Managing your finances isn't easy, and learning to manage money often comes with some hard lessons. By following these steps and making a plan, you can organise your finances and start saving.
Image Source: Pixabay CC0 License
Setting a budget is the best way to manage your finances. Next, look for ways to reduce your debt payments (e.g. balance transfer cards and increased loan repayments). Finally, set a goal to motivate your savings.
Plan And Budget
Setting a budget and tracking your spending is the best way to improve your financial management. Having a budget and tracking your earnings and expenses will also help you avoid unnecessary spending. Also, you won't be afraid to check your bank account because you won't know how much money you have left for the month.
Pay More On Credit Cards
While it may be tempting to only pay the minimum repayment amount on credit cards and other debts to stretch your monthly budget, you should remember that this will ultimately cost you much more.
Consider a $2,000 debt with a 20% interest rate and a $35 monthly minimum repayment. If you only pay the minimum amount, it will take you over 15 years to pay off this debt and you will end up paying nearly $4,000 in interest.
If you pay $100 per month instead, you'll be debt-free in just over two years and save $450 in interest payments.
Pay Down Your Debts
Getting rid of debt and overdrafts is another great way to improve your finances. An overdraft is often misunderstood as a form of credit, but it is actually a form of debt. Even arranged overdrafts can be costly, with a $500 overdraft costing at least $70 per year, and a higher overdraft likely costing much more.
Similarly, loans often cost far more than advertised. Despite most loans being advertised with APRs between 2.8 and 5.5 percent, the average loan in the UK has an APR of around 7.0 percent, meaning you'll end up paying 150 percent more in servicing fees than you expected.
Paying off your loans quickly will help you avoid extra fees and allow you to start saving for yourself rather than just lenders. If possible, change the loan terms to get a better rate, but be aware that changing rates may result in an additional fee.
Visualize Your Objectives
Saving without a specific goal in mind is difficult because it feels like you'll never be rewarded for your efforts. When creating your budget and saving plan, consider what you want to save for and keep it in mind throughout the month. When you visualise this goal, it becomes much easier to budget.
It all depends on what you want and how long you're willing to save. If this is your first time saving this way, start small. Watch how long it takes you to save £100 and then spend it on something useful. From there, you can estimate how long it will take you to save more and how long you are willing to save.
Be Prepared For The Unexpected
While you can't predict the future, you can protect yourself from financial hardship by saving as much as you can. By saving money for a rainy day, you can avoid having an unexpected expense derail your financial goals. It’s a good idea to have contact details on had for your insurances, breakdown cover, medical malpractice attorneys, and others.
These five tips should help you to prepare for a better financial future. Do you have any other tips that could help? Please share them in the comments below.