Now, I don’t want to sound materialistic or anything but the truth is, we need cash. Lots of it! It pays the bills. It sends our kids to school. It allows us to live in this house. It’s the very reason why we get to enjoy all these things in the first place.
But no matter how hard we work, it seems like we’re always running short on it. We’re always wearing these silly smiles on our faces every time we get our paychecks. But a few days later, poof! It’s gone. It’s as easy as that. Now, where did all that money go? We’d always wonder about that bit only after they’ve disappeared. The good news here is that you’re not alone. I used to do that too but, not anymore.
So unless you want to spend the rest of your life undergoing that cycle again and again, it’s best to start managing your hard-earned money. And I mean it! It’s not just taking a shopping sabbatical for a week or two. That’ll never last. It’s about reorganizing everything from your outlook to your spending to categorizing your needs and wants.
Why You Should Start Managing Your Finances
I know it won’t be an easy journey. Some people usually give up only after a few tries. So before we share with you those wonderful tips and tricks on how you can better manage your money, here are a few good solid reasons why you should do it in the first place.
1. Be Debt-free
Wouldn’t you wish there’s a day, or even just an hour, that you get to forget all your mounting debts? Imagine if you can live your whole life without needing to worry about those interests and foreclosure notices. That would be just great. But that’s far from reality, it’s been our nature to just swipe that plastic on anything we’d want to have and worry about where to get that money when the billing comes. If we can just manage our money, we’d be able to turn our life around.
We don’t know what’ll happen in the future. What if our dog gets sick or the plumbing broke? We always have to have that extra cash around for emergencies. If we spend everything as soon as they come in, we would most probably turn to debt for that extra cash. And we don’t need one more debt to worry about, right?
3. Economic downturns
In short, what if there’s a recession? There’s no guarantee that we will always have a stable high income paying job. We can be earning and working so hard one minute and be laid off the next. So it’s best to start managing that money when we still can. We want to be ready and set aside enough funds to live comfortably while we search for the next available job.
4. Raising a family
We’re not always single without a care in this world. We’re bound to marry or at least raise a family together with our partner. This means saving money for the house, the utilities not to mention all the expenses that comes with raising kids – diapers, vaccines and a college fund. The more kids you have the higher the expenses and the greater the money both of you has to set aside.
5. Early retirement
You don’t plan on working on a nine-to-five- job until you reach the ripe age of 60 are you? I don’t think so. Whether you’re planning to spend the rest of your life travelling the world or opening that much-awaited business, it’s best to have some savings on your side. It’ll afford you the freedom to choose what you want to and how you want to spend your life. So as long as you know how to manage your funds, you’re well on your way to reaching those dreams.
Practical Tips and Tricks to Manage Your Money
Now that you’re convinced that managing your money is no joke. Here are the tips that we’ve come up with to help you in your newfound journey. Remember, it’s not that difficult. All you need is an ounce of discipline and a pinch of determination to get you going.
1. Track your inflows and outflows
This should be your first step. Map out your income and possible expenditures. Your inflows should include your fixed income, not the possible salary increase or the bonus or the dividends that you may or may not receive for that period. Let’s be conservative here. Just tackle the funds you’re sure to receive. For the outflows, list your fixed and variable costs. That way, you’ll be able to set aside funds to account for your fixed expenses before tackling those expenses that you can do without. It should never be the other way around. Just ensure that your outflows never go beyond your monthly inflow. The last thing we need is to be in debt.
2. Save at least 10% of your income
For a start, 10% is good enough. This is the fund that is untouchable. It goes straight to your savings account. No matter how much you’re dying to have that scarf or that new car seat, you shouldn’t use that 10%. It’s set aside for the future. Once you get the hang of it, you can extend it to 20 or 30%. Don’t worry, that rate is already understated. I know people who put away 50% of their monthly income. Now, that calls for a lot of discipline.
3. Prioritize your needs from wants
Do you really need that club membership or a trip to the country every month? Let’s be practical here. Before you can say that you’re managing your money well enough, you need to know which expense to prioritize first. List all your possible expenses then categorize them into your needs and wants. Make sure you have enough funds to cover the utilities, groceries, part of your mortgage or even a trip to your vet before you allow yourself to splurge on anything you wish to have. Stop hosting parties if you can’t afford it. Jog around the neighborhood instead of paying for your gym membership. Cook your meals instead of getting take-outs. Once you’ve mapped out all your possible expenses, there are always alternative ways to get what you want, albeit cheaper and more practical.
4. Set long term and short term goals
What do you want to achieve a year from now? What about 3, 5 or 10 years from now? It pays to set your goals straight right from the beginning. I know not all of us are certain of what the future holds but at least, we know the basics that we want to have like owning a car by the time you’re 25 or having an upper fixer by 30. Do you wish to join a Safari tour next year? Go over your plans and save for them. Owning a car is no easy task but instead of regarding it as one big project, think of it in small terms. Put away 5% of your monthly income into your car fund. But remember, this is different from the 10% savings you have to do each month. Set aside travel funds or house funds, all of which are separate from your monthly savings. Little by little, you get to earn that money to achieve your dreams. It’ll help you stay out of debt too.
5. Know your net worth
Understand everything about your finances. How much are your assets and liabilities? Do you have a mortgage or an existing car loan? It’s always beneficial that you track your funds and what you owe. It’ll give you the knowledge or at least that peace of mind on your current financial status. If you have more debt than you intended to, it’ll give you the warning to limit your expenses and set aside funds for that. If you have more, it’s time to decide on what you want to do with that.
Whether it’s a new business or a piece of land, it’s best to invest your money. You wouldn’t want your savings just lying there in the bank. Make your money work for you! You can invest in the stock market. If you’re not that confident, you can always hire a broker. Just remember that the extent to which you plan on investing your hard-earned money greatly depends on your risk tolerance. Are you willing to put them at stake? Or you’d rather not. It’s all up to you. But let’s say you’d rather not do anything about it at first and wait out for a better opportunity, at the very least, place a part your money in time deposits. It’s better than not doing anything.
7. Understand your liquidity
Are your funds currently tied up? How much can you shell out right now if there’s an emergency? The idea of having spare cash is to be able to get your hands on them whenever there’s a need. So no matter how good the investment opportunities are, don’t pour all your savings into it. You want to be liquid enough for dire circumstances. You really can’t tell what may happen tomorrow or the following week. It’s best to be prepared.
8. Manage your credit score
It’s always a good thing to understand how you fare in your credit score. Not that I suggest you take out loans every now and then. But knowing this gives you enough flexibility on how to handle your funds. There will always come a time when we need a huge sum to achieve certain milestones like owning a house or opening up a business. If we don’t have enough on our hands or they’re currently tied up somewhere, sometimes it’s a good thing to take out loans. Getting a good credit score ensures that you get access to more funds at a lower interest rate. But how do you maintain a good credit score? It takes constant timely payments to previous loans, a regular job and more. If you want to start banking on a good credit score, it’s best to check out sites like Credit Karma, Quizzle and Credit Sesame to know your current credit score and how you can improve it. And the best bit, they’re free!
9. Get insurance
I know, it’s another cut to that part of your income that can be spent elsewhere but guess what? Insurance will save you a whole lot of money in the long run. Just make sure to get an insurance plan that is financially reasonable, one that will provide you with enough benefits and be covered by a portion of your monthly income. The last thing you want is to be dried up because of the monthly contribution required.
10. Get a financial planner
As you go through this list, some of you may think that it’s a big challenge. Perhaps, it is. But you just have to stick to it. Lay out everything and plan accordingly. But let’s say it’s too much of a challenge for you. If that’s the case then, it’s time to get a financial planner. Don’t roll your eyes. This doesn’t cost you anything. We’re in the 21st century and there are so many online applications that help you manage your finances for free. Yes, that’s right! It’s free. Sites like Mint.com, buxfer.com and Moneydashboard.com offer comprehensive personal finance management. Just input all the necessary information and they will help you budget your expenses, track your spending habits, allot your savings and calculate your net worth. Neat, isn’t it?