Money Management is a subject that they don’t teach in schools, and many of us struggle with it daily. While everyone knows how to make money, very few people know how to manage their money in the right way.
Effective money management can be a pathway to a bright future. Hence, here are some tips that’ll allow you to manage your money correctly for a financially stable future.
1. Track your spending to improve your finances
As the title suggests, you must start tracking your spending to discover where you may be unknowingly overspending. Save your receipts and write your purchases in a journal or use money management apps so you can identify areas where you have a hard time keeping your spending in check.
2. Create a realistic monthly budget
This is the easy part. Once you know where your money goes, try to create a realistic monthly budget. Divide your capital into various categories according to your priorities, likes and interests and make sure you don’t spend more than the amount you’ve assigned for each category. If you overspend, try to minimize your spending in other places. Make sure you save some money while you are planning your budget.
3. Build up your savings—even if it takes time
Start small but start early. Savings are an important part of our life, and they can be helpful when you want to buy something that you really like or in some emergencies when you need cash. If you are a salaried person, make sure you add at least 10% of the money to your savings. Whereas people who run a business can save any amount that feels suitable for them.
4. Start an investment strategy
Even if you earn less money right now, putting some portion into a retirement or investment account will allow you to generate free income with time, and also it’ll help to make your future better. While doing this change may not be easy, it’ll surely help you make your future better.
5. Use credit wisely
Having a credit card is good. However, getting addicted to it and spending money even when you can’t afford to pay back the balance can be the worst thing you can do. When you fail to pay your credit card bills, it significantly impacts your credit score and attracts interest. Therefore, you pay more than what you’ve actually spent when you payback.
6. Create an emergency fund
Life is tough, and you never know when you might get in an emergency situation. It can be a medical condition, or it can be something like losing your job, and in cases like this, you need money in your hand to survive. Therefore, you should always try to create an emergency fund that can come in handy when dealing with situations like this.
7. Contribute to your retirement savings
Many companies have stopped offering pensions, and hence creating a retirement fund becomes an essential part of your money management journey. Always remember the more you save, the earlier you can retire. Start investing your money where it can grow so that by the time your retirement phase comes, you don’t have any problems.
8. Save up for big purchases
Whether it’s about buying a new home or a new smartphone that recently came out, it is always better when you plan to save up for big purchases instead of putting it on a loan or a credit card. Doing this also lets you compare prices for the product you want to buy, and it gives you the time to ask yourself if you really need it. You can also save up on interest and avoid late payment fees when you buy things by saving money for them.
9. Don’t commit to any new recurring monthly bills
If your income allows you to avail high credit card limit, EMI or a Personal Loan, you don’t have to subscribe to it. Paying recurring monthly bills can eat up a lot of amount from the money you earn, and sometimes it can get complicated for you to pay them. Avoid it as long as you can because if you lose your job or get into a situation where you need extra funds, these recurring bills can come up as a problem during that phase.
10. Being good with money takes practice
Implementing all these tips can take time, and in the beginning, you may not be able to manage your money in the way you have decided. However, you can progress slowly, and within no time, you’ll realise that you’ve gotten better at managing your money than you were before.
Money management is a skill that requires time to get used to; however, once you start following the rules, you’ll find yourself in a better place financially. We hope these tips will help you with managing your money better.
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters, and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at [email protected]