In a perfect world everyone would learn to be financial literate from a young age so that they would know how to lead a financially sustainable lifestyle. Unfortunately, this topic is often overlooked, leaving many people feeling like their money is burning a hole in their pockets and having no idea how to stop it from running out.
Being wise with your finances is not such a difficult thing to do, but building up the habits to get you there can be. So, to get you on the right track, we’ve listed a few financial management tips to help you manage your finances more effectively.
What does financial literacy entail?
Being financially literate means you have the ability to understand and implement financial skills like budgeting, financial planning, management, and investing skills effectively to better your financial situation.
The top tips for managing your finances
Money is something that every person in the world will manage in some way or another, so learning to manage it well can have a significant impact on how your life goes. With that in mind, here are some money management tips:
1. Make saving money a top priority
Apart from having additional investment accounts, one of the best habits you can teach yourself regarding money management is saving. There are many people who live hand-to-mouth because they can’t afford to do otherwise. However, for those with excess, saving is how you plan for the unexpected.
We don’t know when life is going to throw a curve ball, so having a rainy day savings is one of the best ways you can prepare for those unexpected expenses. Aim to save between three to five months of your salary.
2. Track your spending
Overspending is so easy to do that it’s often unnoticeable until it’s too late. This might not be an issue if you have excess to blow on something you want, but it is a sign of impulsive behaviour, which isn’t good money management. Overspending causes a domino effect, interfering with your saving plans and sometimes imposing on income that has to go to important expenses.
To solve this problem, track your expenses closely. Whether you do it on a piece of paper or use an expense tracker, it’ll help you stick to your budget and avoid dipping into money that’s supposed to go to other expenses.
3. Set realistic expectations with your cashflow
Creating a realistic budget takes practice and often comes with life experience. For instance, if you’re living by yourself for the first time, you might not have an idea of how much your groceries will cost. But, as time goes by, you might be able to work out how much you’re spending on average.
Setting a budget is one of the most fundamental skills in financial literacy. It ensures that money is allocated to where it needs to go and enables you to effectively plan your spending according to your short and long term financial goals, leading us to our next point.
4. Establish good financial goals
Set yourself some financial goals. They don’t need to be extravagant like you want to buy your first jet at the age of 30. Make them realistic and appropriate for the current lifestyle you lead. Maybe you’ve started a small business. Aim to invest in an asset that’ll be a catalyst for growth. Or, you might have a special someone that you’d like to tie the knot with.
Start saving for a ring now. Financial goals put things in perspective and give you something to work towards. Working closely with a financial advisor, like those at Solace Financial Planners, will help you set realistic and achievable financial goals for your specific situation.
5. Pay your bills on time
Missing payments or paying your bills late sets a bad precedent for those to whom you owe money, and it can make things more difficult for you. Let’s say, for instance, that you missed your phone bill payment this month because you overspent and didn’t put money aside for it. Now, the following month, you may need to catch up on that missed payment, which sets you back double the initial amount on your next salary. If you miss it again, this cascades into an ongoing issue, growing and growing until action needs to be taken.
Paying your bills on time will help you avoid this happening and will give you an accurate idea of how much money you have available to you in a month.
6. Save your money instead of making impulsive buys
We all have things we want. Whether it’s a new car, a lovely dress, or the latest iPhone. If you have money in savings or earn a decent salary, it can be tempting to buy whatever you want straight away, making an impulsive purchase. However, this is one of the number one enemies to building wealth.
Instead of making an impulsive buying decision, save for what you want in little chunks over the next few months. By doing this, you’re not touching money you’ve already saved, maintaining your financial status, and giving yourself the time to process whether you actually need that item or not. If not, then you’ve just saved more.
7. Create an investment portfolio
Finally, create an investment portfolio. There are multiple ways to grow your money. You could invest in stocks, cryptocurrency (which is volatile, so be weary), or property. Either way, you actively use your money to generate wealth, which will benefit you in the long run.
In addition to active investing, starting a retirement fund is also an essential part of any financial plan. Open a super fund and start putting roughly 15% of your salary into it, saving for your retirement.
Final Thoughts
While these tips lay a solid foundation for you to manage your finances, there’s only so much you can do alone. Having experienced professionals like Solace Financial Planners in your corner will greatly benefit you as you plan around how to manage your finances.
Get in touch with them, and they’d be happy to answer any questions you may have.