Many people think that creating a budget is how to manage your finances. But that is just a part of the whole plan work. What you need to do first is map out your current finances and prioritise your spending needs.
We share with you, ideas and advice from a US News & World Report writer and Finance advisor, Maryalene LaPonsie on steps to take in managing your finance better:
Understand Your Current Financial Situation
Before you can start managing your money better, you need to know how much of it you have. You’ll be surprised at what you’ll discover when you sit down, put pen to paper and record all your regular monthly income and expenses.
If necessary, save receipts for a month to determine where money is spent beyond major bills like rent, utilities and debt payments. For some people, it can be a wake-up call to realize how much is being spent on items such as groceries or eating out.
Set Personal Priorities and Finance Goals
Once you have laid out your current financial situation, it’s time to determine whether it aligns with your values. For instance, if spending weekends with your family is a priority, paying for a housekeeping service may free up valuable time and be a smart use of money. However, it may not make as much sense if travel is a bigger priority. In that case, the money spent for housekeeping may be better spent on vacations.
Create and Stick to a Budget
Writing a budget and designating how your income will be spent each month isn’t necessarily hard for many people. Where the challenge lies is following it through. People lack the self-discipline to limit impulse purchases, or may feel too restricted by having to plan their spending in advance.
However, the reward for sticking to a budget is having cash available to spend on those items most important to you. What’s more, it will be easier to follow a budget that is written with your priorities and goals in mind.
If you discover there isn’t enough money to pay for everything you’d like, look for ways to whittle down expenses. As long as it doesn’t change your quality of life drastically, making significant changes like this will have the most profound impact on your finances.
Establish an Emergency Fund
Part of how to manage money better is to have cash set aside for unexpected events such as a lost job, illness or broken car. The best way to create this fund is to include savings in your budget. How much you save can depend on how much extra money you have available. If you can put aside at least 10% of your income into emergency savings each month, it will come in readily handy when such need arises.
Save for Retirement
At some point, you may want to retire, and that will be hard to do without a retirement fund. Workplace retirement plan accounts can be a good place to save for retirement, since contributions are automatically deducted from payroll. Plus, many employers will match a portion of their workers’ contributions, further boosting retirement savings.
For those who don’t have employer-sponsored retirement plan, you should try to save 10% to 20% of your income for retirement.
Pay Off Debt
Debts can get in the way of meeting financial goals.
Since most debt accrues interest, becoming debt-free can be a long process if you are only making minimum payments. However, debt consolidation only works if you commit to living within your means going forward.
If you do get a loan, choose one with the shortest term possible.
Schedule Regular Progress Reports
Managing your money successfully is an ongoing process.
It helps to schedule regular times throughout the year to evaluate your financial situation. Always know your income, savings, spending and net worth. Use them to determine what progress has been made toward financial goals and whether any budget items need to be adjusted for the future.