The art of effective money management is a skill that should be taught in school but the sad reality is that the educational system has perfected the art of churning out educated folks who know next to nothing about how to manage their money.
One of the simplest concepts that would keep you out of financial troubles irrespective of the size of your income is that "your expenses must never be higher than your income". If you really want to improve your odds of financial freedom, save (better still invest) the difference between your income and your expenses.
Yet, you'll often be surprised that many educated professional who draw decent salaries are struggling to make ends meet financially. More perplexing is the fact that some celebrities who earn money by the millions often end up going from rich to bankrupt before the end of their career. Interestingly, I have observed that developing smart money management habits is often a learned skill and not a function of instinct. This piece provides two insights on how you can start managing your money like the pros even if you don’t have a college degree.
1. Put your budgeting on autopilot
Taking the time to spend about an hour to put your banking, budgeting, and savings on autopilot could have a huge influence on your ability to regain control of your financial destiny. Each week, you should be able to determine exactly how much you can afford to spend on transport, food, utilities, and happy-hour among other things. Even if you can't get an exact number, you should be able to spot a ballpark range of your expenses. While you are at it, make sure that you don't forget to think about how much money should go into your savings account.
After you have made a list of the items on your expense column + the important savings, find an app that can help you move money out of your bank account each week to pay such bills automatically. Your banking app should might also have a feature for automating your bill payments.
One of the first noticeable benefits of automating your budget is that you'll have fewer reasons for financial worries because you won't have to deal with unpaid bills that "suddenly" pop up at the inopportune moments when you are broke. More importantly, automating your budget will rein you in from overspending money on any one category of your expenses.
2. Sit down and come to terms with your debt
Most people have a debt problem; again, most people (including you) have a debt problem. The Federal Reserve debt figures as at Q3 2016 shows that the average student loan debt stand at around $49,042 per household and the average American mortgage debt is about $172,806. However, having debts is not the main issue here, the bigger problem is that most people have developed mechanisms for ignoring their debt. If you don't talk about it, it would probably go away.
Now, the professional way to deal with debt is to list out every debt you owe to banks, credit card companies, friends and family, and even unpaid parking tickets and traffic fines. You also need to note down the interest payable on the loans, the minimum payments, and pay attention to when the monthly payment on each debt is due.
After you've confronted the realities of your debt situation, you'll need to reach out to your creditors to explore the possibilities of during the interest payable on your loans. On interest-free loans, you may want to explore the possibility of getting an extension on when the payment is due.
Finally, you should start getting rid of debt by paying the highest interest rates first. The higher interest rate is your money that could have gone to good use doing other stuff. Hence, paying off the high-interest rate debt first helps you to free up more money that you can apply towards other debt.