How to handle money
To competently handle money, it is not necessary to be a professional investor or economist. A person either wisely manages his means or not.
For effective financial management, there are several conditions that are available to everyone. Start planning your budget, deal with expenses and debts. Then start working on saving, increasing savings and investing..
Part 1 – Budget and Costs
1. Plan your budget according to goals
Set financial goals. Understanding why you save and save is the key to budgeting. Want to pay off a big debt? Dreaming about buying a car, at home? Just become financially stable? Set clear priorities to have clear guidelines for further action..
2. Analyze monthly income
A smart budget is one that does not lead to increased costs. To create it, start by analyzing your total monthly income. Include salaries, bonuses, part-time jobs and cash gifts. If you share expenses with a partner, calculate the total income and determine the budget for home needs. We wrote more about this. here. To handle money properly, try not to exceed expenses over income.
3. Calculate the required expenses
The base item in the budget is compulsory expenses. Dealing with them is everyone’s first priority. Since these expenses are needed for a comfortable life. These categories include mortgages or rental housing, utilities, car or public transport, debt, food, medical services, the Internet and communications. Determine how you will have fun during the month and also consider this in the budget (cinema, theater, sporting events, outdoor activities, fitness).
Set automatic transfer of payments for those expense items, where applicable, to simplify your task. This approach will allow money to go directly in the right direction on the day you receive your salary..
4. Calculate optional expenses
A budget works well when it reflects expenses from everyday life and is as close to reality as possible. Look at your usual, non-essential expenses. If, for example, you buy coffee or sweets every day on the way to work, calculate the total amount and add it to the plan.
5. Find ways to reduce costs
Budget planning will help you understand where the money goes and “cut off” the extra spending that takes too much money. When you can do this, you can send the released finances to a savings account or pay off debts faster.
If you are not able to give up coffee, then buy your own coffee machine. This will reduce the total cost of the drink per year. Enjoy discounts and coupons at your favorite coffee shop.
Check expenses that are not considered minor or everyday. Surely you do not need all the channels on cable TV. See if there is a better subscription option. The same applies to Internet and telephone rates..
6. Review your budget regularly
Costs change every month depending on needs, but this should not affect financial stability. Track them in a spreadsheet or mobile app.
If you are unable to follow the budget and move towards goals, do not scold yourself. Find the reasons why the current plan does not work, fill in the missing articles. This will make the picture clearer and help you manage your money better. Mistakes and shortcomings happen to everyone, but they do not make it impossible to achieve the desired.
7. Include in the budget savings for the emergency fund
Try to save every month from 5 to 10% of income. Keep this money in a savings account separate from the main one. In case of breakdowns in home appliances, a car, dismissal from work or other unforeseen circumstances, deferred savings will help you out.
Financial advisors recommend that they be enough to cover 3-6 months of expenses as usual. If you have a lot of debt, create savings for 1-2 months, and focus on paying off liabilities.
Part 2 – Debts
1. Find out how much you owe
To understand how to pay off debts, you need to know exactly how big they are. Count all possible obligations: consumer loans, mortgages, car loans and loans from friends. Find out the minimum payment for each loan and add them. You must transfer the received number to pay off debts on a monthly basis. Having a big picture before your eyes, you can begin to develop a payment plan.
2. Prioritize
There are loans with large and small interest. The first are credit cards and microloans. The second – long-term loans with large amounts. The first should be repaid as soon as possible. Their interest is large and growing rapidly. The longer you pull, the more you actually pay.
3. Pay off one debt after another
The money allocated in the budget for the payment of a specific debt does not become “free” after full repayment of obligations. More precisely, they can become them, but it is more reasonable to transfer this amount to repay another debt. The same rule works here: the faster you get rid of the loan, the less you give back the money to pay it off.
Part 3 – Savings and Investments
1. Choose the purpose for which you save
It’s prudent to handle money and save money if you know what you are doing it for. Set a goal, for example, to raise an amount for an emergency fund or to save money for the education of children.
Give a specific name to the account to which funds are transferred. This works psychologically more efficiently if you see that the amount on the “vacation” account is constantly growing.
Define a framework. Based on how much time you need to achieve the task, you can understand how much you need to save per month.
2. Make a contribution
If you have collected a substantial amount for a rainy day, look at the best options for storing money. For example, to a bank deposit. Let be finance will become less liquid, but at the end of the deposit term you will receive a percentage in excess of the amount deposited.
Open a savings account. Many banks offer interest on the balance. Replenish it regularly, and it’s better to even set up an automatic transfer from your current account.
3. Invest
When you sort out expenses and debts, form an emergency fund, think about revenue growth. Continue to increase your savings and explore investment opportunities. Shares, bonds, mutual funds, ETFs, bank deposits, currency, precious metals, real estate. Understanding the features of these tools is necessary for the strategy of each investor. Living under the old budget is not difficult, and investments will bring additional income.
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What are some effective strategies or tips for planning a budget that aligns with our goals?
Some effective strategies for planning a budget that aligns with our goals are:
1. Set clear financial goals: Define your short-term and long-term financial objectives to have a clear direction in creating a budget that supports those goals.
2. Track your expenses: Keep a record of your expenses to identify spending patterns and areas where you can cut back.
3. Allocate funds to essential expenses: Prioritize necessary expenses such as housing, food, and transportation before allocating funds to discretionary items.
4. Create a realistic budget: Be honest with yourself about your income and expenses to ensure your budget is feasible and achievable.
5. Cut back on unnecessary expenses: Look for areas where you can reduce spending, such as eating out less frequently or cancelling unused subscriptions.
6. Save before spending: Set aside a portion of your income for savings or investments before allocating funds for other expenses.
7. Review and adjust regularly: Monitor your budget regularly and make necessary adjustments to align it with changing circumstances or financial goals.
8. Seek professional advice if needed: If you’re struggling to create a budget that aligns with your goals, consider consulting a financial advisor or using budgeting tools/apps to help you stay on track.
Overall, effective budget planning involves setting clear goals, tracking expenses, prioritizing essential spending, creating a realistic budget, cutting back on unnecessary expenses, saving before spending, regularly reviewing and adjusting the budget, and seeking professional advice if needed. By following these strategies, you can create a budget that aligns with your financial goals and helps you achieve financial stability.
In conclusion, effective budget planning involves setting clear goals, tracking expenses, prioritizing essential costs, creating a realistic budget, cutting down on unnecessary spending, saving before spending, regularly reviewing and adjusting your budget, and seeking professional advice if needed. By following these strategies, you can create a budget that aligns with your financial goals and helps you manage your money efficiently.
What are some effective strategies for setting and managing a budget that aligns with your financial goals in the short and long term?