Personal finance is a delicate subject; I think a lot of people feel uncertain about changing their set equilibrium of spending and saving.
Moreover, it’s easy to become apathetic to the topic of personal finance on the whole. Some will say that you don’t need money to be happy, and, in principle, I don’t disagree with this. However, having very little money, to the point where you’re struggling to afford basic necessities, can cause tremendous stress and anxiety in your life.
Nearly a year ago, I was completely broke. I had nothing whatsoever, whatever money I had amassed was gone and, to be honest, it felt like shit. Although several completely unexpected blunders brought me to this stage, it did allow me to realise what it was like to live day-to-day on the bread-line. Friends were supportive, but it was tough, probably the most challenging period I’ve ever endured.
Without going into too much detail, the underlying problem was that I wasn’t budgeting or managing my money in the first place. I didn’t know how to do it effectively. It was during this stage of utter despair that I realised I needed to learn how to manage my finances better.
Here are some important steps you can take to make the most of your money:
Create A Budget
- Budgets can help you to see and understand where your money is going, what’s necessary and what can be dropped.
- The idea behind this is to maximise your disposable income, allowing you to save money, invest, build a business or do whatever you want to do.
- How much is your budget going to be? Ask yourself how much you want to save every month, relative to your salary (this is often around 10–20% of earning after tax).
- Set yourself an affordable limit of money to spend each day.
- Make sure you’re tracking this every week, especially at the start. Go through your bank statement and check everything to understand where you are at with your budget.
- The app Mint will automatically categorise transactions from linked credit and debit cards and tracks them against a budget you can tweak and tailor to your needs. Mint is a convenient way to do this.
Save at least 10% of your Net Income
- Of course, this wouldn’t be a personal financial article if I didn’t say this: Save, save and save.
- Aim to put aside at least 10% of your income into a savings account and then sweep the accumulated amount to an investment account approximately say every 3 or 6 months.
- Depositing money into a savings account every month can help you build healthy financial habits.
- Set up an arrangement with your bank so that your money transfers from your checking account to your savings account automatically.
Set Long-Term Savings Goals
- Ask yourself what matters to you? Take into account everything, from the practical to the whimsical, for examination and consideration.
- What do you want to achieve with your savings and how long will it take to get there?
- In time, your strict, realistic, water-tight budget will save you some additional cash. Whatever that amount is, have it automatically directed into a separate account for savings.
- Don’t waste your income on high-interest credit cards, payday loans or loan products — they will consume a big chunk of your take-home pay and impede your ability to budget at a later date.
- Often these loans will have a compound interest rate that can become very problematic if you’re unable to pay it back in the short-term.
- You should avoid the use of payday loans to cover temporary financial shortfalls. Eliminate monthly shortages by following a budget and maintaining an emergency fund.
- Do not borrow and use the funds to buy items such as clothing, vacation, phones as these commodities lose value over time.
Create A Secure ‘Emergency Fund’
- As the name implies, this is the money you set aside in case of emergency.
- The fund is intended to help you pay for things that wouldn’t usually be in your budget.
- Try to save at least three and six months of living expenses in the bank.
- You should have enough money saved at all times to face unforeseen emergencies.
- When your finances are secure through careful budgeting and saving, you can invest a small percentage of your savings.
- You should have enough money saved at all times to face unforeseen emergencies, but if your savings are healthy, you can invest a small percentage of them.
- If you’re already investing, you’re on the right track.
- Now is a great time to inform yourself about investing and start making some changes.
- A great place to star is investing in the stock market by buying shares in an individual company, or by investing in a fund, which consists of a variety of shares in different companies.