The key to financial prosperity is simply good money management. Instead of living day to day, money management allows you the luxury of relaxing and not having to stress in cases of unexpected events and emergencies. Money management helps whether your goal is to save enough to cover six months of expenses as financial advisors recommend, or you are trying to pay off debts. With good money management you can even do both simultaneously.
The first step to effectively manage your money is to create a budget. Outline your income and your expenses and prioritise your purchases. Make a record of all purchases, regardless of how trivial. Knowing what you spend your money on helps you understand how you can spend your money more wisely. Remember to make your budget realistic and be honest with yourself. Budget your debts, savings and money for fun.
Money can also be better spent when you borrow or rent items instead of purchasing. Movies, textbooks, tools and equipment can often be rented or bought used instead of purchasing them new. For example college students may considering buying e-books or used textbooks online or borrowing from libraries to minimize spending. Weigh the cost and convenience of purchasing these items against the cost and convenience of borrowing or renting based on how frequently you use these items.
Be conservative with credit cards. Instead of falling into the trap that credit cards set by giving you the illusion of unlimited spending, treat your credit cards like cash and spend within your earnings. There are no prizes for reaching the limit on your credit card each month. Low credit utilization is an important part of handling credit cards. This means that the debt you incur by using those cards is only a small portion of the limit on those cards. Except in emergencies, spend only the money you have and not potential earnings.
The best tip is saving your money. You may feel like you can’t pay off debt and save at the same time but in truth that is the most logical thing to do. If not, eliminating your debt may be redundant if immediately after you find yourself in an emergency which you have to borrow money to handle. Have a bank account that you do not touch and create an automatic transfer of a portion of your income monthly. Financial advisors refer to this as “paying yourself first,” the idea being that saving is easier if the money never passes through your hands. Surpluses in your income don’t always signal time for a shopping spree, remember to also put away a portion of the extra money where it can be afforded.
Take advantage of technology for example free apps that help you budget or track your spending, using spreadsheets to outline your budget. Seek lower interest rates and shop around for better deals before you fork out your money. Once you begin paying attention to how you handle your money you’ll be amazed at easy it is to get more bang for your buck.