Most people need to learn how to properly administer their money. This is not taught in school, so most citizens learn along the way however they can.
If you feel hopeless when administering your income, there are some strategies you can learn to manage your money correctly. This is especially true around this time of year, at the beginning of the holiday shopping season, with all the Black Friday and Cyber Monday specials tempting us to shop constantly without really considering our finances.
Learning to manage your money adequately takes time. You need to understand your financial situation, and improving yourself requires commitment and will.
Let us take a look at the proper steps for better managing your money.
Set a budget
If you never created a budget, you better get to it. This is extremely necessary.At first, it may seem hard to achieve, but you can make it happen. It will help you see your financial situation clearly, which is the key to taking control of your finances.
A budget is the first step toward financial balance. It will give you peace of mind, help you pay off debt, and help you start saving for eventual expenses. To create a budget, you need to know your income and expenses.
Know your expenses
Most people are unable to tell, off the top of their heads, how much they spend a month for living. This is normal; many people don't know the expenses they have to pay per month. The solution to this problem is simple; you must keep track of all your monthly payments. Save all the receipts (supermarket, groceries, restaurant, Cyber Monday specials, etc.) and add up all your fixed expenses. You must keep track of what you paid with cash and credit cards. This way, you will get all your expenses (fixed and variable) detailed and summed up to get a total amount. This exercise will allow you to know how much money you need to pay for your expenses every month, this way you will be able to see the whole picture. After some time, you will be able to compare your historical performance.Understand the dynamic between income and expenses
Unlike what happens with expenses, everyone knows, off the top of their head, how much money they earn a month. As you can see, most people know the amount of their monthly income but don´t register how much their monthly expenses are.Once you have figured out the total expenses, subtract that from your monthly income. If your result is negative, you spend more than you earn. In this case, you should reduce your expenses until the result is zero. If your result is positive, you spend less than you earn. In this case, you can increase your savings or debt payments.
Pay off debt
Most people need help getting out of debt. First, bringing it under control and trying to liquidate it is imperative. If you own a debt, look to consolidate it and try to reach an agreement to get the lowest interest rate. It is essential to assign whatever money you can to pay your debts, try to cut out or, at least, reduce some expenses, and remove the unnecessary ones altogether. Stop generating more debt by using your credit cards, and stick to your budget. Keep paying, at least the minimum, until your debt is paid off.If you can, create an emergency fund
If you can, you should allocate a portion of your income to an emergency fund. Anything can happen and such a fund allows you to be prepared. It is vital to create a fund to have good financial management.If you can achieve an emergency fund, you shouldn't take money out of it, unless it is really an emergency, like losing your job or an unexpected and unfortunate expense. Otherwise, you should leave the money still earning interest.
