Poor money management is one of the main problems Americans face. In fact, sources report Americans as being bad in investing their finances.
Despite all this negativity, there’s a glimmer of hope if you’re in this category.
With good money management habits, you can get your finances back on track. However, you must keep in mind that money management is a whole course on its own, and it takes time to master and understand.
Furthermore, you also need a solid commitment to the basic steps in money management. Take a look at the basics you must incorporate.
1. Craft a Budget
A budget? Is it necessary? Well, is it necessary to wear a helmet when riding your bicycle or motorbike? The answer is quite obvious and so is it to the initial question.
With a budget, you have the chance to set clear financial goals you can work on and achieve. To many people, budgeting seems like a lot of mathematics, and they don’t see the need to have one.
In fact, it’s not surprising that 41% of Americans use budgets, although this is an increase from 31% reported by Gallup in a 2013 poll.
These reports show many people don’t track their finances, which is the main reason why they end up in debt. Even when in debt, it’s budgets that initiate the first step to financial freedom. Therefore, it’s important to create a budget in order to track your income and expenses and achieve better money management.
In addition, it’s not enough to a create budget. You must stick to it in order to realize the full benefits. It’s similar to starting a gym routine and quitting midway.
2. Analyze Your Expenses
Many people don’t know how much they spend in a month, and this is one of the major hindrances to money management. Nevertheless, you can get rid of this problem by listing all your expenses. This includes utilities, groceries, transport, credit card debts, and entertainment, among others.
To get a clear picture, track your expenses using receipts. Also, ensure you split the expenses into two categories. The primary and secondary expenses. The latter will contain expenses you can live without such as Netflix subscription, while the former includes your basic expenses such as groceries.
This tracking will allow you to make adjustments if you want to trim your unnecessary expenses in order to cover other must-pay expenses such as loans.
3. List Your Income Sources
Surprisingly, many people know the exact amount they make in a month; this knowledge is different when it comes to expenses. Despite knowing their total income, many people fail to understand how they reach the “broke” status two weeks after receiving their money.
Anyway, the main aim of listing your income sources is to have an exact idea of your total income. This will allow you to know whether you’re able to sustain your current lifestyle. In most cases, the income doesn’t cover the expenses.
After listing your total income sources, deduct your expenses and:
- If the result is a negative number, it means you cannot maintain your current lifestyle. The best way forward is to trim your expenses, to find extra money, or to wait until the equation balances.
- If the result is a positive number, congratulations! You aren’t living from paycheck to paycheck like 78% of Americans do. A positive number also means you have excess funds, which you can throw into your savings account or emergency fund or, better yet, clear your debts.
4. Consider Debt Consolidation
According to CNBC, 8 in 10 people are stuck with debts. This is a worrying figure and often, poor money management habits are the main culprits. Even though there are good debts, no one wants to be in debt.
If this is your resolve, the first step is to get rid of your debts. It could be student loans or credit card debts or any other debt for that matter. To eliminate debt, consider debt consolidation at the lowest possible rates.
With debt consolidation, you have the opportunity to combine payday loans, personal loans with less than 500 credit score, and credit card debts into a single loan. This means you’ll pay a single monthly installment instead of three for each of the loans.
In addition, you’ll also pay the entire loan using one interest rate. Often, after debt consolidation, you may pay off the balance using a lower interest rate, but that will depend on your lender.
5. Trim Your Expenses
Remember when you listed your total monthly expenses? Well, it’s time to trim this list. If you’re a fan of eating out, you may want to cut this expense from your budget. Instead, consider carrying packed food from home and save this amount.
Most the secondary expenses are based on luxuries you can live without. The main objective of trimming your expenses is to have more money in your pocket to fund primary issues such as clearing your debts.
You’ll be surprised to find out just how much you spend every month on items and activities you don’t need.
6. Set Aside an Emergency Fund
The future is unpredictable, especially with finances. Today, you may be living large because you have a great job. However, an economic downturn can cause job losses, and if you become a victim, you must be prepared for life after a job loss.
This is where an emergency fund comes in. Note that an emergency fund will not only cover you in the event that you lose your job but also in other financial crunches. You may have a medical emergency that can easily drain your finances, but with an emergency fund, you can weather the storm.
7. Use Personal Finance Apps
It’s about time you got into the 21st century and embraced technology. If money matters get the best of you, then personal finance apps are here to ease the process. Even better is that you can get these apps for free. Others you may have to pay a subscription fee to use in order to access what you need.
These apps come with various features such as consolidating, controlling, and managing your money in a central location. In addition, they can develop budgets, as well as analyze spending habits and financial transactions you conduct.
Such information will help you better manage your money and eventually hit your financial goals.
8. Save for Retirement
You may be in your 20s or 30s and think that retirement is a century away. Well, you’re wrong. Time flies, and before you know it, you’ll be 60 without money and wishing you had saved in your younger years.
If you haven’t started saving, you had better do so. To begin, set a savings target which you can look up to and then start putting aside a specific amount every month in your retirement account.
By managing your money effectively, you can achieve financial freedom while avoiding financial headaches. It’s up to you to take the initiative now to turn your finances around with these money management tips.
Any time you feel like quitting, remember you aren’t in it alone. Many others used these tips and succeeded, so why should you be the exception?