Your Finances could be looking good in no time. Image via Unsplash.

Money management is such an important life skill for everyone. It’s not so much the cash itself, as what it represents- freedom, choices, peace of mind. But it’s also an area a lot of people struggle with, something that isn’t taught in schools and often not talked about by parents keen to keep children away from potentially worrying financial realities. These factors mean that many emerge into adulthood without any clear idea of the basics of money management. Combine that with pressing demands, a high cost of living and easily available credit, and you have a recipe for disaster – it’s so easy to make money mistakes.

These days, we seem to pull in all directions when it comes to the demands we face on the money we bring in. Stagnant wage rises have affected many sectors over the last decade, and meanwhile, the cost of housing, higher education and even everyday basics like food, utilities and fuel keep rising. Feeling the pinch is a common occurrence, even for those in relatively well-paid jobs. The trouble is, basic costs take up a disproportionate amount of take-home pay, leaving little to spend on luxuries, pay down debt or build up savings with. At the same time, we are subject to a never-ending stream of advertising pushing the latest consumer goods that we ‘must’ have. It’s a toxic combination, and easy to see why many people end up in a mess. But it doesn’t have to be that way. You can break the cycle and take control of your finances by going back to the basics of good money management.

Why Get On Top Of Your Finances?

Personal finances shouldn’t seem remote and unmanageable – they have a big impact on our wellbeing and daily lives. Money should empower us, enabling us to make choices in life that affect our education, careers, living situation, families and on through to retirement. Being switched on with your money helps you to avoid situations like the stress of  unsecured debt, getting a bad credit rating which may prevent you from purchasing the home or car you want, and give you the independence to change situations in your life you aren’t happy with. There’s a reason poverty is often referred to as a ‘trap’- it shrinks your horizons and limits your choices. The flip side is that getting into good money habits means you always have more options, get to do more of the things you care about like travelling or volunteering and may also get rewarded for being a good customer by your bank. So, what are the steps you need to take in order to make this vision of a rosy financial future a reality?

Set Your Financial Goals

They say that you should begin with the ending in mind and this is important when it comes to your financial arrangements. Think about what you will want to achieve with your money over the next ten years. Are you going to be funding a course of study? Starting your own business? Going travelling? Or planning to purchase a home? Start a family? If you have an idea of the time frame, then you have an idea of how much you’ll need to save. Once you understand what you want your money to do for you (the ‘why’), you’ll be able to focus on the ‘how’ and formulate a plan to get there by setting a monthly savings target.

Apps can help you stay on top of your budget. Image licenced under Creative Commons.

Learn To Budget

It all starts with having a proper gauge of your financial situation at any given time, and that comes back to setting and abiding by a budget. Don’t think of your budget as a restriction, think of it as a tool that you will use to achieve your money goals. A lot of people don’t keep tabs on what they have to spend and are then shocked when they don’t have enough to save each month or find themselves dipping into their overdraft or in need of a guarantor loan from Buddy loans. Find a blank budget template online and use it to note down all your monthly expenses, plus what is coming in as salary or other income. When you have accounted for those essential costs, the disposable income you have should be roughly divided into categories such as ‘travel’, ‘entertainment’ etc and then you have a guideline amount that you know is available to spend. If you are particularly bad about sticking to it, you could choose to transfer that amount onto a couple of prepaid debit card that will only let you spend what’s on it, and keep this ‘fun’ account separate from your other money to avoid overspending. You could also look into using a money management app. These apps can record and categorise your outgoings, let you know when you are nearing limits that you set and some also have clever savings functions available like rounding up all your card transactions to the nearest whole figure and putting the difference into savings account. When combined with a regular larger deposit amount this can really start to add up.

Up Your Income

If you really want to get smart with money, the best idea going is to find a secondary source of income. If you supplement the salary from your main area of work with some extra income, it becomes much easier to build up a financial cushion, start getting serious about your savings or snowball any debt you have gotten into, especially if essential costs are eating up most of your first income. Everybody has a different skill set, so have a think about what you can do that you can turn into a side hustle, or second income stream. Even if it’s not hugely well-paid, having that extra cash flow into your finances can be an absolute lifeline in terms of helping you pay off debt. Could you teach lessons in something, or take on some handy work? Become a virtual assistant or help someone out with the housework? Sites like TaskRabbit let you advertise locally for casual work. Have the payment for this deposited in a separate account and use it to get you closer to your financial goals. Being so busy with work also means you won’t be tempted to go out spending money, so it can be a win-win situation.

Rein In Your Spending

One thing most of us are guilty of is having huge amounts of surplus consumer objects. We buy things for many reasons and very rarely is it because we are genuinely in need of them. There is a huge pressure on us to think we need to own the latest gadgets, fashions and other items, but the percentage of what we actually use versus what we own is usually rather low. Tactics like sales encourage us to buy items thinking we’re getting a bargain, only to never use the that thing. But you can train yourself to avoid impulse purchases. One good remedy is to create a wishlist. Whenever you are tempted to buy something, add it onto the list. The next month, review the list. You’ll be surprised at what you no longer feel the need to purchase when you’ve given yourself a chance to cool off.

Establish Some Savings Techniques

If you’re really serious about making over your money, then you need to look at where you can also save on your outgoings. Make sure you always shop around for and compare utilities and insurance. Companies rely on us not being proactive enough to seek out the best deals, and they can raise the annual premiums quite significantly from year to year, as most people do not bother to check or to move companies to get a better rate. With your food shop, decide whether you really need to buy premium brands. Most store brands are made the same and even in the same factories, so in a lot of cases you may literally be paying for the packaging. Certainly with your basic staples – pasta, flour, lentils, it’s worth trying to lower the cost. Also do an audit of all your monthly direct debits – often we have old subscriptions that we aren’t using or don’t really need that can go.

Use Savings To Pay Off Debt

This may sound counter intuitive, but if you have both savings and debts, it will save you money to pay off the debts using the savings. This can feel quite counter intuitive, but the rate of interest your savings generate will be significantly lower than the cost of your debt, especially on a credit card or unsecured loan. Whereas the interest rates on a debt can amount to thousands every year, you’ll be lucky to get a few hundred back on your savings with current interest rates, so looking at the bigger picture, it makes much more sense to use any savings you have to pay off your debt.

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