Keeping track of your finances can take a lot of time to master. Learning how to manage your money effectively and budget for your lifestyle is something that comes with experience, however here are a few ways to start.
First: Assess Your Financial Situation
To be in a stable position with your finances, it really all boils down to having more money coming in than going out each month. If this is the case, you can stay safe in the knowledge that you won’t ever have to find yourself in serious debt or file for chapter 7 bankruptcy.
Categorize Your Expenses
Your expenses can be broken down into a few main categories:
• Essential (bills, car insurance, mortgage)
• Luxuries (phone contract, broadband, TV licence)
• Expendable (food, social, savings)
Once you get an idea of the essentials leaving your account each month, you’ll see what you have left for everything else. If you end up with no money for food or savings, you might want to reconsider your luxury items.
Identify Your Problem Spending Areas
Think about the money you spend regularly. Are you going to the same coffee shop every single morning before work? Or maybe you are buying lunch every day from work instead of bringing in a packed lunch. Making changes to these habits can save you a lot of money you never realised you had.
Living frugally is what you need to do when you are struggling to make enough money to live comfortably. Make the most of the money you have, and spend it wisely. For example, with your food shop, try to make big batches of one-pot meals to last you throughout the week to cut down on electricity and food costs.
Prioritize Your Money Goals
The key to understanding whether you should focus on savings or debt first is down to you, however if you are accruing more interest on your debt than your savings account, you are better off paying off the debt before saving up.
Everyone faces setbacks in their life, so it is important to have some sort of buffer to fall back on if things ever do go wrong. Try your best to build up an emergency fund over the years so that if the worst ever does happen, you have financial security.
Tackle your Debt
Now that you are in a place that you know you are comfortable, it’s time for you to face your debts once and for all and work on getting your credit score back up to scratch. It can be daunting if you have found yourself with a mountain of debts, but the important thing to remember is to prioritise what you pay back.
Always start small, get rid of the little debts you have and then you’ll be able to focus on the bigger one. It will get rid of those extra worries and allow you to focus on your largest financial issue, ridding you of debt once and for all.