Having good money management skills is about more than just making ends meet or improving your financial situation.
Proper money management allows you to keep your finances in a state where you are not worried about what may happen tomorrow.
At first glance, it seems that you need a lot of money to achieve this.
But in fact, people with an average income may have a much better financial situation than those who have a huge amount of money but do not track it.
In a sense, money management can be compared to how people take care of their health by eating healthy food or exercising.
Looking after health is a regular and consistent commitment.
So if you just stop after achieving some intermediate results, then everything can quickly get back to initial conditions.
The same applies to money!
Financial management is a philosophy about how to take care of your financial health and reduce the possibility of facing financial issues.
And it is not so difficult to get your finances on track — it is just a matter of will and desire.
If you don’t know where to start, these 7 steps may help you better manage your finances.
7 Steps To Improve Your Money Management Skills
1. Assess Your Current Financial Situation
Managing money without knowing where you are is like walking down the road with your eyes closed.
It is dangerous and reckless.
So first of all, you need to understand how much money you have and what you mostly spend it on.
The basic step to do this is to sit down and record your monthly income and expenses.
If you use cash all the time, don’t save receipts, or have never tracked your money, then try starting to record all your spending and income in the first month.
Also, it is recommended to note which purchases were emotional and which were planned.
The ratio of these purchases can tell a lot about how you spend your money.
Besides, it is worth dividing the costs into different categories.
For example, regular expenses that you make every week or month, and variable costs that include one-time and irregular purchases.
This gradation will be useful in later steps and make it easier to prioritize expenses.
For some people, it can be a wake-up call, helping to realize that they spend too much on certain things that can be easily saved on.
2. Set Financial Goals
After assessing your current financial situation, you will be able to understand whether your current spendings are in line with your values.
For example, if you notice that you often buy things that you quickly lose interest in, then this is already a reason to change your attitude towards some purchases.
When you understand what things you are spending too much money on compared to your current income, it will be easier to reallocate your funds.
This leads to the next step — setting financial goals, also considered to be dreams by many.
Maybe you even want to find apartments you can rent out for passive income? It won’t happen without a goal in your mind to reach for.
In today’s world financial goals are measured in large expenditures like a house, a car, or a holiday.
But the financial goal is the condition or capital that allows such purchases, and not the purchases themselves.
3. Create A Budget
A lot of people do not budget because they think it is boring, time-consuming, and pointless.
But if you are bad with money and you do not control your costs, then you have no excuse to avoid budgeting.
Creating and maintaining a budget can help you make well-informed financial decisions and better manage your money.
Having a kind of roadmap will make it easier for you to understand how to achieve your goal and how long it may take.
Besides, instead of focusing only on the budgeting process, think about how much value it will give you if you stick to it.
There are many different ways to budget, depending on your self-discipline.
Let’s take a look at the 50/30/20 budgeting method as an example.
According to this method, you can allocate 50% of your income on needs, 30% on wants, and 20% on savings and investments.
Needs are spendings that you always need to keep in your budget, for instance utilities, housing, food, paying debt, etc.
Wants are expenses that are not obligatory to live your life like alcohol, dining out, vacations, subscriptions, entertainment, etc.
For some people, it may be easy to confuse wants and needs.
To determine what is what, try to ask yourself if you could live without it or save a lot on this.
If you could, then it wants, not needs.
Another option is to use a more free analogue of the 50/30/20 system — 80/20 where 80% is any expense, and 20% is savings.
If there are a lot of spontaneous purchases among your spendings, then it is better to pay attention to stricter budgeting rules.
If you have some free money left even after its distribution in various categories, this does not mean that it must be spent immediately.
Try to relocate them evenly between wants and savings.
If you can afford to save more than 20% of your income without harming other types of expenses, then this will only bring you closer to achieving your financial goals.
For people with irregular or seasonal jobs, experts recommend creating a budget for a longer period than a month.
In this case, try to estimate your annual income and how much you spend on average per month on various types of expenses.
Another top tip for managing your budget is by taking advantage of savings and discounts.
It can be highly beneficial to invest in a savings card which gives you exclusive discounts on the things you love, including restaurant and dining deals, cinema tickets and experience days.
With tastecard deals, you could enjoy up to 50% off food and drink or 2 for 1 on selected meals.
Not only this, but you can also take advantage of amazing discounts on cinema tickets and fun days out with friends and family.
Doing the things you love shouldn’t blow your budget or ruin your savings goal.
Choose to save whilst you spend.
4. Pay Off Debts
Paying off debt is an excellent initial financial goal.
Considering that debts often accrue interest, getting out of debt can be a long process, especially if you only make minimum payments.
Credit cards are one of the easiest ways to get into debt.
So, try to set spending limits for card payments so that you don’t accidentally spend more than you can afford.
Debt increases your necessary expenses and reduces your savings opportunities.
It means debt can become a major deterrent to further cost optimization.
Even if you have things like car debt, you may find it helps to look for better PCP car deals to help keep the costs down.
If you have multiple debt obligations, then start with the ones with the highest interest payments on the debt.
5. Build An Emergency Fund
One of the things that can make you mange your money better is having some cash set aside for emergencies.
Quite often, extreme expenses are accompanied by unpleasant events such as health issues or job loss.
While we never know when they might happen to us, we can prepare in advance for them with the emergency fund.
Most experts recommend keeping in such a fund an amount that corresponds to 3-12 months of your income, depending on your risk tolerance.
You can open a separate saving account for an emergency fund and immediately send part of the income (10-20%) there to reduce the temptation to quickly spend this money.
Such a fund can save you from new debt and become the foundation of your financial state.
6. Start Investing And Saving For Retirement
Accumulating funds for retirement may seem unnecessary, especially if you are not going to retire for decades.
However, the closer you are to retirement, the more relevant question it becomes.
As with the emergency fund, you need to start small and gradually save some money for retirement, even if it’s a few percent of your income.
But savings should not be kept only in cash, otherwise a significant part of them will be shrunk due to inflation.
Therefore, it is worth considering various assets for investment: real estate, stocks, bonds, cryptocurrencies.
At the same time, one should not concentrate only on a single asset for investment.
Instead, create a portfolio with assets in different markets and try to keep the return-risk balance at an acceptable level for your goals.
If you do not have the opportunity to immediately create a diversified portfolio, then first form a plan of how your portfolio will look and the proportions of different assets.
Then try to gradually acquire assets according to the plan you have developed.
With a diversified portfolio, you can offset the decline in the return on one market at the expense of other assets, making your savings even more reliable and protected.
Besides, you should not mindlessly invest in random assets because investment is not always a guarantee of profit.
This principle can be used for investing in traditional assets as well.
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7. Monitor Your Progress From Time To Time
Money management is an ongoing process that requires endurance, discipline, and dedication.
Periodically monitoring your progress (in a month, quarter, or year) will keep you motivated to continue moving towards your financial goals.
Besides, such checks allow you to identify whether you need to adjust your budget or how your behaviour has changed when your income increases or decreases.
Conclusion On Improving Your Money Management Skills
I hope now this post is drawing to a close that your knowledge on what it takes to have good money management skills entails.
Now you need to make sure you implement the information- that’s the key part.
I suggest either bookmarking this post or writing down the key aspects in a diary.
That way you can you can apply the information to your life and reference it when you need to.
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