Money. It makes the world go ’round, yet many of us struggle to manage it effectively. Whether you live paycheck-to-paycheck or have a healthy savings account, learning to master your money is one of the most essential life skills.
When you get in control of your finances, you reduce stress, improve your quality of life, and put yourself in a position to build wealth. Read on to learn the fundamentals of money management and tips for financial success.
How To Create A Budget
The foundation of money management is crafting a budget. A budget is simply a plan for how you will spend and save your money. It empowers you to align your spending with your values and reach your financial goals.
Follow these steps to create your budget:
Track Your Expenses
Grab a notebook or use a budget app to write down everything you spend for 1-2 months. This gives you an accurate picture of where your money is going so you can look for areas to cut back.
Identify Fixed And Variable Costs
Fixed costs, like rent, car payments, and insurance premiums, remain the same each month. Variable prices fluctuate, like groceries, dining out, and entertainment. Knowing the difference helps you determine where you can reduce spending.
Set Up Budget Categories
Common budget categories include housing, utilities, food, transportation, healthcare, personal care, recreation, and savings. Add or remove types to suit your lifestyle.
Allocate Funds To Each Category
Look at your current spending levels and determine how much to allot to each category based on your priorities and financial situation. Build in a cushion for unexpected expenses.
Use The 50/30/20 Budget.
This popular budget method apportions 50% of after-tax income to needs, 30% to wants, and 20% to savings/debt repayment. Adjust percentages as needed.
How To Stick To Your Budget
Creating a budget is the easy part. Sticking to it consistently is challenging for most people. Use these tips to stay on track:
Set up automatic payments for fixed expenses like rent, car insurance, and recurring bills. This reduces the chance you’ll forget an amount.
Use Cash For Variable Costs
Use an envelope system with cash for flexible categories like dining, entertainment, clothing, etc. When the money is gone, your spending stops.
Track Every Expense
Monitor daily expenditures with expense tracking apps or good old pencil and paper. This accountability keeps you conscious of where your money is going.
Treat Your Budget Like A Bill
View your budget categories as non-negotiable bills you must “pay” each month. This mindset shift can help you stay committed.
Involve Family Or Housemates
If you share finances, communicate with everyone involved to ensure they understand and adhere to the budget. Working together is critical.
Tips For Saving Money
One of the best ways to get your finances under control is cutting unnecessary spending. Try these savvy saving tips:
Create An Emergency Fund
Aim to set aside 3-6 months’ living expenses in a savings account. This provides a financial safety net and prevents relying on credit when unexpected expenses arise.
Cancel Unused Subscriptions
Audit your monthly subscriptions and nix any you don’t use often. Small savings from cutting Netflix, the gym, etc., add up quickly.
Eat At Home More
Cooking at home is significantly cheaper than dining out. Make it a habit to meal prep a few times a week to save big.
Utilize Your Library
Access free books, movies, music, and more through your local library and save hundreds on entertainment costs.
Avoid Impulse Purchases
Austerity measures brought about by COVID-19 have hit the retail sector hard globally. While the initial shock led to furloughs, layoffs, and even bankruptcies, many companies have since adapted their operations during the pandemic.
Brick-and-mortar businesses pivoted to improve their e-commerce capabilities, delivery networks, and contactless payment options. Department store chains expanded their selection of casualwear and athleisure items to cater to work-from-home (WFH) wardrobe needs. Multi-level marketing (MLM) companies and social commerce sellers moved their operations online to connect with customers virtually.
As lockdown measures ease in 2021, the retail industry will enter a recovery phase. Brick-and-mortar sales are rebounding as vaccination campaigns progress, and consumers return to physical stores. However, retailers face longer-term uncertainty as the economy adjusts to a new normal. Those demonstrating agility and resilience will be poised for success after the pandemic.
How often should I review my budget?
Review your monthly budget to ensure your allocations align with your spending needs and priorities. Make adjustments as necessary. Revisit your budget entirely every 3-6 months for a deeper analysis.
What apps help with budgeting and saving?
Apps like Mint, You Need A Budget (YNAB), Personal Capital, and Digit can help you easily track spending, create budgets, automate saving, access financial insights, and more.
Should I use cash to budget better?
Using cash, mainly when you start budgeting, provides tangible spending limitations and makes you more mindful about purchases. Just be sure to track cash transactions to include in your budget totals.
How much should I have saved in an emergency fund?
Aim to save 3-6 months’ living expenses in your emergency fund. This provides a financial cushion for unexpected bills or income loss. If that target seems unattainable, start with $500 as your initial goal and build up.
What percentage of my income should I be saving?
Ideally, save 10-15 % of your pre-tax income. If your company offers a 401(k) match, contribute enough to get the full game before allocating additional money to other goals like an emergency fund.
Learning to create and stick to a budget, make wise spending decisions, and save consistently are foundational money management skills. Start small if the idea of overhauling your finances feels overwhelming. Incremental steps like cutting one discretionary expense or setting up automatic savings deposits add up.
The key is to be budgeting perfectly but persevere over time. With commitment and patience, you can take control of your money, reduce financial stress, and reach exciting goals. The freedom and peace of mind are well worth the effort.