10 tips for managing your finances so you don't end up in debt you can't pay
Being good with personal finances isn’t just about meeting your monthly obligations. It’s about saving and investing enough so that money and indebtedness are no longer a serious concern.
Thankfully, you don’t need a Ph.D. to manage your finances well. Here are a few personal finance tips you may want to try today.
1.) Choose financial institutions that understand your needs
Not all banks, insurance companies, and investment firms may be prepared to give you the kind of support you need. Once you have a list of personal finance goals, carefully select your partner institutions based on how well they match your requirements. Institutions that offer easy customization through their banking software may also be a good choice if you plan on using their services frequently.
2.) Know where your money goes
List down your monthly expenses, including food, utilities, rent, mortgages, loan payments, entertainment, fuel, and everything else. Then compare this to your regular income. From there, you should be able to make better decisions on your spending.
If you’re not struggling but want to manage your finances better, it may be a good idea to spend as you normally would for a month while keeping close track of every expense and cash inflow. Doing this should give you a very accurate idea of what it is you spend on, allowing you to make better decisions.
To make expense tracking even more accurate, you can use a debit card or direct transfers for all your purchases. Then you can set up your bank’s app to give you a real-time list of transactions that you could refer to, later on. You should also be able to use your banking software to manage your automatic payments.
3.) Always take financial advice in context
As the term implies, personal finance is highly individual. A lot of the personal finance advice out there might be intended for a very specific audience, which means it may not apply to you. Also, some financial advice is intended to sell you a product, service, or idea and may not have your best interests in mind. What’s more, a lot of advice you’ll come across is outdated or just plain dangerous.
Always try to take any financial advice you come across with a healthy amount of skepticism. If you can afford the services of a qualified financial advisor, they should be able to provide you with advice that’s relevant to your unique situation.
4.) Learn to delay gratification
Bad spenders often turn to their credit cards because they provide immediate gratification. Learning how to delay gratification is an important but overlooked part of becoming better with finances.
Learning to delay gratification can lay the foundation for better spending habits down the road. By paying for everyday expenses with cash and saving up for big-ticket items, you can avoid debt and reduce your reliance on credit cards.
5.) Start an emergency fund
If your income allows you, start setting aside some cash in an emergency fund. Most financial advisors may tell you that your emergency fund should be the equivalent of 3 to 6 months of your current income. While this may not be achievable for everyone, having something on hand for a rainy day will always be a good idea.
6.) Save for retirement ASAP
Saving for retirement early in your career allows you to make better use of compound interest. Over the years, you will be able to let the interest do most of the work, which in turn, allows you to put away less money each month. Saving up late in life can be tougher and reduces your financial flexibility, potentially making your finances even more difficult to manage.
7.) Don’t deprive yourself unnecessarily
Recent research has found that people who feel deprived are more likely to engage in “delay discounting.” Delay discounting is a phenomenon where an individual prefers smaller immediate rewards over more valuable rewards given at a later time. It is a developed behavior pattern that is often conjectured to be an evolutionary adaptation to scarcity.
This phenomenon partly explains why individuals from well-to-do families are usually better able to delay gratification compared to individuals from lower-income families — even if they are at the same income level.
The existence of this phenomenon should help inform your attempts to save money. While it’s good to save up, it’s important to make sure that you are enjoying your hard-earned cash as well, albeit responsibly. This may be key to managing your finances more sustainably and realistically.
8.) Keep yourself healthy
The state of your physical and mental health has a direct impact on your finances. By keeping your mind and body in good shape, you can significantly reduce the odds of a financially-burdensome health crisis, later on.
9.) Use credit wisely
Credit cards can be immensely useful. For instance, your monthly credit card bills can help you keep accurate track of your expenses. They can also help you with vital emergency purchases. However, they are also a common pitfall for people struggling to save or invest more.
Make sure to reserve credit card purchases for things that are necessary. Avoid using them for purchasing non-essential items, especially if you have yet to keep your finances under control. Once you’re more confident with your finances, you can consider using your credit cards more often to improve your credit rating.
10.) Be on the lookout for better-paying jobs
Loyalty counts for far less at most jobs these days. If you want to earn more, don’t wait for a raise. In today’s job market, you will almost certainly get a bigger salary bump by switching jobs. Unless you have a very good reason for staying with a company, it’s almost certainly best to look for a new job after a year or two of working at your current one.
Start saving and investing today
Being good with personal finances is a skill. And like any other skill — it takes practice. Managing your finances will be incredibly tough in the beginning, especially if you’re not used to doing it as a daily habit. You will fail occasionally and that’s OK. If you can set realistic goals, find ways to increase your income, and remain consistent, you will eventually settle on a finance management style that works for you.