We all want to lead financially stable lives. Sure, money isn’t what makes the world go round. But it is pretty important and as soon as you start having money problems, you open the doors for stress, overworking, burn out and other issues to start entering your life. So, what can you do to manage your money correctly?
Sadly, gaining control of your finances isn’t a skill that we’re taught in school, and many of our parents fail to teach us about money management as we’re growing up, considering it an “adult issue”. Learning to manage your money correctly can feel confusing, difficult and complex. But it’s important that you learn this skill sooner rather than later to regain control over your financial life. Here are some steps to help control your finances!
Coming up with a budget
- Work out your take home pay – When creating a budget, the first thing you need to do is determine how much money you take home each month. All too many people make the mistake of taking their salary and dividing it by 12 to determine how much they have to spend each month. But this entirely fails to remember that we pay tax and other essential contributions, like national insurance, from our pay. To understand how much you actually take home each month, make sure you deduct these essential costs, or simply put your income into a take home pay calculator. This will help you to understand how much money you actually have to work with.
- Deduct living expenses – Next, you need to deduct your living expenses. We all have living expenses. This is the cost of things that we require to lead a comfortable and safe life. They are the bare necessities. They can include your rent or monthly mortgage payment to provide yourself with shelter. They can include water and food costs. They can include basic energy costs, such as gas and electricity to heat and light your home. Take these from your monthly take home pay.
- Deduct other essential costs – There are other costs that you may have to pay each month. Perhaps you need a car to get to work. You will need to pay fuel, insurance and car finance costs. You may have outstanding debt and be tied into making minimum monthly payments on a credit card or loan. You may require the internet to work from home. Deduct all other essential monthly costs that you are committed to paying.
- Determining your disposable income – Once you’ve deducted all of your essential outgoings from your monthly take home pay, you will be left with your disposable income. This is the money that you can spend freely. You can use it for whatever you want. As long as you only spend within this figure, you will remain debt free.
Of course, you don’t always have to spend all of your monthly disposable income. Instead, you should consider investing some into savings. Having savings can provide you with support and the knowledge that if you face unexpected costs, you won’t have to worry and will be able to cover them without having to take out loans or engaging in other forms of borrowing. You can also use a savings account to build up money in order to make a bigger purchase that would otherwise seem impossible to afford. If you want to buy your own house, you may want to save money to be able to put down a mortgage deposit. If you want to buy a car, you can save to buy the one you have in mind and own it outright. If you want to go travelling or on a lavish holiday, you can save to make this dream a reality and to start seeing the places you want to see. Now, saving should be simple. You simply don’t spend some of your disposable income and put it aside. But what many people have trouble with is not dipping into that money for unnecessary purchases along the way. This is where savings accounts can come into play. A savings account is a separate account where you can store away money for a specific goal. Most savings accounts will come hand in hand with impressive interest rates, helping to add to your money as you save it too! Of course, choosing a savings account can be difficult, as there are so many options to choose from. Now, you should consider the interest rate. But also consider other terms of the agreement. Say you’re planning to buy a house. Here, a LISA can be a good option. It has a high interest rate in exchange for you agreeing to not withdraw the money for a set period of time. However, if you’re not entirely 100% sure you want to use that money on a mortgage deposit, and may want to withdraw it sooner, you shouldn’t choose this option, as there are fees and fines for withdrawing your money early.
If you have already found yourself in debt, it’s important to tackle it head on to gain control of your finances. This will allow you to get into a better situation where you are on level ground and don’t owe anyone anything. You can also then start saving for things in the future, rather than paying off things that you already have. Of course, clearing debt can be difficult. So here are a few steps you can take to get yourself closer and closer to being able to control your finances.
Accept your debt
All too many people make the mistake of burying their head in the sand when it comes to dealing with their debt. Instead of tackling it, they’ll choose to ignore it, but this simply makes things worse, allowing interest to pile up and potentially resulting in CCJs, bailiffs repossessing your assets or other problems. So, start out by accepting your debt and finding out exactly how much you owe and to who. This will set you up so you can start creating a plan of action to clear it.
Consult your lenders
If you’re struggling to pay your debts, let your lenders know. They may be able to take actions, such as reducing your minimum payments to help you get yourself into a better situation with your debt.
Consolidating your debt
If you have debts in more than one place, for example, credit cards and separate loans, you may find that you find it difficult to track payments and may miss payments, resulting in further fees, fines and marks on your credit score. In situations like this, you could find that consolidating all of your debts into one place makes things more manageable, prevents further damage to your credit score and reduces the amount you spend in late payment fees and fines. Of course, you will still owe the same amount. But this is one small step towards getting on top of things.
If you have outstanding credit card balances, you may be able to transfer the balance to a new card that is interest free or offers a lower interest rate. This will help you to pay less interest, meaning your payments will actually be chipping away at the balance rather than simply covering interest. There are a number of sites out there that will check your credit score and determine what cards you could be eligible for to transfer your balances. If you have an overdraft with high interest rates, you may also want to consider a money transfer, which works in the same way.
Increasing your income
Of course, if you are earning more, you will have more money to help to control your finances. So, how about considering increasing your income? Sure, this may be easier said than done. Your work may not be willing or in a position to provide you with a raise. However, you could consider a side project freelancing or picking up a second, part time job around your regular working hours. It’s important that you don’t burn yourself out, but if you are able to take on extra work, you should. This can provide you with more money to actually chip away at your outstanding balances.
Remember to have fun
Of course, when it comes to money management, everything can feel like you are depriving yourself of the things you want to do. You may feel that you are constantly chipping away at debt or saving for something. It’s important that you do leave yourself a little money each month to enjoy yourself if possible. That could be seeing a friend for a coffee, buying something small you’ve wanted for a while or anything else. You should work to live, not live to work.
As you can see, there are various areas of money management that you do need to focus on if you’re going to live a comfortable and happy life. But hopefully, some of the above information will help you to get a good control of your finances!