The most challenging part about money management is getting started with it.
Once you have a strong plan and set up in place, managing money becomes a somewhat daily routine and gets easier along the way.
But to get started, you need to understand how money works for you. And once you get started, you need to take care of your strategy and make sure it’s regularly working.
That does not mean you need a financial expert or have to be one yourself. Building a strong financial foundation adds.
The ABCD of financial growth will enable you to get started and monitor your wealth as it builds itself.
Financial planning does not happen overnight. You need to keep an eye on your money and where it is being spent. To ensure your finances are in good health, it is good practice to take inventory and audit all your accounts.
You can take at least 15-30 minutes every week to review all your transactions and deposits across all bank accounts. This practice enables you to improve your self-accountability and also analyse where your money is coming from.
Acknowledging your financial health and accepting it helps you assess your strengths and weaknesses. You can audit your financial health by asking yourself the following:
- How much money is spent on impulsive buying?
- Has my savings reduced or increased this month?
- Is there an influx in overhead payments or credit card bills?
- Is there an explicit spending pattern?
This can serve as an eye-opener for your finances. But to determine what your goals are, you first might want to assess where you are now. Knowing your financial health may not be very pleasant initially, but trust me, avoidance may lead to more immense consequences.
Budgeting is the very basic of financial planning. A spending plan acts as a guide to tell your money what to do every month. A simple budget lists how much money you earn and how much you spend every month.
Creating a detailed spending plan or budget allows you to make smarter financial decisions. Suppose you have an impulse to spend heavily on something. A budget reminds you to stop and re-analyse the purchase requirement.
Once your budget is in place, you can start exploring ways to enhance your financial experience. Automating your spending and savings can make it easier to manage your money. Recurring expenses like utility bills, fees, internet charges etc., can be set up for payment as soon your income is credited to your account.
It may be a good idea first to allocate your savings every month before you spend. This way, you would not require a detailed budget as your savings are in place, and you can spend the remaining money mindfully.
Once your budget is in place, you may now have a better idea of how your money works and where your expenses need to be curtailed.
Some people may need to cut down on little expenses here and there. In contrast, others may need to take a deeper look at their spending habits to create a wider gap between inflows and outflows.
For instance, some of the minor expenses you may want to cut down on are unnecessary paid subscriptions or memberships that go unused or cut down eating outside for a couple of days a week. More significant spending cuts may include wiping out an entire spending category like avoiding partying, replacing household needs with a cheaper option etc.
There are three reasons why reducing expenses can help in the long run:
- It frees up cash flow, so you are less likely to use credit cards or borrow money to spend.
- Enables you to pay off debts more quickly.
- It can add to your emergency savings or retirement funds for a livable future.
Managing debt is a crucial part of managing your finances. Even if you have a reasonable budget in place and have cut down on expenses, debt may be dragging you down.
While taking on some debt and using your credit card is not bad, the real struggle is when you cannot keep up with paying them back on time. It is more dangerous when you take high-interest loans or credit.
The best way is:
To get yourself out of debt is to pay back more than the minimum payback amount. Even a small loan can take a decade to pay off if you only pay the minimum because of the mounting interest and other charges.
Try to use your surplus income to pay off these debts that are unnecessarily burdening your financial growth.
Get your ABCD of finances straight, and you will be all set to start your journey to build a secure financial future. Managing your money is a lifelong process and not a very easy one. Still, if your basics have a strong foundation, you will be well equipped to face any challenge that’s thrown your way.
[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]
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