Looking after your finances is so important in life, it can open doors if you are taking care of them or it can close them if you’re in difficulties. Knowing how to manage your money can really ease a lot of stress and worry.
You may find yourself wondering how others are able to have an emergency fund, a decent credit report, no credit card debts or, don’t seem to worry about their expenses or retirement, yet they earn the same number of dollars as you?
Honestly, it almost doesn’t matter what you earn, it’s all about how you manage your finances. What type of credit cards you take out, how you go about paying them off. How much money you spend daily. Whether you set anything aside. These are all important things to consider when it comes to managing money.
It can be difficult to get to grips with but below there are lots of different guides to help with this.
How to set up a budget
When it comes to managing money, setting a budget should be the first place you start.
It may seem tricky to stick to when you first get started but once you get into the swing of it, you will reap the rewards. What a budget will help you see is your financial situation with full clarity, with this you can then work on how to manage your money.
Let’s break it down to a few steps:
Working out your total income
Include everything from wages to benefits to pensions. If some of these are paid 4 weekly, it simplifies things to work this into a monthly breakdown.
A good place to start is with the household bills – mortgage or rent, council tax, and of course, utility bills such as gas, electricity, and water.
Once you have done that, you can then focus on the day to day living expenses, this will be things like food, clothing items, and grocery shops. To help aid with this, it is handy to keep hold of the receipts to track and work out the total money spent.
Do also remember to keep track of credit card spending and any cash purchases as these can be forgotten.
There are other things to factor in, these are easily overlooked. The outgoings only happen once a year such as Christmas or car service. Once you have this figure, divide it by 12 to give you a monthly breakdown. This can then be included in your budget so when the time comes, you already have the money set aside.
To do this properly, it may be worth tracking the money you spend each month, this will assure you of accuracy.
Income minus outgoings
Now you have a figure for your total income and an outgoing figure, broken down into monthly amounts.
Take the total outgoing sum and detract it away from the total income sum.
When you get to that figure, you ideally want to have some money left over, this is known as a “budget surplus”.
However, if you have a negative figure once you have completed the sum, you have a “budget deficit”. Now don’t panic because there are lots of things that can be done to get started on improving finances.
Getting your budget back on track
Sticking to a budget can be tough, especially if managing your money is not something you are used to doing. First things first, don’t beat yourself up about it. This is something many individuals struggle with.
Don’t dwell on overspending but think of ways of how to prevent it from happening again. Think about what caused you to overspend and what you could do differently next time. This is a great way to think about your money management long term.
Deciding to take a holiday and paying for it on a credit card can then cause lots of stress knowing you have to pay it off. Sit down and draw up a plan of how to pay it off – you will already know how much you can afford as you have a budget. Once it is paid off, draw a line under it and consider setting up a savings account for a ‘holiday fund’. This will control any unnecessary costs from going onto your credit card bill again.
Paying off loans and credit cards
There are a few money management tips that can help to start to bring your credit card debt down.
One great way to begin is to move your debt. You can transfer your balance to another card that is offering a 0% balance transfer and by finding another account with a lower interest rate, you will be reducing your monthly payments.
There may also be an option to find an account that can offer a period of zero interest. This means that there will be no interest to pay on your debt for a set period of time. So every cent of repayment you make goes towards paying off the money owed and not the interest. A great way to reduce your debt down but this is assuming you are not continuing to use the card. An avenue which may only be possible for those who have a good credit score.
Something credit companies do is set their minimum repayment required and this can be really low – which seems attractive and a nice thing for them to do. However, if you decide to only pay the minimum repayment, this will take a longer time to repay. The longer this takes, the more interest you end up paying.
If possible aim to pay the entire bill off every month, this way you won’t pay any of the high-interest rate banks. By paying off your monthly statement each month, this will give you 45 to 59 days of credit interest-free. If that is something that isn’t possible, it is good to make a plan on how best to make the repayments. Try to never use credit cards for cash withdrawals as commonly banks will charge a lot to do this.
Knowing where to start when it comes to paying off debt on multiple cards can seem daunting. The first step is to deal with the one the debt that is the most expensive.
If one card charging interest at 25% and another at 15% interest. It is best to start paying off the money owed on the 25% first, as this will end up costing you the most over time.
Once this is cleared, you can start paying off the amount on the one charging 15%. It is important to maintain paying the minimum on each card during this period. By missing these payments, you could face extra fees and in turn, this could damage your credit score, which has the potential to impact future credit requirements.
It is important to pay any debt which is secured against your house first as this can have huge impacts if you do not.
Set a goal to save up to
Having a goal is vital. Without a goal, you won’t have anything to aim for, and generally, that isn’t a good thing. By setting a goal, you will be able to monitor your progress and keep moving forward.
It is important to set goals that are realistic. It is exciting when you feel like you are getting close to meeting your goal but it can be deflating when you feel like you are putting in a lot of effort but still a long way from achieving it. This is why being realistic is key. There is a great sense of achievement when you meet your goal and you can always set another one once you’re there. Keep going!
One goal that some people choose to aim for is saving for retirement.
Draw up a plan on how to you intend to meet this goal. These can be things like different ways to save money, for example, try to set one day a week where you won’t spend anything.
Another little thing you can do is if you buy lunch out every day, try making a lunch. This doesn’t have to be every day to start with. If you make small changes at a time, you are more likely to stick to them and continue to make small changes.
The small changes do mount up and help you stay in control of your budgeting and savings.
Tackle Debts head-on and reach out for help
Seeking money advice can be something people don’t want to do for lots of different reasons. However, people get into financial difficulties all the time, and seeking debt advice services can be the best way to make sure you can manage your money in the future.
When it comes to managing your money and money advice, there are many places that will offer advice on how to control your finances throughout life.
There are lots of charities out there willing to assist you in taking the steps to get your finances under control and explain the best way to start building up savings.
In addition to this, there are plenty of guides and many a website offering advice on how to manage your spending and how to work on budgeting.
Top 10 Finance Managing tips:
1 Don’t be afraid to review your budget
The cost of living can change, food prices change meaning your spending can change. Reviewing your budget can help you see where you can make savings or where you may need to tighten up.
2 Monitor contract end dates
Make sure to jot down the date of when a contract is due to end at the point in which you take it out. Life gets busy and having these dates noted it can be a good tactic to get a better deal. Letting a contract run on beyond its life can end up in you spending more money than you need to.
3 Slim down on your spending
Making savings here and there can add up to a big number over your life. Before spending money a great step to take is, asking yourself the question, “do I really need this?”.
If the answer is no, then consider that money in the retirement fund.
4 Leave the debit card at home
If you are going out for the day there are a few steps you can take to ensure you are taking care of your finances. Start with budgeting for the day, how much shopping you’re planning on doing. Then withdraw that amount in cash. Take only what you withdraw and leave your card behind.
This will be a good step in dealing with managing money.
5 Download a banking app
Being able to see your finances at the click of a button is a normal part of life for some and not for others. Understandably some people aren’t keen on the idea but having access to your bank accounts and bank statements on an app can be a really effective thing to start doing.
It is a strong first step at facing the issue of how to manage your money straight on and that’s great!
6 Factor in one-off expenses
Some expenses like Christmas are predictable, some things like car repairs aren’t. It’s important to make sure you consider these expenses when reviewing your finances.
Some people find it useful to set aside money and put it into a savings bank and think of it as an emergency fund so they are safe in the knowledge that unpredictable expenses are taken care of.
7 Know what you’re entitled to
There are lots of benefits out there and it is always worth checking if you are able to claim for any of these to help with costs.
Take a look at what benefits your job offers too, this can be a great tool to save on expenses.
8 Stick to the plan
It may seem like an obvious one but after spending time going through bank statements, budgeting, and working everything out, it can be easy to then not stick to any of this.
Don’t fall into that trap!
9 Know how much you earn
Again, maybe an obvious but how many people genuinely know how much they take home every month?
If you are salaried it may be easier to be aware of this figure but freelancers may have to estimate somewhat to be able to come up with an effective plan.
However, it is important to know this figure because what you don’t know, you can’t manage.
10 Figure out what works – repeat
Once you have got to a point where your debt is going down, you have an emergency fund in place and retirement doesn’t look so scary anymore – you’ve cracked it!
So however you’ve got there, keep doing it. Keep those debts away and finances happy.
How can I manage money better?
Money is important to manage and without a doubt, one of the best things you can do is draw up a budget. From there you can start to think about how you can manage your bank accounts and become debt-free.
How do you do the 50 20 30 budget rule?
When your finances are in a good place you can think about the 50 20 30 budget rule.
Put simply this is when you divide your months worth of income into a 50 20 30 split.
50% towards needs – student loans, household bills, expenses
20% towards savings
30% towards wants – shopping, eating out
What’s the 30-day rule with money?
The rule is a great tool to help manage your money and your life!
If there is something you want, you must wait 30 days before you buy it. The money it would cost to buy the item put into a savings bank account.
If after 30 days you still want the item, you are free to go and buy it. If not, the money stays in the savings account.
What are the 3 basic steps to better money management?
- Draw up a budget
- Create goals for saving
- Face your debts