You don't need a high paying job or a free money windfall from your parents to achieve your financial goals. All it takes is a bit of money management to control your spending so you can save for your dream vacation, wedding, or pay your debt.
In this blog post, we will share five tips that will help you manage personal finances and improve your financial position.
5 Money Management Tips
Refer to these tips if you ever find yourself spending more than you should or needing some money management tips. These five tips will help you save more and have a better financial future.
Keep a percentage of your income as your savings goal
Keeping a percentage of your income as your savings goal is a crucial step in managing your finances wisely. Saving money serves as a financial safety net, allowing you to handle unexpected expenses, pay off debts, and have funds readily available for emergencies. However, determining the right amount to save can be a challenge for many people.
The key to setting a savings goal is to establish a specific cash reserve in your bank account. To calculate this amount, start by doubling your monthly income. This figure becomes your initial savings goal, and it also sets a minimum balance that you should always maintain in your savings account.
For instance, if your monthly income stands at £4,000, your primary savings target should be £8,000. This means you aim to accumulate at least £8,000 in your savings account and ensure that your balance never dips below this threshold.
By adhering to this simple rule, you create a financial cushion that provides peace of mind and financial stability. It ensures that you're prepared for unexpected expenses, allowing you to maintain control of your finances and achieve your long-term financial goals. So, remember, doubling your monthly income is the key to setting a practical and effective savings goal.
Split your income
Don't keep all your money in one bank account. Expensivity suggests that you allocate a fixed amount by splitting your income into different bank accounts dedicated to each portion of your monthly spendings. Doing so helps you know which section of your monthly budget impacts your income.
Splitting your income across multiple bank accounts is a smart financial strategy that can significantly improve your money management. When you keep all your funds in a single account, it can be challenging to track how much you're spending on different categories such as groceries, gas, and bills. This lack of clarity can lead to overspending and financial stress.
To gain better control over your finances, consider allocating a fixed amount of your income to separate bank accounts, each dedicated to a specific aspect of your monthly expenses. This approach allows you to clearly see where your money is going and which areas of your budget are impacting your income the most.
For instance, you can set up a dedicated bank account solely for paying your household bills. By doing so, you ensure that the money needed to cover your utilities, rent or mortgage, and other essential expenses is readily available. This prevents you from accidentally dipping into these funds for discretionary spending.
Additionally, you can create separate accounts for other categories such as groceries, transportation, entertainment, and savings. This compartmentalisation of your finances provides a visual representation of your budget, making it easier to make informed spending decisions and avoid financial strain.
Overall, splitting your income into different bank accounts is a practical way to gain better control over your finances, stay on top of your expenses, and work towards your financial goals with clarity and confidence.
Pay your dues on time
Delaying your bills or debt will result in financial penalties that will mount up to an amount you can't pay in a lump sum. Therefore, always pay your dues on time. If you don't have enough money for debt repayment or bills, you can look into whether a quick loan from Jacaranda Finance can tide you over until payday, or whether a consolidation loan for all your debts with a lower monthly payment could be the right solution for you.
It’s important to assess all your options before taking on more debt however and it should only be used if you can afford to pay it back. If you can’t afford your current debt payments or bills, then seek professional help and guidance on how to manage debt you cannot pay.
Set up reminders on your phone or computer to ensure you never forget a payment deadline. Many people miss payments simply because they overlook the due date. By setting up reminders, you can avoid this common mistake and keep your financial obligations on track.
Additionally, consider automating your payments if possible. This means your bills and debts will be paid automatically on the due date from your bank account. It's a hassle-free way to ensure you're never late with payments, and it can save you from incurring those costly late fees.
Remember, staying on top of your financial responsibilities not only helps you avoid penalties but also maintains a good credit score, which can be crucial for future financial endeavors. So, pay your dues on time, explore your options wisely, and take professional advice if needed to manage your finances effectively.
If you can’t save, start investing
Many people have difficulty controlling their expenses because they have ample savings. Most of us would run to our savings when we fall short of our monthly budget. If breaking your savings account has become a habit, you should start investing that money instead to reduce the temptation of touching it and spending. You can buy stocks, bonds or invest in real estate. The money you take out of your savings, if you have enough, could finance your real estate loan for example. This will help you reduce excess spending and put your money in an investment for the future.
Investing your savings is a smart move to not only preserve your financial security but also potentially grow your wealth over time. Here are some investment options to consider:
- Stocks: Investing in shares of publicly traded companies can offer the potential for significant returns over the long term. However, it's important to research and diversify your investments to manage risks.
- Bonds: Bonds are a more conservative investment option. They provide a steady stream of income in the form of interest payments. Government bonds and corporate bonds are common choices.
- Real Estate: Real estate can be a lucrative investment, whether it's buying property to rent out or participating in real estate investment trusts (REITs). It can provide both rental income and potential property appreciation.
- Mutual Funds: These investment vehicles pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. They offer diversification and professional management.
- Exchange-Traded Funds (ETFs): Similar to mutual funds, ETFs track indexes, commodities, or a basket of assets. They are traded on stock exchanges and offer liquidity and diversification.
- Peer-to-Peer Lending: You can also consider platforms that allow you to lend money to individuals or small businesses in exchange for interest payments. This can be a way to earn a passive income.
Before you start investing, it's essential to do your homework. Understand the risks associated with each investment type and consider your financial goals and risk tolerance. It's also a good idea to consult with a financial advisor who can provide personalised guidance based on your situation.
By investing your savings wisely, you can both resist the urge to dip into your savings for day-to-day expenses and potentially build a more secure financial future.
The last tip, the 70, 20, 10 rule
Splitting your income, paying your dues on time and investing in profitable opportunities are all great but money management is challenging and requires great willpower and financial planning. The best way of utilising your monthly income is to follow the 70, 20, 10 rule.
70% - should go to your living expenses
20% - should go to your savings
10% - should go to your retirement funds
This is a straightforward and effective way to allocate your income for a secure financial future. By dedicating 70% to your living expenses, you ensure that your day-to-day needs are covered without overspending. The 20% allocated to savings allows you to build an emergency fund and work towards your short-term financial goals. Lastly, the 10% allocated to retirement funds ensures that you're saving for your long-term financial security, preparing for a comfortable retirement.
Following the 70, 20, 10 rule provides a clear structure for your budget, helping you manage your finances responsibly while also ensuring that you're preparing for both short-term and long-term financial needs. Remember, consistency in following this rule over time can lead to financial stability and peace of mind.
Effective money management is the cornerstone of financial success. By incorporating the 70, 20, 10 rule into your budgeting, along with the tips mentioned above, you can take significant steps toward improving your financial position and securing a brighter future. Remember, financial planning and discipline are your allies on the path to financial stability, so start implementing these strategies today to achieve your financial goals.
By following the tips we mentioned above, you can turn your life around because money management is the key to improving your financial position.
ROUNDUP: Money management tips for better personal finance
We've covered several key tips to help you manage your personal finances better:
- Set a specific savings goal: Start by saving an amount equal to double your monthly income, creating a financial safety net for unexpected expenses.
- Split your income: Allocate your money into different bank accounts dedicated to specific spending categories. This strategy offers clarity and control over your finances.
- Pay your dues on time: Avoid financial penalties by ensuring your bills and debts are paid promptly. Explore options like loans if needed, but be sure to assess your ability to repay.
- Consider investing: If you find yourself frequently dipping into your savings, consider investing your money wisely. Options like stocks, bonds, real estate, and more can help grow your wealth over time.
- Remember the 70, 20, 10 rule:
- Allocate 70% of your income to living expenses.
- Dedicate 20% to savings for emergencies and short-term goals.
- Set aside 10% for your retirement funds to secure your long-term financial future.
Consistency in applying these strategies and maintaining financial discipline will lead you to financial stability and peace of mind. Start managing your money wisely today to achieve your financial goals and secure a brighter tomorrow.