Handling our money and staying clear of the debt trap can be challenging even for the most experienced of us. This is especially true for those that are new to the workforce and only recently started to make their own money.
Avoiding debt and managing one’s own finances, however, doesn’t have to be that difficult. So to help you navigate and understand the world of personal finance, here are a few tips and tricks.
1. Don’t Spend More Than You Have
If there is only one thing you will take away from this, then it is this: Don’t Spend More Money Than You Make!
Sounds easy? Perhaps it does at the first of every month. But things might look somewhat different after three weeks of dinners, drinks, and nights out.
In order to get a better understanding of your financial situation and to avoid being tempted by loans or borrowing from friends, keep a track of your incomes and outgoings. Take a close look at your bills, your taxes, and your bank statements and try to figure out how much money comes into your bank account each month and how much money you spend.
Some find it helpful to keep a written record documenting their expenses, dividing their monthly expenses into fixed ones – as for instances your mortgage, insurance, and taxes – and variable ones – such as grocery, water, and gas bills.
But don’t stop at merely writing down an account of your finances. It is crucial to understand your outgoings as well. What are your financial responsibilities and what is it that you’re actually paying for?
2. Create a Budget and Don’t Exceed That Budget
Once you have made a list of your expenses and understood them as well, create a budget for those expenses. This will keep away from the debt trap as it will help you not to exceed your income. Moreover, a budget for your monthly expenditures can even help you save some money for rainy days ahead.
When creating this budget, however, it is vital to be realistic. There is no point in starting off with goals that are impossible to achieve.
So set yourself a realistic goal as to how much you’re allowed to spend monthly on food, entertainment, and clothes.
And now that the budget is created, the hard work begins. Understanding your finances is key to staying out of debt, but to truly achieve that you have to stick to your resolutions. And as you have designed the right budget for you, now it’s time to learn how to stay within that budget.
And there is one secret to achieving this — the Magic Money Mantra. Oftentimes, when you are out shopping it can be difficult not to go overboard and you might end up spending more than you intended to.
To keep that from happening and to avoid buyer’s remorse, here are a few questions to ask yourself before a purchase:
Do I just want it or do I need it?
Is the item useful to me?
Can I afford it?
Is it worth its price?
If I wait for a month, will I still want to buy it?
3. Save Money Today for Tomorrow
So now that you have saved all that money by budgeting your expenses, what to do with the extra cash? The answer, of course, is to save it.
Roll your sleeves up and do some research. Compare which banks offer the best plans with the best interest rates. And once you have found the one that is best suited to you and your financial needs, it is time to start saving.
Having a little extra cash on the side is always a good idea. Be it for a vacation, a house, your retirement, or any unexpected emergencies like car repairs — keeping an eye on the future and planning ahead will always pay out. So why not save now for tomorrow?
Managing your own money might be a boring task and it is tempting to let your financial responsibilities slide. But this will inevitably only end up in your own ruin. If you don’t know how much you make or how much you spend, it is easy to get into the red.
So in order not to end up in a debt trap and be controlled by your money, learn how to manage your finances, as your money is your responsibility.
About the author:
Yaakov Smith has twenty years of experience with developing, configuring and writing software. He is the owner and founding manager of Logican Solutions Ltd, which offers its clients complete productivity software solutions for their businesses.