Do You Think You Are Managing Your Finances Well? Think Again!

Published on:

As an entrepreneur, you're taking care of your business' finances for sure. But are you as considerate when it comes to your personal finances? Here's why & how you should tackle this challenge:

The way you manage your money has a direct impact on your life and your business. Unfortunately, few schools teach money management skills. It can take a while to learn and apply the concepts and principles of successful money management. Skills such as budgeting, investing in the future, and how credit works are essential to establishing life-long financial success whatever your income level is.

It may seem like a lot of paperwork and numbers at first, but the principles are quite simple. If you make X amount, make sure your expenses, or Y, are less than X. What’s not so simple is the psychology of finances, such as building good habits and undoing detrimental ones. If you would like to add structure to financial life and learn more about budgeting your money when payday comes, read on:

#1 Spend Less Than What You Make:

It sounds easy, but it’s easier said than done. If you spend more money than what you make per year, you will end up in a spiraling downward debt, and financial trouble will follow whether you make €30k or €100k per year.

Let’s say you spend exactly as much money as you make. In that case, you will never be able to ward off life changes and meet unexpected emergencies without going into debt or damaging your credit.

Only when you spend less than what you earn will you have more freedom and be prepared for crises that may arise. The greater the gap between what you earn and how much you spend, the greater the benefit.

#2 Planning For A Rainy Day

Retirement is just one of the factors to consider when you start a savings plan. Establishing an emergency fund will allow you to deal with unexpected car repairs or medical bills. Make sure you meet deadlines to pay off debts incurred that offer interest-free terms for a time period. How much, or what percentage of your earning you save will depend on your monthly cost of living and your earnings. Educing your daily expenses may help you put more into savings and build up your reservoir faster. Take your lunch to work or school instead of eating fast food. This is not only healthier but cheaper as well. Shop around for the best gym membership or workout at home. There are many resources we can tap into like YouTube videos that will help you stay in shape without having to spend money.

#3 Put Your Money To Work For You

Money can grow while you sleep, that’s how the rich get richer. Over time, investing your money correctly will increase your net worth. Low-interest savings accounts are OK, but you want to invest where your money can grow even more. That may be opening an investment account or starting a business. It may take planning and knowledge, but if you’re not blowing your money away as soon as you get it, it will eventually pay off in being able to start your own business and/or having a lucrative investment account.

#4 The Right Bank Can Help

Keeping your money in a jar stashed away inside an empty shoe box is not safe. Banks aren’t as scary as they look to many. A bank can hold your money and even help you learn how to manage it. It’s so easy to set up a debit and savings account; even a child can do it. You can apply online or visit a branch. Once it’s done, you’ll be able to access your money from an ATM, a retailer’s point of sale, or through online banking.

Choosing the right bank is not as easy. Shop around for banks by comparing their services and fees. Compare debit cards, checking fees, refunding fees, overdraft fees, minimum balance fees, hidden fees, and rewards. Online banking should be easy to navigate, and other services may include auto pay and direct deposit.

Check their savings and loans interest rates, and definitely see customer reviews online. Some banks operate on a strictly online basis. This may be compensated by offering lower fees and better interest rates than more traditional banks.

It pays to do your homework when choosing a bank.

#5 How To Set Up A Budget

Being able to track your expenses is one of the most challenging things you may encounter when managing your finances. It’s easy to click and buy nowadays. It’s even easier to run a tab at an event; your friends will love you for it. But they won’t be there when you have to pay late fees or run the risk of repossession.

Even the most simple budget can help you stay on track. Building good financial habits starts with categorizing your bills and expenses. Take a look at your wages, add them up, if you receive just one paycheck, read the details on the stub and ask as many questions about it as you can think of. Know how you end up with that amount of money every payday whether it is monthly, weekly or biweekly. Direct deposit is a service that many employers offer, but they still give you a stub detailing the taxes and social security payment on your behalf. If you receive several paychecks a month because you are a freelancer, it gets a little tougher, but you can get into the habit of depositing and then look online at your statements to calculate the amount of income per month.

The next thing you want to do is calculate your monthly expenses. Rent/mortgage, utilities, car payments, insurance, food, clothing, tolls, parking, etc. Gather up receipts or use your bank’s transaction history and make an estimate if you cannot get an exact figure. In case the amount you spend is not less than what you make, start all over and see where you can cut cost. Cutting costs can be as painful as not being able to afford to live in an expensive city.

There are services that track your expenses for you by connecting to your bank account and tagging your transactions for you. You’ll be able to see how much you are spending on each category. These services will also allow you to stay on budget by notifying you when you go over. However, if you don’t get into the habit of doing it for yourself every time you make a purchase, you will not build the life-long habit of staying within the budget as you go.

Dividing your money into four categories can help you create a budget and stay on track:

Monthly Fixed (50-60%)

These are the payments you know won’t change from month to month including rent, gas, utilities, groceries, cellphone, and any other fixed bill you must pay monthly. Even if these bills fluctuate a little every month, they are still considered fixed because you need to pay for gas to get to work, for example, or your utility bill may be higher in August than in April. They should account for up to 60% of your monthly income. If more, then try to make adjustments until you lower the percentage.

Investments (10%)

You might want to invest some of your money, so it grows over time. Investing on a monthly basis should not exceed 10% of your earnings per month. If you are not making an investment, save it.

Savings (5-10%)

Short and long-term savings go into this category. If you are not making an investment, put another 10% into the savings plan. Shop around for the best savings rates and offers. You can later budget vacation, gifts, and large purchases like a new TV or a PC from this category. However, the emergency fund, which is a block of money that should translate into at least three months of living expenses should never be touched, unless, of course, you have an emergency situation like losing your job or an illness.

Care-Free Spending (10-15%)

Let’s face it, life is worth living when you can be spontaneous and have a care-free spending day or two within a month. You can still make it happen within the budget. As long as the other categories are taken care of, the rest of your money is for spending however you wish. If you don’t use care-free living spending one month, save it for the next one and have twice as much fun.



Sharing is caring!