Money management is a tough subject for a lot of people.
We all know that we should be using our money carefully and watching what we spend to improve our chances of reaching our financial goals. However, if you’re not earning as much money as you’d like, and you constantly have bills to deal with, then the concept of dealing with your cash can end up being extremely daunting.
Know Your Cash Priorities
Before you can start thinking about things like budgeting and saving, you’ll need to determine what matters most to you. What do you want to accomplish with your cash right now? Do you just want to maintain your existing lifestyle as much as possible and save a little back for retirement? Maybe you want to save as quickly as possible for a big goal like a new home.
Knowing your priorities will help you to decide how much money you want to dedicate to your discretionary spending and your savings. Around 50% of your income should go towards your bills, while 30 could go to recreational spending, and 20 could go to saving, or vice versa.
Spend Money to Save Money
Deciding that you want to save more money doesn’t mean committing yourself to buying the cheapest option of everything. This is a common mistake that a lot of people make when they start dealing with money management for the first time. Instead, you might have to pay a little more from time to time to make sure that you get a better deal in the long term.
For instance, on your personal loan when you move into your new house, so that you can afford energy efficient appliances could save you a fortune on energy in the future. Measure the cost of each item against its long term benefits.
Track your Trigger Points
We all have areas in our financial lives where we struggle more to make good decisions with our money. For some people, the problem comes whenever they see a sale on clothes in their favourite store. Other people have a hard time saying no to their friends when they’re invited to go for a night on the town or join the group for an expensive meal.
Tracking where you spend your cash over a period of a few months will help you to figure out exactly where you’re having the hardest time sticking to your budget. Once you know your trigger points, you can find ways to fight them, or avoid them. For instance, consider asking your friends to come over to your home for drinks rather than going out one night.
Don’t Bury your Head in the Sand
Good financial management means creating a plan for your cash and following that plan as carefully as possible. For instance, you might even know where every penny in your pay is going to go at the
end of each month. However, there’s always a chance that something could happen in your world that you haven’t planned for. Over time, if you’re managing your money correctly, you’ll be able to put a small amount of your cash each month aside into an emergency savings fund that you can tap into when these problems arise.
However, if you don’t have your fund yet, don’t just bury your head in the sand when things go wrong. Sometimes you’ll need to borrow money and use other cash to fix issues, and that’s okay. It’s often better to deal with problems like a broken boiler or an issue with your roof immediately, as the problem can become much more expensive later on.
Find What Works for You
Different people have different strategies for effective money management. Some people will need to use apps on their phone where they can keep track of all their spending each month. Other people will prefer to keep notes in a notebook that they can refer to from time to time. There’s no one-size-fits-all strategy for successfully saving cash and reducing your spending. Ultimately, you’ll need to experiment until you find what works for you.
If the envelope method of budgeting where you use cash for most of your offline expenses doesn’t work for you – switch to the 80/30/20 method instead. Keep trying new strategies until you find something that you feel comfortable with.