Financial management is an important life skill yet it still remains a challenge to many people. Failing to manage your money properly will result into you finding yourself in an unending cycle of debt. This then means that you are always stressed because of financial difficulties and that you will never save enough for a rainy day or to invest.
This is most likely brought about by leaving beyond your means. Funny thing about living beyond your means is that you always accumulate more debt even if you get a salary increase. The problem usually is not the amount of money you are earning but your financial management skills.
Living within your means will stop you from borrowing money to fund a lifestyle that you cannot afford. These tips will help you manage your finances better.
Keep track of your expenses
You must know how much you spend each on food, rent, bills, and entertainment. This is the first step to having a better grasp of your finances. Note down all your expenses whether you pay for them in cash or through credit cards.
At the end of the month, take a tally to know how much you spend on every item.
Have a budget
If the expenses exceed your income then you are definitely living beyond your means. You then need to set a budget that is both realistic and strict. There is no use making a budget that is still above your earnings. Stick to the budget.
The budget should include your debt repayments and utility bills so you don’t get charged extra fees for late payment.
Do not borrow money that you don’t need and don’t borrow when you can pay in cash. Credit cards, for example, charge transaction fees and make it easier for you to accumulate debt. Avoid using credit cards whenever possible and pay up early to avoid additional late payment charges and a negative credit score.
If you have loans, pay them off as early and fast as you can. The simplest way to avoid debt is to simply live within your means; if you are a teacher earning a modest salary then don’t live like you are on a Psychiatrist Salary.
Save for a rainy day
The importance of savings cannot be gainsaid. Savings give you a sense of financial security should anything unfortunate like losing your job happen and offers you the freedom to invest and build your wealth. Wealth affords you the lifestyle you want.
Open a savings account and invest in a retirement benefits scheme. Some employers offer to match their employees’ contribution as an incentive for them to save for their retirement. Contributing to a retirement fund also earns you a tax break that can free some cash that would have otherwise gone to the government in form of taxes.
Work on your credit rating
Your credit rating affects the cost at which you borrow money. Defaulting on your loans and credit cards makes lenders wary of giving you money and if they do, it usually comes with high interest rates.
It is also important that you borrow from banks and reputable financial institutions as it earn you more points on your credit rating than non-banking institutions.
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