Courtney C. Lipsey By giving every dollar a purpose, money management means making it work for you. A solid income plan will provide you with the confidence and clarity to navigate through life’s changes.
Adopting tested strategies and learning these money management skills will help you achieve financial independence.
SKILLS TO MASTER
1. Budgeting basics
2. Savings based on goals
3. Automate your finances
4. Debt management
5. Practice informed investment
6. Credit cards: Use them strategically
7. Plan your day and stick to it
1. Budgeting basics
Start by creating a budget that is regularly updated. This document will keep track of your monthly expenditures and help you stay in control.
If you’re not sure where to begin, the budget system can be a great place to start. It is simple to follow and has a 50/30/20 split: 50% bills and expenses, 30% wants and savings and investments. You can add more details to the spreadsheet and then cross-check it with a budgeting app. To make it easier (and avoid temptation), keep your savings separate from your daily account.
To stay on top of your finances, create a weekly check-in called ‘Friday Finance Hour.’ Use the 50/30/20 percentages as a guideline and adjust them to fit your lifestyle. Budgets should be liberating and not restrictive.
2. Savings based on goals
Knowing what to do with your savings after you have learned it is important. Why not take advantage of this? Studies have shown that goal-setting increases savings.
Let’s say, for example, that you save 20% of your income each month. Make a plan for how you will use the money.
You can save more money if you have several goals. You could allocate 10% of your 20% budgeted savings to an Emergency Fund (3 to 6 months of living expenses) and 10% for a trip to Europe or a House Deposit.
3. Automate your finances
Set up automatic payments to ensure you don’t miss any bills.
Calculate your recurring costs, and don’t let your account fall below this amount. You won’t have to worry about overdrafts or late fees.
4. Debt management
Create a plan to manage your money, stick to it, and become debt-free. It would be best if you always started by tackling your highest-interest debt.
Just like saving, the 50/30/20 method of budgeting can be applied to debt repayments. You can, for example, adjust your budget percentages so that 50% of your budget is spent on wants and 25% on expenses. 10% is saved, 10% is used to repay debt, and 5% is invested.
You can check your credit rating every three months.
5. Practice informed investment
You can opt to have employer contributions (super-guarantees) of at least 10,5% of your gross income go to your superannuation fund every year if you are an employee. This is expected to rise to 12% by 2025.
Superannuation contributions for self-employed individuals are not mandatory. If you are a contractor or freelancer who does not qualify for super guarantees, then this is the case. You should then set aside a certain percentage of your earnings for retirement and benefit from tax advantages.
Explore other wealth-building opportunities beyond superannuation. Set up an income stream by investing in gold, bonds, ETFs, managed funds, and other assets. Diversification is important in all aspects of finance.
6. Credit cards: Use them strategically
Credit Cards can be used to earn rewards if they are treated with respect. Earning frequent flyer miles can be used to pay for travel. You can use frequent flyer points to pay for your flights, upgrade to business class, or pay for accommodations.
Use your card to make the purchases that you would have made anyway, then pay your balance off before interest kicks in. Banks offer customers thousands of bonus points when they sign up for a new credit card.
Credit cards are a great way to show a good repayment history. Credit cards should be used with caution. These strategies may not be for everyone, particularly those who are paying off debts or have recently gotten out of them.
7. Plan your day and stick to it
You can easily become disillusioned with your financial situation if you are not where you would like to be. It’s possible that you won’t reach financial independence this year, tomorrow, or even next year. Money will fluctuate, so it is important to stick to a budget and develop good habits for economic growth.
