There are many do’s and don’ts when it comes to managing your personal finances. However, outlined below are 3 simple tips to help you on the way.
Budget: Identify ALL your expenses and review your budget on a regular basis:
To manage your finances you will need to prepare a household budget detailing what you receive and spend out each month as a family unit. The income less the expenditure will represent how much money you have left over each month. Many individuals carry out this exercise but miss out some crucial expenses by accident. This in turn gives them a false impression of what their net income/ deficit position is. Common expenses that are missed out are car insurance/car tax, average monthly socialising expenditure, tax payments, average monthly holiday expenditure and some regular cash payments. Once you have made out your household budget, it is crucial that you review it on a regular basis and compare it to your actual monthly expenditure. If you are spending or receiving more than you anticipated you will need to update the budget accordingly.
Pay yourself first:
One of the biggest mistakes families make when it comes to budgeting is to take their income and spend it until there’s nothing left. Obviously, this isn’t budgeting. The real intention of budgeting is to find those areas where cuts in spending can be made. The idea is to control your impulses. However, this is much easier said than done. The best way around this problem is to have an amount immediately deducted from your pay, and put into another account. Over time you won’t even notice it’s gone. Paying yourself first can be used to contribute to your retirement plan and emergency fund. It doesn’t matter how much you start with, any amount is greater than nothing. Start with a small amount, and after several weeks you can gradually start to increase it. You’ll likely wonder why it took so long to get started.
- Have an amount immediately deducted from your pay.
- Start with any amount and increase it gradually over time.
Pay for things in cash or from your bank account if you can:
Rather than using your credit card, where you can, try to pay for as many items with cash or from your bank account. Therefore, you will only be spending what you have. If you have a bank overdraft do not be tempted to run up the balance, as it will still have to be paid back eventually and you will have to pay interest.