Naturally, there are many reasons why you would want to be good with money; being good with money is more than just making ends meet. Managing your finances wisely can help you keep a good credit score and it also impacts the debts you carry.

 

If you thought that your paycheck was more than enough to support you but you find yourself struggling every month, then you’re doing something wrong in the way you manage your finances. Here are effective tips that will help you monitor your money.

 

Budget

Preparing a budget is often overlooked by many people, although it’s an essential component for better money management. The goal of budgeting is usually to have more control over your spending and to spend on things that matter to you. When you are preparing a budget, you first list your net income and then plot all the financial obligations in a given month, then you make a plan according to it.

 

Start with listing all your fixed income, such as rent, or personal/business loans. Then list all your other bills that are considered variable expenses, such as utility bills. We recommend that you always plan for saving a portion of money on the side in case of emergencies. You can also make a plan if you need to buy something extra that wasn’t included in the initial budget.

Monitor Your Spending

People who end up in a lot of debt often do because they weren’t monitoring their spending and ended up spending more than what they were earning. Tracking and monitoring your money helps you understand your spending behavior. However, if you find keeping track of your spending hard, some apps can track your spending for you. These electronic tools are linked to your bank account or credit card, and they can categorize your transactions automatically.

 

Moreover, it can help you with taxes through an app to track receipts for taxes, because tracking your expenses will prepare you to get more tax deductions, which will reduce your taxable income. Not mention that when you keep track of your spending, you’ll be better at evaluating what can be eliminated for not being a necessity. For instance, if your phone bill is more than your consumption, then you can downgrade to a cheaper plan.

 

Categorize Your Budget Into Three

Our expenses are always put into three categories, fixed spendings, variable spendings, and luxuries or non-necessities. Fixed spending, as we mentioned earlier, are expenses that remain the same, which are rent, mortgage, and personal loans. Variables are expenses that change according to your usage such as utility bills.

 

For instance, some months you’d find that your electricity consumption has increased, and other months you’ve gone a holiday so you did not use electricity therefore your consumption decreased, that will reflect on your bill. The third and last category is non-necessities, if it’s something that you can live without and doesn’t add anything to your life, then it’s a luxury.

 

For instance, dining out or buying coffee from a coffeehouse are luxuries. According to a study it’s been found that you will save a lot of money if you skip buying your morning coffee. In other words, if you stop indulging in the little luxuries you will be able to have a money surplus and as a result some savings.

Use the 20,30,50 Plan

This plan was popularized by Senator Elizabeth Warren, it’s a budget rule that lets you categorize your expenses into 50% needs, 30% wants, and the remaining 20% on savings. Half of your income should cover all your needs, if you find that your needs cover more than half of your income, then maybe you need to re-evaluate your expenses. For instance, you can move to a cheaper home, or change your car to a more modest one.

 

Another thing you can do is that you can sacrifice some of your wants because they aren’t a necessity anyway. This plan is a simple plan for people who are struggling to manage their finances. The goal of this plan is to have more savings allocated for emergencies and to cut down on debts. Moreover, if you follow this plan, you will have more money saved for when you retire.

 

Money mismanagement could lead to catastrophes, for instance ending up with no money saved up and accumulated debts that you are unable to repay. If you utilize the tips provided here, you’ll find that managing and keeping track of your income and expenses will become much easier and stress-free.

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September 30th, 2020 by financetwitter

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