There are steps all of us can take to better improve our finances, from cutting back on spending habits to working on paying off debt. The first step is building on your knowledge of handling finances and improving your money habits. If you’d like to learn more about how to do this, then take a look at the post below. We’ve listed some of the essentials to understanding your finances, as well as some tips for how to get the most from your money.
Budgeting is essential to get the most from your income. If you fail to budget correctly and keep track of your finances, it can lead to you losing track of the money exiting your account. Poor budgeting skills are also closely linked to difficulty being able to make savings, as the two go hand in hand. Budgeting involves setting specific amounts of your income for certain areas of spending. For example, you would have a certain amount of your income set aside for savings, food shopping, utilities, and rent or mortgage payments.
Make Use Of Modern Tools
These days there are plenty of apps out there that can help you save money and have better control of your finances. You can even find banking apps that feature built-in overviews of your spending habits. You can utilise this as a sort of easy budget planner. As the different payments you’ve made on your card get sorted into different sections (such as shopping, entertainment, food) you will be able to better control your spending habits and know what to cut back on.
Reducing Monthly Bills And Unnecessary Spending
From your budgeting, you will be able to find areas where you can afford to cut back. These are commonly monthly subscriptions to TV and film, eating out, and clothes shopping. Whilst these things are nice to have, they should not be taking up a large portion of your income. Prioritise paying bills, paying off debt, and making savings. From what you have left after that, you’ll be able to work out your budget for treats and rewards.
Loans And Borrowing Money
There are different types of loans for different purposes. For example, a mortgage is classed as a long-term loan, or you can get business loans. One of the most commonly used short-term loans are pay day loans. They are often used if someone doesn’t have the money set aside in savings to help them through a financial sticky patch. If you’re thinking of using pay day loans, you should make sure you’re able to pay back the money within the time outlined in the terms and conditions. Therefore, they should not be seen as a long-term solutions to financial struggles. Pay day loans can be useful if you need to pay for something but won’t have the money to do so until you get paid. In this situation, as long as you have plans in place to pay off the loan on time, then it’s fine to use.
Paying Off Debt
If you’re in debt, especially if it’s high interest, you should prioritise paying this off before working on building up savings (apart from an emergency fund which we will cover later in this post). The reason for this is that the more debt you have, and the longer you have it, the more interest you will be being charged so the more expensive the debt is. Prioritise paying off the debt as quickly as possible, then when it’s paid off the money you save from repayments can be used for making savings.
Pay Bills On Time
One of the best ways to avoid damaging your credit score and losing control of your finances is to make sure you pay bills on time. Try not to take on new bills and direct debits if you’re already struggling at the end of the month, it could end up with you getting into debt or stuck in your overdraft and unable to get out of it.
Saving An Emergency Fund
An emergency fund is savings set aside specifically for any unexpected financial rainy days. For example, if you unexpectedly lose your job or face a surprisingly large bill on your home or car. Ideally, an emergency fund should be several months’ worth of your monthly income. It can provide a safety net for you and your family in sudden financial difficulty, taking away from some of the day-to-day stresses of life. As soon as you get paid, put money straight into your savings account, this way you’ll be less tempted to spend it if it isn’t in your current account.
Starting A Side-Hustle
Another way to see your money grow is to start a side-hustle or passive income. If you already have an existing job, this should be something that works alongside your existing job and fits your lifestyle. It’s best to start up something you have a personal interest in, to help give you the kickstart you need and maintain your focus and drive. If you don’t want the responsibility of starting your own business, you could look into passive income streams, and which would work best for you.
Should You Invest Your Money?
One of the biggest questions around optimising finances is whether or not to invest our money or keep it stored safely in savings. This is something only you can decide for yourself, and needs to be given plenty of thought. On the one hand, investing your money opens up the opportunity for your money to work for you. But on the other hand, all investments come with some level of risk, and there’s the potential to lose money as well as make it. Before choosing to invest your money, you should educate yourself as much as possible on the type of investment you plan to make, or even seek expert advice and guidance. If done wisely, and with a bit of luck, investing can see your money grow from sitting idle in a savings account, to unlocking future returns and growth.
Seek Opportunities To Educate Yourself On Finances
If you want to have control of your finances, seek out opportunities to educate yourself and learn new finance skills. Read books, listen to podcasts, and attend training days. Actively taking an interest in improving your knowledge of managing your personal finances is a great step to take towards being responsible and successful with your money.
Set Financial Goals
The best way to stay focused on money whether it be to pay off debt, save money, or boost your income stream, is to have goals to work towards. This can help you to stay motivated on what you want to achieve from your personal finances. You should also have a plan for how you’re going to achieve your goals, such as budgeting or opening up a passive income stream. Also, set smaller targets along the way to your main goal. This will help make the end goal seem more achievable and less of a daunting prospect. You could even work rewards into it to help boost your morale. For example, once you’ve saved up a certain amount of money, you treat yourself to a meal out or a new purchase.