Managing personal finances is a skill that many people struggle with, and it’s not so hard to see why. We don’t receive a financial education in school and if we do pick up subjects such as accounting or business, they very rarely go into detail about budgeting or how to make you money work for you.
It’s then left for this knowledge to either be passed down, or for us to go and learn it ourselves. In terms of learning ourselves it’s hard to know where to start with the information that’s available. The jargon that’s used sometimes can be confusing and that’s also off putting.
However, there are some easy habits that anyone can incorporate and rules that everyone should follow, in order to keep control of your money.
Here are 6 of these tips.
Pay off Any Debt As a Matter of Urgency
Now you’re doing the above three things, all your focus should be paying off your debt as quickly as possible.
Hit your targets and exceed them.
You’ll start to feel a sense of accomplishment as you do and the crushing pressure of living in debt will slowly start to ease.
Pick one item at a time and pay that off completely before moving onto the next. This way you’re completely removing one problem rather than chipping away at one big one over a long period of time.
You first need to work out how much you want to pay off your debt from each paycheque.
Then create a budget that accounts for this and all essential items such as rent & utilities etc. Give yourself a budget for food and transportation and stick to them strictly.
Live Below Your Means
To hit the targets you have set for yourself above, you need to live below your means. One of the easiest ways to do this is to set yourself a budget and be incredibly strict with it. Set up an account specifically for bills and transfer a portion of your paycheque into it as soon as you get paid. Also set up a transfer of the amount you want to save from your wages as soon as it comes in as well.
Make sure you have the essentials covered and allocate yourself a little money to play around with. This will completely depend on your saving goals and commitment to achieving them. You should allow yourself some room for fun and activities however, otherwise it is easy to become disheartened.
Set Up An Emergency Fund
This is going on from your contingency plan. If a sudden emergency or disaster should strike, you don’t want to have to raid your savings accounts. Instead, have an emergency fund set up where you have enough money that you can live comfortably for 6 months with no income.
At the beginning you will be saving into a number of accounts but once you’ve hit the 6 month mark you can stop saving into your emergency fund and relax a little as you know you’re covered should the worst happen.
Learn to Invest
You don’t have to know a huge amount about investment to make your money work for you, but any extra knowledge you do learn is always a bonus. To get started, open an account with a mutual fund company that has no-load funds and low expense ratios.
Build a diverse portfolio and you can expect to earn 8% to 10% annually on your investments over the long haul. This can amount to quite a lot over a long period and if you continually expand on your investment knowledge, you can steadily grow your annual returns.
Remember, it’s a gradual process. Leave the emotion at the door and invest sensibly, it will eventually reach great sums.
Quality Over Quantity
If you can buy 5 of one cheaply made thing for the price of one high quality item then a successful person knows it’s always better to go with the high quality option.
Quality outlasts quantity and will perform the task it was made to do a lot better, and for a lot longer. A cheap and poorly constructed equivalent of the same item, is probably going to break just when you need it the most.
You want to be able to rely on your purchases and it’s far easier to account for one of purchases that on going ones.