Finance

Financial Planning: Seven Ways to Manage Your Money

You do not have to own a significant investment portfolio or be an expert in personal finance to achieve financial security. It is essential to understand financial planning fundamentals as life becomes easier when you possess good financial skills. Your spending habits have an impact on your credit score and how much debt you can obtain. If you live from paycheque to paycheque while making enough money, here are seven ways to manage your money to get you out of your situation.

1. Make a Budget

A budget will help you live within your means and save money to help you achieve your long-term goals. You can use the 50/30/20 budgeting method as a guide.

 • Fifty per cent of your net income should cater to living essentials like groceries, utilities, rent and transport.

 • Allocate thirty per cent to discretionary expenses like clothes shopping, dining out or giving to charity.

 • Twenty per cent should be used to pay debts, emergencies and save for retirement.

You can use a budgeting app to track your finances; most of the apps can be used on a smartphone. The apps track your investments, bills, credit cards, budgets, and cash flow. It automatically categorizes and updates your financial data as information comes in to let you know your financial standing. 

2. Maintain an Emergency Fund

Avoid a situation where you will need to take credit to cater for unexpected expenses. You should prioritize building an emergency fund containing at least three to six months of your living expenses. When planning to buy an enormous asset such as a car or a home, set up separate savings accounts to cater for them.

3. Insure Yourself and Your Assets

Every day we encounter risks that can lead to significant financial loss in the form of illness, property damage, accidents. Therefore, you should protect your property and assets should a potential risk turn into reality. If you do not insure your property or assets, you might go into debt or utilize funds set aside for other things when a disaster occurs. 

Proper risk management strategies shield you against disastrous financial losses, despite the cause. Suitable comprehensive insurance coverage is essential in health, homeowner’s, auto, liability, and disability. You can obtain the coverage without having to neglect your other financial goals. 

4. Merge your Debt

No one loves to be in debt, but sometimes it cannot be avoided. If you have existing debt, work towards getting rid of it. One way to have your debts under control is to consolidate them and obtain an interest rate as low as possible. It is all about you taking appropriate steps to regain control over your money. You can have the option of combining several unsecured debts like payday loans, personal loans, and credit cards into one loan. 

Try implementing the tips below to pay off your debts more quickly:

 • Sell unwanted or unused items in your home to get extra money for your debt repayment plan

 • Get a second job to speed up the process and make lasting changes to the situation

 • Look for areas where you can reduce your budget to add to the cash available for paying off debts

5. Understand Your Income and Expenses

Not many people know how much they spend in a month. This is a problem that can be solved easily. For one month, keep track of all your expenses, both in cash and in credit cards. Take all the receipts, utilities, restaurant bills, groceries, etc., together with your bank statement and add all the expenses. The idea is to account for your fixed and variable expenses to obtain a total amount. 

On the other hand, everyone knows their total earnings in a month. Therein lies the difference; most people know their monthly income but have insufficient knowledge of their entire monthly expenses. After totalling up all your monthly expenses, subtract the amount from your total income for the month. If you get a negative number, your expenses are more than your income; hence you should reduce your spending. But, if you obtain a positive figure, it means that you spent less than you earn. Use the extra cash for debt payments or boost your savings.

6. Limit Debt

To avoid going into debt, your expenses should not exceed your income. Leasing a house might be more economical than taking out a mortgage for buying a house. The same applies when buying a car, as you can lease when you need it instead of buying one.

7. Plan for Retirement

Retirement may seem like it’s so far away, but it arrives sooner than expected. You will need about 80 per cent of your current salary when you retire. The earlier you start saving for retirement, the more benefits you will get from compounding interest.

In conclusion, good money management skills will keep you out of debt and enable you to save for emergencies in the future. Apply the tips above and remember to track your progress to see if you are making any headway.