Money: it makes the world go ’round. Not only do we need it to pay bills and buy groceries but to send our kids to college and eventually retire.
The trouble with money, however, is that it’s difficult to manage. We spend it so frequently and on so many different things that we can have issues maximising its usefulness.
This is why it’s important for you to brush up on your money management skills. Need a little help with the matter? Then read on because here are eight essential money management tips for 2021.
1. Establish a Budget
The first thing you should do is establish a budget. This will help you see where your money is going and how much money is left over after you’ve paid all of your necessary expenses. Necessary expenses include rent, utilities, taxes, insurance premiums, groceries, gas, and the like (things that you have to pay for in order to survive).
To create your budget, we advise you to use either a phone app or an online spreadsheet. There are all sorts of budgeting apps out there, including Mint and Personal Capital, to name just two.
Use these apps to write down the name of each expense as well as the amount of money that you need to allocate to each of them. This will show you how much spare money you’re working with each month, helping you to realise new ways of spending your disposable income.
2. Track All Spending
In addition to creating a budget, you should also track all of your expenses. This includes non-necessary expenses as well as necessary expenses. Non-necessary expenses include but aren’t limited to money spent on hobbies, money spent eating out, money put in savings accounts, and the like.
Only by tracking these expenses can you know whether or not you’re over or underspending in a particular area. For instance, you might find that you’re spending too much on fast food and too little on your retirement contributions.
If you don’t track your spending, you become susceptible to making an excess of frivolous purchases. These purchases will provide you with a feeling of quick gratification but will hurt your financial standing in the long-run.
3. Save for Emergencies
Life is unpredictable. Rarely do things go to plan. Whether it’s a perfectly good furnace that stops working in the dead of winter or an automobile that gets sideswiped by an aggressive driver, emergencies do occur.
What’s important is that we have the money saved up to help us get through these emergencies. If we don’t have this money, we’re forced to turn to credit cards, and once we turn to credit cards, we start sinking further and further into debt.
This is why, every month or so, you should be putting some of your money into an emergency fund savings account. Generally speaking, it’s wise for your emergency fund to equal 3 to 6 months of your average monthly expenses.
4. Contribute to a Retirement Fund
You don’t want to have to work for the rest of your life. In fact, if you’re like many people living on this planet, health issues will eventually prevent you from doing so. This is why you need to contribute to a retirement fund.
Generally speaking, it’s wise to contribute 10% to 20% of your income to retirement, year in and year out.
5. Take Advantage of Multiple Accounts
One of the reasons that some individuals have trouble managing money is that all of their money exists within the same bank account. As a result, they end up spending money that they would have used for other purposes. For instance, instead of using the money for future healthcare expenses, they end up spending it on fast food.
How do you get past this problem? The answer is to take advantage of multiple bank accounts. This way, you can separate everyday spending money, emergency savings money, healthcare savings money, and otherwise.
6. Set Goals
You should always have financial goals that you’re working towards. Whether this is buying real estate, purchasing a car, stashing money away for retirement, or otherwise, setting goals can help to keep you on the straight and narrow.
If you don’t set goals for yourself, you’re likely to spend money on hollow purchases. For instance, you might overindulge in food or alcohol or musical performances, or athletic events.
7. Pay Off Debt Strategically
If you’re like many people on this planet, you have debt to pay off. This could be credit card debt, student loan debt, a mortgage, an auto loan, or otherwise. In any case, you should pay it off as strategically as possible.
First, see if you can get any of your interest rates reduced. You might be able to refinance with a different lender or you might be able to talk down one of your current lenders. It’s possible and certainly worth a try.
Next, establish a debt payoff plan. We recommend attacking the high-interest debt first. While doing so, just be sure to pay the minimums on your other loans.
The reason for doing this is to eliminate some of your interest burdens. The quicker you pay off the principal, the less interest you’ll have levied against you.
8. Set Some Money Aside for Fun
While you don’t want to spend all of your disposable income on non-necessary expenses, you should still spend some of it on them. After all, if you’re not having fun in life, you’re barely living in the first place.
It’s often recommended that you set aside 30% of your income for fun money. However, this isn’t manageable for everyone. Meet your savings goals first, and then budget for fun.
Need More Help With Money Management?
Money management isn’t an easy matter. It can take a lot of research and a lot of practice. If you need assistance with it, our website can help.
We have articles on everything from business to economics to hedge funds to insurance and more. If you’re looking to brush up on your financial expertise, this is the place to be.
Browse more of our money management strategies now!