2020 has no doubt been a hard year for all of us. Some may have lost their jobs, others may have received pay cuts. Whatever the case, most have come to realize the importance of money management and building financial resilience to be prepared in the long-run. No one knows how the economy might be impacted in the future.
But, if you do your part and start managing your finances now, you won’t have to worry if life throws you another curveball. For example, you can start by keeping track of the electric tariff to stay on top of electricity prices.
Read on to find out how you can go about managing your finances better!
Set a monthly budget and stick to it
To most people, planning a budget sounds like a go-to move when trying to better manage one’s finances. But, many fail to realize that it takes a lot of effort and discipline to stick to one’s budget. Unexpected bills and impulse spending are all things that can eat into your income and savings. As such, it’s crucial to come up with a solid budget plan and keep to it.
When planning your budget, you can try the 50-30-20 method:
- 50% of your income goes to necessities such as loans, bills, groceries
- 30% of your income goes to wants such as eating out, shopping, and recreational activities
- 20% of your income is to be saved
If you find yourself spending more than you save, try setting up a separate savings account. Set up an auto-draft so that 20% of your income is automatically transferred to that account. This way, you won’t be tempted to spend part of your savings unnecessarily.
Clear debts like student loans ASAP
When you’re trying to pay off debt and save money at the same time, it can be difficult to decide which to prioritize. To ease this burden, try reducing any unnecessary spending. Stop going to your favorite coffee shop every morning and paying $7 for a cup of coffee. Instead, start brewing your own coffee at home. Cook your meals instead of dining out for every meal. Little changes like these can cut down unnecessary expenditure in the long run and you’ll also have more money left to pay off your debts.
In addition, paying off your smallest loans may be tempting. But, it’s almost better to pay off the ones with the highest interest fees. Remember, holding off on paying back loans with high-interest fees means you have to repay even more money in the long run. So, it’s best you clear those first then work on settling smaller loans.
Another thing to take note of is not to borrow more than you can afford to pay back. In times of uncertainty, you won’t know if your income will remain the same. To avoid owing more than you can repay, ensure that you have sufficient funds to cover necessary expenses before taking on any long-term repayment plans.
Pay credit card bills in full and on time
Keeping track of multiple billing dates and loan repayments is difficult. To stay on top of all your repayments, consider setting up automatic bank drafts so you don’t miss out on anything. With automatic drafting, all repayments will be transferred on time. All you have to do is make sure you have sufficient funds in your bank account. In addition, you can also opt to have all your bills and repayments transferred out on the same day. This way, you won’t have to keep checking your account balance.
You can also avoid accumulating debt by paying your credit card bills and on time. It may be tempting to repay the minimum amount indicated by your bank or credit card issuer. However, this is also one of the easiest ways to rack up high amounts of debt. If you find it is too stressful and unmanageable to pay your debt, you can check out Innovis credit bureau that keeps your info up to date, safe, and secure at all times.
If you find it hard to pay for your credit card bills in full, you should also think of switching to paying with a debit card. This way, you won’t have to worry about repayments and spending beyond your means.
Rethink loans for non-essentials like a luxury car
By now, most of us know what constitutes a need and a want. Knowing when to spend and when not to is especially important when it comes to making big purchases and taking on long-term loans.
If you’re thinking of upgrading your car or buying a bigger apartment, stop and think if it’s a necessary lifestyle choice or a financial burden you’ll have to shoulder for the next few years.
Consider refinancing your housing loans
Throughout your life, you’ll probably spend a hefty amount of time and money repaying your housing loans. As such, you may want to consider refinancing your house once the lock-in period has ended. By doing so, you’ll be able to save on lower interest rates and enjoy a better cash flow.
Know your insurance well and what you’re covered for
Being insured is as important as saving. But, insurance policies can also be an unnecessary expenditure if you buy the wrong insurance policies. Common mistakes that people make include signing up for insurance policies that overlap one another.
Read through all insurance policies carefully and multiple times if need be before buying them. Consider getting a trusted insurance agent to do the work for you if you’re not too familiar with the jargon.
Sign up for free courses to diversify your skills
Last but not least, it’s never too late to pick up a new skill. In a climate like this, you never know which jobs may go and which may stay. Increase your employment chances by diversifying your skills in areas that have good career prospects. Many courses and workshops available are reasonably priced so you don’t have to worry about spending a fortune either.
Knowing how to manage your money and building up financial resilience will serve you well in the future. If you start building good financial habits now, you’ll be better prepared for unforeseeable dips in the economy. It may take some effort and time to rethink and replan your finances. But, it’s better to get started now than regret it in the future.