These days it’s easy to get access to personal loans and credit cards, among other lines of credit. Anyone between the age group of 21 and 58 years and having a stable monthly income can apply for various credit lines. That’s a good thing of course because it will help you build credit history from a very early age. However, if you don’t understand the nuances of finance, you may rack up debts, which may lead to financial distress and damage your credit score.
Here are some tips that will help you manage your finances in a better way.
1. Create a Budget
It’s best if you create a monthly or a quarterly budget. You can use an app or maintain an excel sheet to note down your monthly expenses. This will primarily include your household expenses such as house rent (if applicable), electricity bills, grocery expenses, and water bills, to name a few. Other expenses include your credit card bills, loan repayments (if applicable), entertainment expenses, miscellaneous expenses. It will help you understand how much you are spending every month. This will also help you ward off unnecessary expenses that you can do without. Put those savings into an emergency fund for a rainy day.
2. Put Money into your Savings Account
Borrowing from the previous point, every month try to put a certain percentage of your income into your savings account. This will help you in the long run, especially during any financial emergency or when you retire.Savings accounts also earn interest. So, the money you’ve parked is giving you something in return.
3. Start Investing
Investing early is a must if you want to enjoy a financially independent life after retirement. It’s not necessary to invest in something big. You can start with an investment that involves zero risk such as fixed deposits. The returns are lower when compared to other investments such as mutual funds, but the return is guaranteed. If you want to play big, you can put your money in mutual funds, stocks or real estate. Although, it is better to have some background knowledge before you invest in medium- to high-risk investments so you don’t end up making huge losses.
4. Avoid Racking up Debts
Taking a personal loan or having a credit card will help you build a credit history. However, applying for multiple loans or cards with no plan in place for repayment can put you in a fix. Credit cards usually come with an interest rates, anywhere between 38% p.a. and 42% p.a. Using multiple cards and not making full outstanding payments, making late payments, missing payments on your bills can lead to this already high interest to compound. Personal loans also have relatively higher interest rates when compared to other loans as they are unsecured. And they too impose additional fees such as late payment charges when you don’t make payments on time. When it comes to borrowed money, only spend what you can afford to repay.
5. Re-assess your Expenses
This comes in handy especially when you take up a new credit line or have an additional financial commitment. Restructure your budget to accommodate new expenses that may arise so you can remain financially stable. Re-assessing your expenses can lead to a compromise in your lifestyle, but it will be worth it in the long run
6. Don’t Splurge Frequently
It’s not that you shouldn’t be spending money on luxurious items or go to a fancy dinner at a new restaurant in town. What you need to restructure here is how often can you afford to spend on such luxuries. There’s no need to quit cold turkey, you just need to alter your splurges. So, if you currently dine out 8 times a month, see if you can cut back to 5 times, and then 4 the next month and keep it constant when you have met your basic requirements and saved a little for the month.
7. Create an Emergency Fund
Life can throw you curve balls at any point in time. To take care of difficult financial situations sensibly, it’s essential to have an emergency fund. This fund should ideally comprise at least 6 months’ salary. You can put a small portion of your income every month to build a fund that will help you glide through difficult conditions. Don’t touch this fund unless you absolutely have to.
8. Set a Financial Goal
It’s essential to have a clear financial goal in life. It doesn’t have to be a long-term goal. You can set small goals and seek to achieve them. Having a definite target set will make you work towards it. You can create a calendar to track your progress towards the goal. However, the onus is on you when it comes to pursuing it and how diligently you do it.
Consider these tips the next time you think of saving and ways to do it. Following a set plan may look difficult at times, especially when you don’t have the discipline for it, but it’s worth it. In the end it’s you who is going to gain the most out of it. After all, there’s nothing like living a stress-free, financially independent life.