Making your way through the world of personal finance can be quite challenging, even for adults with a steady job and experience in the corporate world. But don’t worry, if you’re struggling with your finances now, doesn’t mean you’ll never get better at it.
With a certain amount of smart planning, a well-chalked out strategy, and a basic understanding of budgeting, you should be successful at mastering the much-needed money-management skills to take charge of your finances. We’re here with a few rudimentary pointers that are sure to help you ace it.
Do you have any financial goals?
For those of us who are crawling from one paycheck to another, saving never seems to be feasible, let alone a goal to look forward to. Without a goal in mind, it can be hard to find the drive to save.
Begin by determining what you want to save for. Do you want to move into a house of your own or early retirement? Then, saving should be your top priority.
Once you’ve set a goal for yourself, your next step is to figure out how much you’ll need to save in order to get there. To stay motivated, you can also set a timeline for reaching your goal.
For starters, we suggest you set aside a small chunk of your paycheck every month into a Savings Account, and very soon you’ll have a small savings fund at your disposal.
The early bird catches the worm
Ever heard of interest on interest? We’ll tell you everything about it. Compound interest is a process that allows the interest on your savings to earn even more interest. Every time you earn interest on your savings amount, the total sum, including your savings and the interest, becomes the new principal amount on which you’ll be earning interest. So, each time, the principal on which you earn an interest increases, thereby giving a higher yield.
This strategy is best for those who want to save for retirement. The earlier you start to save for retirement, the more time your money will get to grow and compound into a large sum.
Watch your expenditure
One of the simplest and best financial thumb rules is to spend less than what you earn. In this day and age of consumerism, it’s very easy to live beyond our means. However, a good place to start is to try and save at least 10% to 15% of your monthly income.
We suggest you begin by monitoring your expenses for a few months. Note down what categories you have spent the most on. The best thing to do is to see if you can cut down on these. For instance, switch to buying your groceries from local vendors instead of opting for processed goods and supplies from supermarkets.
If you tend to overspend, try purchasing your everyday needs such as food through cash. Reserve your Credit Card for big-ticket purchases. However, note that when used responsibly, you can earn cashback rewards and other benefits on your regular spends on paying through your card.
Have you been taking your budget seriously?
Budget is crucial for clearing your debt, debt management, tracking your spending, and fulfilling your financial goals. With a budget in place, you’ll be able to track your cash flow.
Begin with a spreadsheet to note your expenses each day, for a period of time. The idea is to understand what categories you end up spending mostly on. Use the envelope system. All you have to do is use envelopes to split your cash into categories of expenses. This is an effective way of budgeting and can help you set long-term savings goals.
If you’re tech-savvy, you’ll surely find multiple options online. Check out free online budgeting software tools. These are currently available with a simple Google search. Some online budgeting tools allow you to integrate your Savings Account into your budget. This way you’ll no longer need to write anything down. Your transactions will be automatically pulled from your bank statement.
As a thumb rule for effective budgeting, group your expenses into essentials, non-essentials, and flexible spendings. Your rent and monthly EMIs will fall under essential expenses. These are also your fixed expenses every month. Expenses that vary each month are the flexible ones. It’s up to you to decide how much you’ll spend on this category. This consists of your utility bills. For instance, you can save water and electricity and in the process, reduce your bills.
The last category is that of non-essential expenses, comprising those that are not necessary. Generally, these are expenses such as a fancy dinner with friends. What we mean is, these are at your discretion.
This article was originally published on bankbazaar.com and re-published with permission.