How we manage, spend, and invest our money can have a great impact on your life, yet very few pay attention and a few schools teach it. Do you know that if you manage your money efficiently, you can generate an extra of about &5000 a year? Taking time to plan and manage your finances pays off. It keeps you on top of your bills and generates extra money you can use to pay your bills, debts, spend it on the next holiday trip, buy a car or even save it for your pension.

Here’s where to get started.

You probably were taught some basic maths while growing up, but many people make it to adulthood without ever learning basic money management.  Financial management skills like creating a budget, investing for the future, or even how credit cards work are startlingly rare skills. If you are in need of a Money 101, then here is a good source to help you. Keep reading!

The Golden Rules

Managing your money is nothing but a lot of paperwork and numbers.  Assuming you make Y amount of dollars a month and spend X amount, and you try to make sure X is less than Y. However, your mind set matters as much as the maths. Put another way our finances are just as much about psychology, habits, and the values we choose to live by.

There are software, budget planning apps, online budget planner templates that can be used effectively to help you plan your finances. There are also a few rules that will always help improve your financial life:

Spend Less Money than you earn:

If your spending is greater than your income, you’ll end up in web of debts that’s very difficult to get out of it. If your spending is exactly the same as your income, you’ll never be prepared for emergencies or major life changes. If your spending is less than you income (spending less than you earn), you will have the freedom to save, to prepare for the future, and deal with the inevitable crises that life throws at you. The larger the different between your spending and earning the better.

Plan for the Future:

Having a retirement plan is good but this doesn’t just mean retirement. Establishing emergency fund will always help you to deal with unexpected and emergency situations such as medical bills and car repairs. Having a retirement plan ensures you have income when you’re unable to work. Your finances should always gear forward beyond the current month.

Make More Money:

Have you ever wondered why the rich keep getting richer? It’s simple, money grows while you sleep, provided you save some of it. Properly invested money earns more money over time. Don’t just sock all your cash in a low-interest savings account. Invest some in things that will earn you more money. This may mean starting a business, an investment account or better still getting an education to get a better paying job.

Budgeting

This is the first thing to do in order to take control of your finances. It required some effort but it’s a great way to get an overview of the money you have coming in and going out.

Less than half of US citizens keep regular budget. The few who do says it gives them peace of mind and directs their spending, and makes them feel confidence about life in general.

Having a budget plan means you’re:

• Less likely to get trapped by unexpected costs
• More likely to get a good credit rating
• Able to spot areas where you can make savings
• Less likely to end up in debt
• More likely to be accepted for a mortgage or loan
• In a great position to save up for a holiday, a new car, or another treat

What You Need

To get started, you will need to draft out how much you spend on:

• Household bills (rents, electricity, water, …)
• Living costs (food stuffs, …)
• Financial products (insurance…)
• Family and friends (presents…)
• Travel (car costs, public transport…)
• Leisure (holidays, sport, restaurants…)

Just get as much information as you can, be sincere, check on your past spending. There are free and easy online budget planner templates you can use or simply use a spree sheet and inter all the information and save. 

Once you have gathered all the information on your earnings and spending, you can now plan your budget. Here is one best philosophy you can apply; here you can divide your finances into four categories. Note that being too strict doesn’t work.

Fixed Cost (40-50%): This is usually all expenditures that usually comes in every month and rarely change. This includes rent, electricity, gas, cell phone bill, food and every other thing that generally is constant every month. Some of these may change from month to month, but they are usually predictable. The advice here is to use the highest amount that has ever been recorded in your budget planning.

Investment (25-30%): As you plan, it is generally wise to inject part of your income into an investment that will help it to grow with time. You can startup a business or forward your education. It is not advisable to stock up all your savings into a saving account. While this is good (your money is safe), it generate little interest or gain.

Savings (15%): All savings (short and long terms) fall in this category. It includes an emergency fund (money you keep in saving account for unexpected events such as health bills, car repairs). Others include saving for vacation, gifts, purchase a valuable property like a car, house.

Miscellaneous Spending (5-10%): This category includes everything that you may want and enjoy doing like drinking, dinning out with friends, or splurging on entertainment. As long as your budget plan have the other categories (fixed, investment and saving) covered, you can spend the rest without feeling guilty about your budget.

You can (and should) adjust the percentages to reflect your age, financial goals, and what you find important. Remember this: the more you save, the more your financial stability and abilities, and the more money you’ll have in the future, on to purchase a house, retire early, or achieve other goals. (Let’s talk about this more in a bit.)

Getting your budget back on track

If you are spending more than your income, you need to work out where you can cut back. This can be done simply by either reducing your miscellaneous spending (such as making your launch at home) or you’re fixed spending (getting a cheaper house) or reduce your investment and stick just to a single profitable investment.

You also track your spending by means of a spending diary and take a note of everything you buy in a month. Or, if you do most of your buying using a bank card, get the last month’s bank statement and find out where your money is going.

Get everyone involved

This is very helpful, get everyone in your family (wife, children), home involved with keeping to a budget. Sit down together and make a plan that everyone can stick to, bearing everyone’s interest. Table how much spending money is available and agree among you what you’ll each have.

Cutting your household bills and your mortgage

For many of us, household bills make up a large portion of our spending. The good news here is that it’s easy to save hundreds of dollars off your bills just by following our tips.

You can also save hundreds and even thousands of dollars by shopping around for a new mortgage, or reviewing the one you already have.

Be flexible

Life can’t be predictable so try to review your spending if there’s a change, or at least every couple of months. If you get a pay rise, that means you can save more, or you might find your household bills increase.

How to Use Credit Cards without Going into Debt

Getting a credit card is very easy nowadays. It is also easy to get overwhelmed and wind up owing too much debt which kind put you in a pit that is too hard to climb. Nevertheless, credit cards are also very helpful when used correctly. Here is a simply rule; never use a credit card to buy things you could otherwise afford. Also only buy something with your card when your account balance is positive.

This is how the credit card works. Credit card companies provide you with certain amount of money, known as credit. You have the right to spend this money without paying immediately. When you do eventually pay it back that is by paying your credit card bills at the end of the month you do so without any addition i.e. no interest is paid on the credit. In fact, the credit company may award you for doing so promptly.

If you default payment, the company start charging extra money (interest) on your account. The interest is usually indicated as an Annual Percentage Rate (APR), but that’s really not how it’s calculated. It is calculated on a per day basis not per year. Each month, the company charge you the previous month’s interest on whatever balance you owe. Simply put, every month you don’t pay what you own, the company charge you more.

Worse still, you have to first pay the interest (or else your balance will just get higher). If you pay just the minimum amount due, most of your payment will go towards interest. That means your balance will remain high and keep generating interest. The problem here is, paying just the minimum amount due is the worst thing you can do. If you can’t afford to pay off the whole balance in one month, at least pay more than the minimum.

You’re only allowed to pay for what you can afford. What’s the point then of having a credit card instead of a debit card? If used properly, there are a number of key benefits:

Earn rewards: Most credit cards come with different kinds of reward based on your spending. For example cash back, airline miles, hotel points, or even Amazon gift cards rewards (all in a bit to motivate you to spend more) which can generate problems if you can’t control your spending. However, with a disciplined budget, it’s basically like getting free money for going about your daily life.

Protection against fraud: Sometimes, a bank will offer to refund debit card purchases, but most of the time, they’re treated the same as cash. Credit cards, on the other hand, are completely protected. You are never liable if someone steals your card and goes on a shopping spree, you can call the company and get those charges revoked.

Protection for all kinds of purchases: Hidden in the fine print of most credit card contracts are some sweet features that protect your purchases. Many cards do offer extended warranties on bigger ticket items like freezers (this is another reason you shouldn’t pay for them through the store), damage protection (if you pay your monthly bill with your credit card), or travel insurance (if you lose your valuables on a flight you paid for with your card). Your credit card may come with tons of benefits that aren’t immediately obvious, so check your contract.

Generally, credit cards are incredibly useful for a properly planned budget, but can also be destructive if you don’t use them carefully.

N.B: Never think of credit card as extra cash. Having a $2,000 credit limit doesn’t mean you have $2,000 to spend. It means you can borrow $2,000 for a month.

Generally, budgeting simply means knowing where your money is going and planning ahead. If you don’t want to get into the trouble of writing down every single dime you spend at the grocery, the model discussed above will still cover most of what you need to budget for. The one thing you need to do is decide is how much you’ll place in each category. If it is difficult for you to save or invest 10% of your income after expenses, save the amount you can. You also can add more to your savings rather than spending 20% of your budget on guilty pleasures. The more you can save the better.