Do you tend to spend more than you earn? Do you procrastinate paying your bills on time? Well, not everybody is good at managing their finances. While some find it difficult to maintain the minimum balance in their account, others shop using their credit cards and tend to spend more than their budget.
If you don’t know how to manage your finances when you earn, thinking of saving for retirement would seem like a Herculean task. Many people, especially middle-income earners find it difficult to save money for their future.
If you want to inculcate good financial habits, you will be able to secure finances for the future and enjoy your retirement life with peace of mind. Here are a few tips that could help:
Step 1: Keep a Track of Your Monthly Expenses
Many people wonder where all their money went by the end of the month. If you have a habit of splurging your money in the first two weeks after pay-day, you can find out if you are making any unnecessary spends by recording your expenses every month.
Start with categorizing your expenses and maintaining them in a ledger. This way, you’ll know if you’re buying something absolutely necessary or not.
After you have evaluated your expenses, you will have a hold of your finances and know what to do with your earnings.
For instance, if you spend a lot on shopping, think if the item is going to add value to your life or if you really need it, if you don’t, don’t buy it.
For those who shop using your credit card, leave your credit card at home when you go shopping. Paying with cash can make a lot of difference to your total savings.
I have a simple method to track all the expenses. I use PersonalCapital where I linked all my financial accounts. With one logon I see all my transactions, incomes and expenses. Their cash flow analysis is strongly recommended for you, especially if you’re just starting out. Oh, it’s a free tool. Having such a tool is must for securing your finances.
Step 2: Set Your Long-term Goals
When you track your expenses, you will know where you stand financially. This is the best time to identify your financial priorities.
Think of the things you want to save for. It could be anything from your children’s education to buying a new home.
Once you know what your priorities are, sort them according to what you need in the near future and what you will need much later. This will help you save your money wisely.
Step 3: Set a Monthly Budget
If you spend too much on things you don’t need, you need to control your spending. The best way to do that is by setting a monthly budget.
Jot down how much you will need to pay off your bills, for groceries, and all other miscellaneous funds. Remember to set a realistic budget and not to be harsh on yourself.
If you set a limited budget, you will be forced to spend more, and then your finances will again go out of control.
Step 4: Pay Off Your Credit Card Debt
Do you have any outstanding balance in your credit card? You need to pay interest if you carry a balance. The interest rate on credit cards is very high. Even for a small balance, you pay significant interest charges.
Also, having a high amount of credit card debt can give you a low credit score, making it difficult for you to get loans easily from banks in the future.
When you stop making unnecessary spends, you can use the extra amount to pay off your credit card debt and any other debt you have.
Look for credit cards that come with lower or zero balance transfer rates and transfer the outstanding amount to it.
If you’re getting your incentives or bonus, you can spend a little of the amount to pay off all your debts, so that you can relax in future.
Step 5: Pay Extra on Your Mortgage
Paying off mortgages can be a daunting task. But if a mortgage is paid off way before the loan tenure, it can give you added peace of mind.
For those who have already taken a home loan, try and make extra repayments and finish off your loan. Contributing a small amount can help you save a lot.
Step 6: Save Money for the Future
Do you want to buy a home someday? Are you thinking of keeping some money aside for your child’s education? While paying off your debt and mortgage is important, having some savings is also important.
To secure your finances for your future, you need to save when you earn. You can divide your income in such a way that you keep aside at least 10% to 20% of it as savings and use the rest for your investments and spends.
Step 7: Saving for Big Expenses
Sometimes you will need to save money for some big expenses. It could be your dream car, your children’s wedding, or anything else you have jotted down as a financial priority in the near future. Make the best use of your income by saving for these expenses.
Step 8: Set Aside a Fund For Emergencies
Emergencies can happen to anyone. It could be anything from a visit to the hospital for an unplanned trip. Many people forget to set aside funds for emergencies and panic when they actually need money.
Before getting into a situation where you are forced to borrow from lenders, you can save some of your money for emergencies. You can create an emergency fund, which you only use when you need the money for emergencies.
Step 9: Make Smart Investments
Not everyone knows the investment options available to them, and how to use their money wisely. Improve your knowledge about the various financial instruments and how much returns you can make with every investment.
Whether you have decided to invest in the stock market or in real estate, you need to evaluate how much money you can invest and what are the risks involved.
Following the above tips can help you make the best use of your cash to have a secured future. Make the most of your income when you have it by investing, smart spending, and of course, saving.