LIFESTYLE
Managing your finances is one of the things that should be taught in schools but isn't. If we’re lucky, we have cash savvy parents who can show us their methods but more often than not we have to teach ourselves. Managing your money well is one of the most important parts of your financial life. Knowing how to budget, spend, save and invest can help you reach your financial goals, get out of debt and build your savings for the future.
Unsurprisingly women are already on the back foot with finances compared to men with lower salaries, less put away for retirement and often with less interest in investing (although this figure is on the rise). So how can we protect ourselves now and in the future?
Your budget is key
Your budget is a plan for every area you spend in. To create a budget, you’ll first need to track your spending for a month or two to get an idea of where your money is going. Once you know this in detail, you can plan out a budget that works for you. There are many methods that you can choose so find one that works for you and how you would like to track.
Set spending limits on your budget. This means deciding how much money you can spend in each category each month, so for example, rent would be a fixed cost, but dining out is variable. By putting a limit on your dining out amount, you don’t spend out of control.
Avoid impulse purchases
We’ve all been there, the shoes, the bag, the limited edition dress. But a few of these in a month and your account will take a hit. Before you buy anything, wait 24 hours, often we don’t feel the same way and don’t end up with a wardrobe of regrets.
Manage your debt
Getting a hold of your dent can feel intimidating and overwhelming, but once you have done it, you will feel better, have a much clearer picture of your finances and be able to take steps to paying the debt off.
Gather together the most recent statements for all of your debt and organize the information in a spreadsheet. Include the balance remaining, the minimum payment due and the interest rate. This will help you get a complete picture of how much debt you have and what needs to be paid off first.
This is when you can decide if you want to take the snowball or avalanche approach to paying off your debt
Debt avalanche: In this method, you prioritise paying off debt from highest to lowest interest rate. When the highest interest debt is paid off, you move on to the account with the next highest interest rate and so on, until you have paid everything. This way is more financially efficient, saves you money on interest and helps pay off debts faster but it's a little less rewarding as it usually takes longer to tick the first few ones off the list.
Debt snowball: With the snowball method, you prioritise paying off your debts from smallest to largest amounts. Once the smallest debt is paid off, you take the money you were putting toward that payment and add it onto the next-smallest debt owed. This isn’t as financially efficient as the avalanche but it helps some people to stay motivated to complete the process.
Check your bank and card charges
Reviewing your statements regularly is essential to catch unauthorised charges or fraud and raise a dispute for a refund. This should be done at least once a month although most banks now send notifications of each transaction so this can help you see any issues much earlier.
This article should not be taken as financial advice.