Anybody can be good with finances – you just need to take the right steps to manage your money better. The reward is avoiding or managing debt, knowing how much more money you need to earn, and hopefully, having enough to save for a brighter future.
To help you in this endeavor, here are five simple steps to start getting your finances under control:
1. Know What You Have
To understand what you are playing with financially, calculate the following:
- What you must pay out, including your utilities, tax (use a simple income tax calculator to get an estimate), mortgage payments, and other routine expenses;
- What you tend to spend on avoidable extras, such as buying new clothes, going out for dinner, and going on holidays;
- What you spend when you want to treat yourself (think things like expensive perfume, new technology you don’t strictly need, and car upgrades).
Calculating these expenses will give you the starting position from which you’ll start working on getting your finances under control.
2. Decide What Your Priorities Are
The average American is over $90,000 dollars in debt. If you’re in the red at all, it is crucial to prioritize paying that off (tackle high-interest debts first) and getting it under control before you do anything else.
If you are debt free or you have long-term borrowing arrangements under control (such as a mortgage), then you can start to divide your income into different pots.
Before you do that, though, spend a little time looking at various ways to save and goals to aim for, such as buying a house, going on a holiday, or investing. You can combine this information with the following steps so that you have a well-rounded financial plan.
3. Create An Emergency Fund
Rainy day funds can, for some people, be the difference between getting into debt or avoiding it. A washing machine breaks, the car needs a repair, the pet needs an operation – an emergency fund that you can dip into and top back up is key to maintaining financial control. It means you don’t have to worry about these emergencies happening because if they do, you have the resources you need to cover the expenses without having to fall on hard times.
4. Create A Long-Term Safety Net
As well as an emergency fund, it is important to have enough savings in the bank to protect you for a longer period of time should one of those emergencies extend out into a drawn-out time of hardship. Of course, no one wants to think about such things. However, they can and do happen.
Do you have enough money to tide you over if you lose your job and can’t find another source of income for six months? Insurance can help with this, but so can having your own savings set aside to provide extra financial cushioning if the worst happens.
5. Change Your Habits
The average American spends over $2,000 dollars a year on takeaways and eating out. If you only changed that one habit and perhaps spent half of that on takeouts, you could have $1,000 dollars extra to save or put towards your financial goals. Being savvy with money isn’t just about saving or spending – it’s often about habit changes too.
You’re only a few steps away from being better with money. Be brave, be smart, and face the facts. It may be a tough process, but there are only good things to be gained from it.
