What Is The Best Way To Improve Your Finances
Money is one of the most important parts of our everyday lives. No matter how much you believe that money isn’t everything, we simply cannot do without money. This is the reason why most people look for the best way to improve their finances.
It’s why a lot of us wake up early in the morning. But most people struggle with money and find it difficult to improve their finances.
When people think about ways to improve their finances, they tend to look to the future. They look at making their better as something that will take years to achieve.
This is because most of us believe that we have no control over money because of obligations. But that isn’t the case.
Why people look to the future when it comes to money management is because they believe they must have more money by then. But the truth is that the money habits you acquire now is what you will carry into the future.
Having more money doesn’t necessarily translate into having positive financial health. There are smaller decisions and activities that we can take on to make our financial goals come true. If you are also looking for ways to improve your finances, here are some points for you to consider.
1. Have A budget and Maintain It
Having savings and creating a budget are probably the most important tips to manage money wisely. To create a budget, you must first know what you’re worth.
This means taking into account your income and spending habits. To create a budget, you do not need to make drastic changes.
This is where most people get it wrong. You have to consider your lifestyle and spending habits as well.
A little adjustment and restraint here and there will do. Having a budget should help you create better habits, not help you stop bad habits like eating out. That is the realistic way you can reach your money management goals.
The reason why I keep emphasizing not making drastic changes to your lifestyle when creating a budget is maintenance. It is one thing to create a budget and it is another to maintain it.
The best way to maintain your budget is to make use of online and offline tools. With the help of these tools, you can better organize your finance. It’s best if you create categories like food, education, transport and savings. This way you can know where you are spending the most and which one needs improvement.
2. You Must Have Savings
There is a popular notion that inflation makes money in the bank worthless over time. But while that is true from an investment point of view, it doesn’t tell the whole story.
You won’t fully understand the power of savings until you need money urgently or get an investment opportunity. You must have money that you can access somewhere for emergencies.
If the best time to start investing is today then the best time to start saving is also today. If nothing, at least start saving up for your retirement. You can consider it an investment. The longer you invest, the larger the earnings.
Have a clear understanding of your spending habit, create a budget and start saving.
You can read more on this here.
3. Understand And Recognize Lifestyle Inflation
Ever heard of Parkinson’s law? Understand how it applies to your finance and savings? There is a misconception among many people that they will save more when they earn more.
But the truth is that if you don’t develop good money habits on a low income, it won’t happen with increased income. The reason for this is simple; the more you earn, the more you spend. This is what we call lifestyle inflation.
The truth is that this might not be a fault of yours but a direct effect of your improved status. Let’s say you were promoted to a manager role, for example, it is only normal that you might want to dress better, look better and even own better things.
You do all these to fit your new social and professional lifestyle.
The problem then is that most people do not know when to stop. It is one thing to try to keep up with the elites and it is another to be extravagantly wasteful.
It should be obvious that lifestyle inflation can be damaging in the long run. Why? The reason is simply that it restricts your ability to build wealth. While trying to keep up with the Joneses, always remember that you will one day retire. Anything can even happen in life.
4. Needs and Wants Are Not The Same
Needs and wants can get very confusing. It is easy to mistake one for the other in a bid to quench our desires. The difference then is in the ‘DESIRE’.
The simple difference between needs and wants is that the former is needed for survival while the latter is needed to quench a desire. For example, you need a car but you want an exotic one. In reality, both will serve the same purpose so getting an economical car makes better sense.
You must understand the difference between needs and wants so you can better improve your personal finance.
I am not telling you to let go of your wants; it is just important to prioritize. Your needs have to come first. Once those have been satisfied then you can look at quenching a few wants so far as it doesn’t stretch your budget.
5. Individual Saving Pots Are Useful
It is one thing to save and it is another to save towards a particular goal. Saving all your money as one can get confusing over time. Yes, you have money saved but to what purpose?
Savings also need planning and the best way to go about it is to create saving pots. This helps you get a better idea of how well you are doing with different savings goals. For example, you can have savings pots for school fees, retirement, new car, emergency, vacation and the likes.
This is good because you must have a clear understanding of your savings progression. There are various banking apps that you can use to achieve saving pots.
6. Building an Emergency Fund is Important
Rainy days are real and you do not want to be unprepared when it comes. Many people do not understand that having savings isn’t necessarily the same as having an emergency fund.
I believe general savings should be created for specific purposes. A healthy savings habit should be done with a clear goal.
An emergency fund is money set aside for emergency purposes. From car repair to health issues or even an increase in your monthly bills, an emergency fund is always handy.
It is also useful for unforeseen events like you losing your job or having to take an extended period away from work. It saves you a lot of stress and headache when the need for it arises.
The general notion is that saving money worth three to six months’ worth of living expenses is enough for an emergency fund. But that is no longer the case.
We live in uncertain certain times and the world economy is only just recovering thanks to the impact of the COVID-19. Three to six months’ worth of emergency funding can be a great starting point but it shouldn’t be the rule.
7. Where Are Your Benefits?
Most people tend to forget that they are entitled to benefits. As such, millions are not receiving their benefits and are losing money as a result. It is important to always stay up to date with your benefits.
To get a clear picture of your benefits, you can go online or contact your local council to know how to access a benefit check. You can also use a free benefit calculator.
If your income has reduced recently, or you recently started claiming benefits, you might be eligible for a Council Tax Reduction. You need to get in touch with your local council to see if you are eligible.
8. Be a Clever Customer, Not Loyal
It is human to develop an attachment to things. From brands to TV, spots, shops and providers, we often develop an emotional connection to these things.
But the truth is that if it isn’t favouring you financially then you should move to a pocket-friendly option. Just because you pay more with them doesn’t make them better.
Most firms and businesses understand the emotional connection they have with customers so they don’t bother with giving incentives.
You might be surprised by just how much money you can save by patronizing other brands or businesses. Comparison sites can help you in your search for better deals.
Improving your financial health is important. It can save you a lot of headaches and stress in the future. By the time most people decide to embrace this journey, they would have already been in debt.
In some cases, piled up expenses is why they decide to go on the money management journey.
This is why it is great to start working on your finances as soon as you can.
There are various ways to improve your finances and they are not limited to the points shared. Most times, you just have to figure out what works best for you.