The income or allowance you receive will never ever be enough for you if you cannot properly manage your finances. Money Management is a subject that practically no one will ever teach you. This doesn’t mean you won’t come across it one way or another. You can learn it the easy way or earn it the hard way. I guess we all want the easy way.
Bad money management skills have made even rich people run into heavy debts and in turn poverty. It’s really not always about how much you earn but how you can manage what you earn and do much more with it. There are actually simple things you can do to gradually reduce your financial problems whether you are a student or a worker.
Proper financial management is very important for those preparing for retirement very soon as you are expected to have lesser debts and save more for your future. Although it is a gradual learning process which can be improved upon, it is never too late to start it.
Here are a number of fundamental guides which will enable you manage your finances better.
1. CAREFULLY ANALYSE YOUR INCOME AND EXPENSES
Everyone can tell you how much they earn monthly or weekly. But ask yourself how much you spend weekly or monthly; I know you are still calculating right now. You must carefully analyze your weekly or monthly income and expenditure. It is actually hard to keep track of expenses but if you want to properly manage your money, you have to begin to do so. Get a bank statement so as to properly analyze all expenses in a month and see which were necessary and unnecessary. After doing this, you will have a picture on how to go forward in your attempt to manage your finances properly.
2. MAKE A BUDGET
A very important step in financial management is to create a budget. Although it might be difficult to do so at first, it becomes easier as time goes on. A budget helps you understand your financial situation and is the key guide to managing your money properly. After analyzing your income and expenditures, create a budget based on your income and your past knowledge of your spending pattern (This will be your projected budget). Also, make a budget based on your income and how much you actually end up spending that month (actual budget).
ACTION POINT: SUBTRACT YOUR EXPENSES FROM YOUR INCOME. IF YOU GET A NEGATIVE YOU ARE IN TROUBLE. IF YOU GET A POSITIVE VALUE, WELDONE BUT THERE IS STILL ROOM FOR IMPROVEMENT.
3. PAY OFF YOUR DEBTS
“BORROW BORROW MAKE ME RICH”. Debts can hinder you from becoming that rich man or woman you have always wanted to be. So why run into debts? It is very important you stay away from debts. If you already have some, draw out a plan to begin to eliminate them gradually. “Little drops of water makes a mighty ocean” they say; so beginning from now, start paying off those debts gradually. You can do this by getting an extra job or starting up a small business. (Click HERE for steps on how to start a business).
4. STOP UNNECESSARY SPENDING
According to the famous song; ‘Cut it, Cut it, Cut it’. There are always expenses that you can avoid and say No to. Visit those eateries less, spend less on irrelevant gadgets, etc. In general, spend less on anything that adds no value or importance to your life.
5. SAVE 15% OR MORE
The sooner you get committed to saving, the better for you. Saving helps plunge you into other profitable investments rather than reckless spending. First things first, you should create a savings account, one which you can’t touch easily. As stated above, you can save 15% or more, all depending on which is convenient for you. Put aside 15% of what you earn monthly or weekly and watch the outcome at the end of the year.
6. SET ASIDE EMERGENCY FUNDS
Emergency funds help to cover-up unexpected expenses. The truth is critical expenses can come up at any time and you do not want to be cut off guard. Emergency funds help protect your financial management plan. E.g. if you need to visit the hospital or your mobile phone gets spoilt, emergency funds can cover up for these expenses.