I wanted to follow up with my previous post on the 20 principles about money everyone should know. It was about the things I wished I knew in my early 20s when I was getting my first pay checks. I have learned from past mistakes and I implemented new ways of managing my money. Besides, it all comes down to the relationship you actually have with money. Your financial situation is directly linked to your mindset and beliefs towards money. The good news is that it is never too late to learn and improve yourself. I am sharing here 10 tips to help you manage your money more efficiently without stress.
1. Seek for financial advice
The first step consists into reviewing your financial situation. Whether good or bad, it is time to take a look at the way you have been managing your personal finances these past years. People often have difficulties asking for help and me included. Nonetheless, keeping your struggles for yourself will make you more harm than good. So go to your bank advisor and ask him for advice regarding your situation on how you could better manage the amounts that come in and out of your accounts or pay off your debts. It is important to seek for professionnal support because your entourage may not be the most suitable to help you. Everyone has his own opinions and experiences with money but each situation is different. So don’t let your aunt, uncle or neighbor give you their financial tips that may not be the right ones for you.
2. Set a financial plan
Once, you have a better understanding of your current situation, you can set your financial plan in motion. First think about your goals and give them a dead-line. For instance, salvaging your debts by X% before the end of the semester or increasing your income by X% in 3 months. You need to have goals that you can actually measure and have a time frame. Then you can write the steps that you will have to go through in order to achieve those goals. It is going to take time and discipline according to where you are coming from and where you want to go but it is totally doable. Just stick to your plan, make some adjustments along the way and start educating yourself towards personal finances management.
3. Pay yourself first
That rule is followed by many business owners and investors but not by the most of us, regular employees. Usually as an employee you get your pay check then pay your charges and taxes before being able to actually spend your money. We live on our net income or the rest we have after paying all our private and public creditors. I want you to try paying yourself first no matter what. Choose an amount, even if it is a hundred bucks or less that you will withdraw or put in your personal account as soon as you get your pay check. The purpose of it is not to go on a shopping spirale and spend everything you earn right way. The aim is to shift your mindset. In the end, you worked hard for that pay check, you deserve it. So the least you can do is rewarding you by paying yourself before anybody else.
4. Save at least 10% of your income
Saving each month 10% of your income is one of the most important rule I applied to my finances. Indeed, you need to have some savings in case of emergency like your care breaks down or you have some unexpected other expenses. This will also disciplines you. Not every thing you earn has to be spend. You should be able to have a long term vision of where you want to be financially. If you are not there yet, then makes the necessary changes regarding your savings – expenses ratio.
5. Start a side hustle
We all have something we are good at. Whether you are a student or an employee, nowadays everyone can start a side hustle. A side hustle is an activity you have aside of your normal job that can help you increase your income. So think about a talent or skill that could actually helps you earn money. Or ask your entourage about it. it could be doing someone’s make up, teaching, gardening, selling crafts or cakes you’ve made and so on.
Besides, giving you some relief regarding your finances, a side hustle teaches you how to sell and market a skill you have. You also learn how to act like a small business owner. Indeed, you will probably need to buy some equipments or supplies in order to produce the products or services you are offering. And you will have to fix a price that covers your costs and gives you a little margin. Finally, you’ll have to communicate and use word-of-mouth to find new clients.
6. Make a budget for fun and leisure
I believe it is key to have a seperate budget for fun and leisure. Usually people who have trouble managing their budget spend too much on entertainment, fun and leisure without realizing it. It is hard to resist the callings of the consumer society and it is important to treat yourself. Nonetheless, you should have a budget for that. It doesn’t matter if it is for shopping, restaurants or going to the cinema once a month. You need to know set a limit for this kind of expenses that could skyrocket very fast.
For example if you are planning to go on holidays set up an automatique bank transfer to your fun and leisure savings account. Have your bank send you a notification once you’ve reached your savings goal so that you won’t even have to check every day. There are also some bank accounts that allows you to allocate your budget to different kind of expenses without having to open a seperate account for each of them. That way your money stays in one place but each month you can decide to automatically allocate a certain amount to each of your expenses.
7. Cut useless expenses step by step
Since you have a budget set up for current expenses and others, it is now time to cut all the useless expenses step by step. If you are often broke at the end of the month but still go out and treat yourself a lot then it might be the sign that you are living above your means. So there are two solution to that problem:
- either you increase your income which can take time if you are waiting for a promotion or for your side hustle to bring you a return on investment
- or you cut down useless expenses which is much faster and only depend on you.
So start by making a list of all the things that you spend money on and that don’t do you any good. If you have an expensive guilty pleasure try to limit yourself to once or twice a month. Focus on the long term and not on the instant gratification you get when you are purchasing something. Also feeling guilty after your purchasing isn’t pleasant. Once again you’ll need to stay strong and remember your plan and ultimate financial goal.
8. Invest in assets
Now that you have cut off some of your expenses, you can reallocate this money into assests investments. It could be linked to your side hustle or an investment that will require you some research. And since you have been working on improving your finances, your bank advisor may be more likely to help you get a loan for that investment. So think about it. Save some of your money with the idea of investing it later on an asset that will generate a positive cashflow each month.
9. Pay off your bad debts
I talked about the difference between bad and good debts here. Basically, you should aim at clearing all your credit cards debts, mortgage and other loans that way on you every month. This is definitely be included in your financial plan. Your bank advisor can for instance help you aggregate and consolidate all your credit cards debts into one single paiement. That way it will be easier for you to keep track of it. Before taking a new loan or credit, try to reimburse the ones you already have. Unfortunately too many people get into the viscious circle or taking more and more credits until it is not bareble anymore. So set a limit for yourself. Remember we want more money to go into your pocket not less.
10. Set up a simple book-keeping system
It is not always easy to know what is going on in your accounts. Therefore a simple book-keeping system can make all the difference. Keep your most important expenses and sources of income in a spreadsheet. The goal is to know what is your average cashflow which is the difference between the money that gets in and the money that gets out of your pocket. Usually we think that a penny, a euro or a dollar is nothing. But once you add them up you finally realize how much you spend on your favorite coffee every single week because “it is only a few pennies”. Also having different accounts helps. You need at least one savings account and a current account. Besides have as many of your bank transfers as possible automated so that you won’t get tempted to change your plans at the last minute.
You don’t have to worry every day about controlling your finances. Things will fall into place on their own once you have an effective system and plan in motion. Don’t forget that money exists in abundance and it is only up to you to make it come into your life. To do so, you need to have a positive mindset and attitude towards money. As I said in the beginning it is never to late, so why not starting today.