If you find yourself short on cash more often than you prefer, then you owe it to yourself to take the first steps to get financially fit, debt free, learn how to start saving, and get better at managing your money.
They never did teach this in school, why is that? Basic money management is one of the more important that everyone can use.
Wondering where would you start? The first step would be to review your own situation and do an audit of your own personal finances. Creating a baseline of incoming and outgoing costs, expenses and such so that you understand what your money situation is, and what you have to work with.
Using a spreadsheet or software, you start by entering your income. This should be your take home monthly pay, which is the amount you have to work with. This is the easy part.
Next you need to identify and enter all bills, debt and expenses you may have. These are outgoing costs from rent or mortgage to car payments, insurance, bills, loan or credit card payments, groceries, transportation and more.
You also want to determine how much you spend on the little things, since they add up as well. How many times you eat out for lunch and average amount spent, coffees you buy and so on. Don’t forget any expenses, from subscriptions or gym memberships to just about everything that is a recurring cost to you each day, week or month. You should take care not to miss any.
Planning Your Budget
When you have added up all your bills and expenses, you would then subtract the outgoing bills and expenses from your income to arrive at what amount you might have available. Hopefully this doesn’t turn out to be a negative number, otherwise you might have bigger financial issues than you may have expected.
As you begin to see the big picture of where your money is going you are then able to start making some decisions about how to work with what you have. This allow you to begin budgeting how you might use any disposable income from things like clothes, entertainment, gadgets or however you see fit to spend, as well as building an emergency fund and savings.
Just like going to the gym, you don’t do this once, but make it a habit to see results. Ideally, you are managing and monitoring your finances at least one to two times a week. If it isn’t monitored, it isn’t managed, and you are flying blind when it comes to personal finances.
If you have any outstanding loans or debt, you want to pay those down as soon as possible. In the case of credit card debt, don’t just make minimum monthly payments or it will take much longer and cost you a lot more in interest fees. Start by determining what money borrowed is costing you the most and prioritize paying this down first.
Start saving an emergency fund, even if you think that you can not afford to. As little as $10 per week would add up to over 500 in a year, which might not seem like a huge amount but it could get you out of a jam if you needed fast cash and had the funds. Don’t ever borrow against your emergency fund, thinking you’ll just pay it back. Even with the best intentions, it doesn’t always work out that way and it should only be touched when you really need it. If you are trying to get out of debt you should build an emergency find at the same time. It might seem counter intuitive, but should you ever have unexpected expenses it is better to use that emergency fund that taking out some kind of loan for fast cash, or using your credit card for a cash advance.
If you were to lose your job, an emergency fund should be able to help you get by for at least three months, if not more. Keep in mind that this would be to cover all expenses and what you might live off while looking for new work. All the more reason to determine your own financial situation, so you can build up a nest egg that would accommodate your needs.
Even in your 20s and 30s there are certain financial investments you might make in yourself that can help you build equity in a number of ways. Such as life insurance, where if you later had a family and something should happen to you, then you would at least know they are taken care of. This is one of those situations where starting sooner rather than later is advised as it allows you to build up value. Many think this is expensive, but monthly premiums can be comparable to a few meals a month. Choose to get term life insurance if you do, it’s less confusing. Even if you don’t have a family yet, you can name someone a beneficiary and change it later.
If you have a side hustle or multiple income streams, good for you. Diversifying your income is a form of protection in the case that one is jeopardized or no longer available. If your finances are slightly complex like this, you should consider getting an accountant to help. Not just for managing, but there may be cases where you are over or underpaying taxes. Also, the time you get back not having to deal with it all can be rewarding and also allow you to spend your time on other things.
One other money tip that many advise and you have probably heard before is to pay yourself first. One of the easiest ways of doing this is having your bank automatically withdraw a set amount from your checking, ideally right after payday, and move it to your savings account.
If you are looking to save for a few things, one way to go about it that’s easy is called the envelope method, where you keep cash in separate envelopes earmarked for different things. If you are more organized you can monitor your savings and put it all there, where it would at least collect some interest, but for some the envelope method might work better.
Know What you Can Afford
Many can find themselves in debt from poor choices or trying to keep up with the Joneses, and living within your means can help you stay financially fit. Your houses should not cost much more than 25% of your take home pay, and car payments should be less than 15% in total. These can be some of the biggest expenses you have, so staying within what you can afford has everything to do with managing finances.
If you really want to take control of your personal finances you can also start educating yourself on the subject and start reading certain books such as “The Total Money Makeover” by Dave Ramsey or “I Will Teach You to Be Rich” by Ramit Sethi. Insights such as this can help whip your finances into shape. Also be on the lookout for podcasts to listen to while on the go too.
Another way to get ahead is to take a hard look at yourself and your friends. If you find yourself trying to keep up and they have better jobs, it’s possible they might not even realize how you are struggling financially and simply can’t afford to go out as often as they do for drinks, food, or entertainment. But rather than make them feel bad about it, making up excuses about being unavailable and having more affordable nights at home might be the best way to handle things.
Money Advice from Dads
Some father’s advice on money and personal finances that is worth knowing can be simple but add up to a lot of helpful thoughts. From paying yourself first, plan for the future, get smart with saving, and live within your means, there’s a slew of words of wisdom.
Another is think before you buy. This couldn’t be more true, especially with items that cost more. Big ticket items shouldn’t be impulse buys, and readily available credit might allow you to get whatever that might be, but can keep you down or in debt, living paycheck to paycheck.
In the end, properly managed finances can allow you to have more in savings or know what kind of disposable income you might have available for dating, entertainment, travel and make for less stress when you have things under control.
Clearly having financial goals in mind will help motivate you, from becoming debt free to making a particular purchase or trip for you and a your better half after reaching a financial goal. Just be sure to that you go about asking the right questions before you take the plunge. With proper planning who says you have to live like a pauper for the rest of your life, although adapting a frugal lifestyle in a number of ways will help you reach your goals.