You’ll often encounter people who make a considerable annual income but never seem to have any savings. They’re constantly living paycheck to paycheck despite earning well because they tend to spend their money as quickly as they make it. Many people often struggle with this problem. Their income might be in the six-figure range, but they unfortunately don’t know how to manage their finances, putting them in a bind more often than not.
Money management isn’t easy. Individuals often find it difficult because they haven’t been taught financial literacy in school. As a result, they spend their money unwisely. Their lack of financial literacy also leads them to think that the only solution is to make more money. However, making more money likely means they’ll spend that additional income because lifestyle inflation is very real.
You can try various strategies to improve your money management. However, the fact is the ideal first step involves becoming more financially literate. You can try enrolling in various courses online, reading financial literacy books, etc. However, If you’re about to start college and looking for a major to help improve your financial skills or are interested in advancing your education in the field, consider getting a relevant degree like a Bachelor’s in accounting because it’ll teach you all the financial literacy and money management fundamentals needed in life.
Other than that, consider the following tips to help you manage your financials better.
How to Manage Your Finances
Here are some tips to help you manage your finances better:
1. Budgeting is Crucial
Managing your finances is nearly impossible if you don’t budget. Not creating a realistic monthly budget is what often prompts people to overspend, leading them to acquire debt. Start by evaluating your monthly take-home income. However, your take-home pay might only be $4,000 after tax and social security deductions.
2. Become More Financially Literate
Financial literacy is an ongoing process. You can’t just become financially literate overnight after reading a book or watching a video. You’ll want to continuously learn about the best investment methods, especially as new options pop up. For instance, over the past decade, cryptocurrency has emerged as a potential investment method, although most experts recommend against investing heavily in it since it’s too volatile.
Even professional accountants continue studying more about financial institutions and methodologies after graduating with an undergraduate or graduate degree. For instance, many accountants often pursue certifications such as CFA, CAIA, or CFP after graduating.
3. Track Your Spending
Tracking your spending is important. If you don’t know what you’re spending monthly, the odds are you can improve your money management skills.
Tracking spending requires having good financial literacy skills. You can maintain a spreadsheet like an old-school accountant or use a money management application to see how much you’re spending on things like eating out, entertainment, utility bills, etc.
4. Bid Farewell to Debt
Incurring debt for some purchases can be necessary. Most people have student loans because college tuition is expensive, and paying a large sum upfront is challenging. However, try to eliminate student loans as soon as possible because you don’t want to incur the principal since it’ll make paying the debt more difficult.
Furthermore, people often use debt for large purchases, like buying a car. Ensure you can pay off this debt as soon as possible. Otherwise, consider purchasing a used car instead of opting for a brand-new one.
5. Build a Nest Egg
A nest egg is necessary because unforeseen circumstances can affect your financial situation. For instance, a medical emergency could put you in a difficult position. Similarly, the current economic climate might cause your employer to shut down their business, leaving you without a job. Do you have an emergency fund you can dip into for such expenses? If you don’t, you’re in a precarious position.
Set aside a percentage of your income. Ideally, you’ll want to have enough money to sustain your current standard of living for three to six months.
6. Pay Your Bills Timely
Another way to manage your finances better is by paying your bills timely. If you live alone, you’ll likely have several bills you must pay monthly. For instance, rent, electricity, internet, and other utility bills require immediate attention. Pay them before their due date. Otherwise, you risk incurring late fees on your bills. Moreover, paying your bills on time will also improve your credit score.
7. Recurring Fees Must Go
Incurring recurring charges and forgetting about them is easy. For instance, many streaming platforms exist today, like Disney Plus, Paramount Plus, Netflix, Amazon Prime, etc. You might be subscribed to all these streaming platforms but only use one of them regularly. Do you need the other ones? The answer is likely no, especially since you’re not using them. However, the monthly fee for these subscriptions is still deducted from your account whether you use them or not.
8. Create an Investment Strategy
The full retirement age is 66 in the United States if you were born anywhere between 1943 and 1954. It increases to 67 for people born between 1955 and 1960 or after. Since retirement means no longer having a monthly paycheck, you’ll need to prepare for the future by investing early. Thus, an investment strategy is paramount.
Check if your employer offers a 401K matching account. But if they don’t, consider opening a retirement account. You might also want to consult a financial advisor and seek their guidance. They’ll help you pick investments that can yield a high return on investment or protect your wealth from inflation.
For instance, stocks are a particularly popular investment vehicle for most Americans. A survey shows that 61% of Americans own stocks. Similarly, gold is common because most investors consider it an excellent way to protect themselves from inflation.
Learning how to manage your finances properly is crucial for everyone. Doing so is essential because it’ll prepare you for a rainy day in the future that you might not have seen coming. Hopefully, the tips listed in this article help you improve your money management skills.
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