5 best ways to manage your money effectively
With the rise of social media pressure and a consumerist culture, there is a temptation to buy and indulge more than you need. Slowly, it has become a norm for the majority of the millennials. Holidays, luxury dining, shopping indeed warms the cockles of our heart giving us all the gratification but also gives an alarming rise to the need to manage your money effectively much more than ever.
Here are five simple and doable ways how you could manage your money so that you enjoy the luxuries of the present, without compromising on the possibility of having a strong and financially secure future :
Set your goals
Identify and prioritise your goals, both long-term, and short-term. It is the primary step you need to take if you want to manage your money effectively. Whether it is a dream holiday, a car, a home, an educational course or an MBA degree that you have been aiming for, enlist all of them to get a clear understanding of your priorities.
To ensure that your goals are realistic and reachable, you could use the S.M.A.R.T criteria.
- S = Specific
- M = Measurable.
- A = Achievable
- R = Relevant
- T = Time-bound
Formulating your goals correctly. It will enable you to understand your needs, desires, commitments, and aspirations better. As your goals will help you plan your budget efficaciously.
Make a Budget
Once you have enlisted your priorities, it is imperative that you make a budget. The most popular method to plan a budget is the 50/30/20 rule, coined by Elizabeth Warren, the Harvard bankruptcy expert.
Simply put, spend not more than 50 percent of your earnings on your necessities, like utility bills, groceries, housing payment, EMIs etc. 20 percent of your earnings should go to your savings and investment pool, which you could use for debt repayment if any or for achieving your long-term goals. Remaining 30 percent you could happily allocate to your wants, desires and everything you want to own and indulge in the particular month.
If you do not have a monthly fixed source of income, you could still employ the rule to manage your earnings. Employing the rule to manage your budget is a good starting point for you to create a balance between your goals, splurges, and obligations.
Use a budgeting app
In an era, when technology has become our lifesaver. There are many apps that you could rely on for money management. Having set aside the amount to be spent for different purposes, use a budgeting app to track your income, daily expenses and also set saving targets.
There are some great apps like Mint, Wally among others which provide tools to track your credit cards, bank accounts and also investments helping you organise your monthly budget and plan better. You could click pictures of the receipts or just record the expenses. The simple pictorial representations classifying different expenses will make it easier for you to review your monthly budget and take conscious decisions for the next month.
Know your weak areas
If you are great at setting goals and even better in making a budget, but terrible in sticking to them, do not panic. Observe your pattern for a couple of months and know the areas you are prone to flounder and divert your commitments from.
It could be your love for the new bag in the latest collection, or just an extra weekend getaway that your friends lured you into. Know that indulgence over and above the 30 percent rule will take you further away from achieving your long-term aspirations.
Once you start to recognise your pattern and your divergences, it will help you get on track slowly and thwart to give in to other temptations.
It does not matter to which gender or age group you belong, financial literacy is absolutely necessary to manage your money more effectively. Know the basics of Fixed Deposits, Mutual Funds, Systematic Investment Plans (SIPs ) etc, to educate yourself on the various investment and savings options available that are safe, yet allow your money to grow.
Even if you begin as an amateur to know about the basics of investment, with consistent learning you will see yourself growing as an expert. Financial literacy will give you that wisdom needed to enhance your financial-decision-making skills and consequently grow your life.