Looking for ways on how to manage your money effectively?
Financial problems are due to poor money management skills. It’s a silent culprit as people cannot identify what’s causing problem in their financial lives. They think they need a better paying job or invest in some new scheme that promises high return when in reality, effectively managing money can solve all their problems.
So how to manage money effectively?
You don’t have to hold your breath anymore. Here come the tips.
Tally income and expenses
A mistake people make is they don’t realize the synchronicity between income and expenses. You need to better understand your income and your expenses. Ever wondered why you lack an in-depth understanding? It’s because you live in denial and pop culture fuels this denial by insisting you to spend recklessly. Those who belong in the low-income group must spend frugally if not in a spendthrift manner. But there’s no end to their whims and fancies thanks to the growing consumerist culture.
Tallying income and expenses helps you come out of denial. You could see how much money you are making every month and how much are your expenses. After seeing this, you could take a better and more mature decision.
Maintain a monthly budget
Some of your expenses are necessary. Other expenses are unnecessary and can be avoided. Creating a budget every month helps you recognize which expenses are necessary and which expenses are not. Cut down on the unnecessary expenses. Resist the temptation to purchase the expensive deodorant or the designer t-shirt. Bear in mind that these expenses are not necessary, so you don’t need them if you monthly earning doesn’t support them.
Which expenses are necessary? Grocery, electricity and phone bill, rent, mortgage, clothing, etc are necessary expenses. Prioritize them and spend the largest chunk of your monthly income to pay these bills. Now, I am not telling you not to spend money on things that catch your fancy but are not essentially needed. You can purchase such products/services, just make sure you are spending a very tiny amount of your monthly income there. Having a budget helps you do that.
Pay bills on time
Take it seriously. Make it a habit. Oftentimes, we miss the deadlines because of sheer lethargy. Can you believe that? I know, it’s hard to believe. But it’s true. Paying bills on time means no debt in the future, thereby saving more money than you’ve originally planned. It also means a reduced list of expenses. Late payment of bills appears difficult for not having enough money at the end of the month. Hence, always pay your bills on time, never miss a due date, ever. And never discriminate between them. You have to pay all the bills, so each one of them is a priority.
Consider debt consolidation
Want to know how to manage money more effectively. Consolidate your existing debts. If you don’t have any debt right now, congratulation. You are among the very few Americans who are totally debt-free. But if you do owe money to the fed and if the amount you owe is close to the standard mean of household debt in the USA, debt consolidation might be the best way forward.
The process of debt consolidation is simple. Every single debt you have, be it credit card debt, student loan or even personal debt can be consolidated and merged into one. The benefit? You get the lowest interest rate. Of course, you have to sit on the negotiation table for that.
Many people snub debt consolidation, sometimes out of ignorance and sometimes out of sheer lack of motivation. What these people fail to realize is debt consolidation may take time to show result, but when it does, it’s absolutely amazing.
Have a back-up fund
It may not be possible for you to slash unnecessary expenses completely. Sometimes, during the holiday season or when a friend throws a birthday party or a colleague’s marriage comes by, you spend more than the usual. To counterbalance the outflow of money in scenarios like the ones described above, you should have a back-up fund. Some people call it an emergency fund.
The benefits of a back-up fund are quite a few. It comes in handy during a financial crisis. Even if it’s not a crisis, a back-up fund can help you pay for cost that you haven’t estimated before. However, don’t exhaust a back-up fund unless it is absolutely necessary. If you lose your job or lost money or if your business hasn’t been going well, you’d have to use your emergency fund.
A lot of people wonder how to manage money effectively. Very few end up getting the right answer. Those who are accepting, who are characterized by self-reflection and who take their finances seriously and research belong in the latter group. Are you one of them?