Managing money is a skill that very few learn well, but money management is not exactly rocket science. It is more of a question of how willing you are to make the best use of your hard-earned dollars. Of course, choosing to be frugal is a good option, but it is not for everyone. A minimalistic lifestyle has its own charm, but everyone needs to splurge once in a while. Moreover, you need to have enough funds to have an acceptable social life while paying utility bills and rent on time. How to do this? Here are a few basic financial skills to master. These will help you spend wisely and save for your future without worrying about going broke.
- Set up a budget: You need to learn how to give every single dollar that you earn a purpose, or a goal—a dream holiday, down payment for a car, or payment toward student loans or college funds. You have to decide how to spend your money and when. You have to make a conscious decision about where your hard-earned money goes. This is where a budget will help you. With a budget in hand, you will know for sure if you have enough money to splurge on a new phone or a trendy pair of boots. All this can be done without worrying about whether you are running low on your savings, or if you will have enough to pay your bills. Start off with a daily budget, then a weekly one, and when you are confident enough, create a monthly budget. You can simply use a spreadsheet or any budgeting app on your phone to set up your budget.
- Have a daily budget meet: Setting up your budget with the potential expenses you will make is the first step. Next, you will need to ensure that you are following up with your budget. You can do this by having a daily budget meeting with yourself. Pick any time of the day when you will not have interruptions; the best time is at night when you are done with your day and have a record of every expense made over the day. It will take just about five minutes. These five minutes will go a long way in preventing you from overspending and will help you stay in line with your budget.
- Balance the accounts every month: Many tend to overlook this essential financial skill. This is because it involves a lot of work without a significant amount of payoff, or so it seems. However, it is essential to balance your accounts regularly, at least once a month. When you balance your account, you will avoid overdrawing from your account. Moreover, you do not have to pay late fees or overdraft fees this way. Keeping an eye on your account is also a good way to prevent identity theft and protect account information.
- Have financial goals and a solid financial plan: The most effective way to stick to your budget is to set up financial goals. These are similar to your new year resolutions but only better. With a solid financial plan comprising of short-term, mid-term, and long-term goals, you can easily walk through all the major financial steps of your life. Want to buy an apartment? Put it in your plan. Thinking about going on a Caribbean trip? Put it under short-term, or even mid-term goals? A plan and list of goals will give you an estimate of how much you need to save and for long. Don’t forget to pencil in your plans for retirement as well. The earlier you plan it, the better!
Build your savings: The habit of saving is one of the most important financial skills to master. Come a rainy day, and only your savings will come to your rescue. Whether you need extra money for a medical emergency, urgent home repair, or immediate car repair, a separate savings account is what you will need. It is recommended that at least 20% of your earnings should go toward your savings every month. Even if you save at least 10% to 15%, you will have enough to meet your long-term goals.