do you have an idea where your money goes; or does your money just disappear from your account? Having a budget is the best way for you to track your spending. Having a budget will help you to be sure that you are spending less than you earn; and starting out early is very crucial. Making it a habit to categorize your bills and follow up your expenses will help you to prevent a lot of financial troubles. If you are making a budget for the very first time, you can work with a pen, paper and a calculator. You may move into using budget software later. Start by calculating what you earn in a month. Then, go ahead and write out your expenses, which may include rent, utilities, food, clothing, etc. This method will greatly assist you to control your financial dealings. Overall, budgeting means knowing where you are going and planning ahead of it.
- Choose a credit card: It is very easy to choose a credit card, but it is also always very easy to run into debt using a credit card. However, credit cards are very useful if used correctly. A very wise advice is to avoid anything you cannot afford to buy. If you use your credit card wisely it will become immensely useful for you. Avoid the temptation of buying things on impulse. Having a credit card comes with the penchant to always spend. Do not fall into debt that will eventually overwhelm you. Be in control of your credit card; do not allow your credit card control you. Credit cards can make you to spend irrationally. Many people have found themselves in financial mess as a result of lavish spending using their credit cards. Remember, spending is very easy, but paying debt is very difficult.
- Save for the future: It is gratifying if you are working on budget, and you are spending less money than you earn. The next face is to save for the future. May be you have never thought of it. A future where you will have enough money to spend when you are no longer working. Start saving for that future now. Do not say the future is still far. The earlier you start to save, the more money you will have in the nearest future. If you are paid in cheque, make it a habit to save 70% of it to your bank account. This is a habit that will definitely be good for the future. The moment you remember that one day you would stop working, it is at that moment you will realize the importance of saving for the future. Saving for the future is saving for the inevitable: retirement.