“ These methods can help you gain control of your finances and ensures you can reduce debt and build wealth”
By: Allan R Kirby
Many of us strive to ensure we live as stress free as possible with our hectic schedules, unfortunately this does not always happen. What’s worse is that our finances can take a back seat to other priorities, this of course can lead to us not properly managing our money. I have seen this many times over the course of my life. There have been times where I get so busy I have forgotten to pay a bill or ended up spending a small fortune at restaurants just to get through the week. Unfortunately what I found was that even missing a few bills, spending a little extra and tracking my money poorly, can lead to financial trouble very quickly.
“It’s true! Things can get out of control if we do not properly manage our money, in fact mismanagement can lead to health and relationship problems as well as performance issues at work."
As I had just mentioned, I too have been caught up with the rate race and ended up not keeping myself disciplined, which of course led me to get off track with my finances. It’s shocking how quickly and easy it is to overspend and get yourself into debt, it can only take a few weeks to have your money spent with high credit cards while the bills are piling up.
5 Simple money management tips
Ok, let’s be clear before we begin, these are simple money management tips but in practice it takes time and effort to implement and follow. It’s not about reading the steps and trying to follow them every so often. You need to stay disciplined and stick to your plan, no easy task when you’re trying to maintain a healthy work-life balance.
1. Cut spending
I find that cutting spending has an immediate and positive impact on your finances. What I mean by this is to cut discretionary costs, or even being more careful with the types of spending you do. For example you could learn to be more frugal with your shopping such as looking for sales, using coupons, maybe buy used items or even taking the bus instead of having a car. Without spending control you will never be able to manage your money and properly budget. You could actually save a few hundred a month depending on how much you are spending on going out, shopping, subscriptions and entertainment. However, taking your time and keeping a few small luxuries never hurts. The point is you need to start learning how to buy in moderation which will help you succeed in gaining control of your money. The difficult part is actually stopping yourself from spending on items that you really do not need.
Every personal finance writer will highlight a budget but it’s important. Understanding your income, debt, savings and spending habits will help you get a clear picture of your situation. I do not advocate a comprehensive well detailed budget to start. Keep it simple and build on your budget over time. This is what I did. I found I failed every time I tried using complex budgeting software or tried to develop a comprehensive budget, it can overwhelm most people. Always keep it simple and easy to follow and then build from there if you really want to keep yourself on track.
3. Debt reduction
yes one of the most hated words for most people, “Debt” but it’s true, by paying off your high interest loans and credit cards can and will save you money. Secondly it’s always a good idea to review your high interest loans and credit cards to see if you can:
1. Consolidate your loans into a single lower interest loan.
2. Find a lower interest credit card.
3. Just pay off the loans as fast as you can instead of minimum payments.
For some it may not be possible to pay off their loans or consolidate debt quickly, however I have found people are able to obtain a low interest credit cards and transfer their outstanding balances from their high interest cards.
4. Saving and Investing
It’s very important that you not only develop a budget but also a plan on how you are going to build up your savings. Savings can be for things such as an emergency fund, retirement, school or saving to buy a big ticket item. However saving your money is only half the battle, investing that money in order to help build your wealth is also very important. By not investing, the value of your cash will go down as a result of inflation. However I would never advocate investing all of your money, it never hurts to have a small stockpile of cash. One benefit of online banking is the fact you can set up automatic savings and just move money to an account for saving and investing. I find that automatic savings is a great way to build up savings effortlessly.
"What are considered discretionary expenses? These are expenses that are not essential to meet your basic household needs, such as going out to restaurants and taking trips. What are considered essential expenses? Utilities such as electricity and gas as well as rent, food and clothing are considered essential expenses."
5. Eliminate discrectionary costs
This goes hand in hand with cutting spending but It’s still important to identify unnecessary discrectionary costs. This could be as simple as cutting down the number of times you eat out, buy coffee, take vacations or do a subscription review, which can help you eliminate unnecessary costs. Other costs such as bank fees and unnecessary overdraft or late billing fees should be looked at as well. I learned to take time each weekend morning to ensure I have paid up all of my bills to avoid extra fees, interest and charges. I do not need to do automatic bill payments as my bank keeps track of all my bills and when I paid them last. I find this ends up only costing me about 10-15 minutes to do.
How do you cut discretionary spending?
Planning and shopping are two ways that can help. I found that it can be hard at first, but if you plan out your meals before the week begins you will actually end up spending less on take out and going to restaurants. Additionally I review all the sales and plan my meals for the week based on food items that are on sale. This helps me tremendously, I have a planned set of meals for the week and I get those meals on sale. When I do not plan, admittingly I just end up getting take out. Planning is key to helping reduce some of your discretionary costs. I found on average my meals cost less than half than when I get with take out and I end up eating more nutritious meals when I prepare them.
Reading these tips are great but getting down and actually following the tips will take time and effort. Never try to do everything in one day or even one week. You will need to be disciplined and go through each one of these tips at your own pace. Even if you do not follow all of the tips, doing some of them will be a great start to ensure you and your family start to feel more financially secure.
We are living in a different time and it's always good to ensure you are prepared for anything. By controlling your spending and building savings will help you be better prepared for those unexpected financial issues. Good luck.