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Useful Tips To Help You Manage Your Finances The Right Way

Financial literacy is something a lot of people still struggle with. Even people who take home a very good salary each month often don’t have any savings at all and if they need to make even a small investment they are left looking for lenders and loans. Some people are naturally very smart with how they spend money and how they tackle cash flow problems but the majority of people need to learn this much like they would learn any other skill. Here are a few tips to get you moving in the right direction.

Income

The first step is to understand your income. How much money you make in terms of your salary is not necessarily how much disposable cash you have at the start of the month. When you factor in taxes, pay cuts, loans, and various other expenses, you could be earning a lot less than you thought. When issuing a loan, a lot of lenders will ask you what your salary is, but they don’t ask about your disposable income. However, when you need to start repayments, you need to pay from the cash that you actually have, not what you make on paper per year.

Understand Expenses

If you are single,it is a bit easier to understand your expenses: as a family it will take a bit more homework but it is still possible. The important thing is to highlight expenses that you are not paying for directly out of your pocket. Things like subscriptions and automated expenses often go unaccounted for and can end up costing a lot of money. If you happen to pay for medical expenses out of your pocket then look for ways you can get some discounts on these services. A lot of insurance policies cover medical expenses – at least to some degree. Talking to your insurance provider could help you lower your medical expenses. Also, keeping a simple account of your daily, weekly, and monthly expenses will make it easier to forecast expenses for the upcoming month.

Set A Budget

Once you have an understanding of how much money you spend on different things, set a budget for each area. You could have a grocery budget, entertainment budget, eating out budget, and fuel budget. Create a monthly budget and spend with that in mind. It is much easier to save money when you are trying to reduce spending on a particular thing rather than when you are trying to reduce overall spending. Most importantly, set up a savings budget where you aim to save a fixed amount every month.

Set up Savings

To save more efficiently you need to have a proper bank account or a separate locker where you can place this money. Your savings account shouldn’t be in an accounting software where you are theoretically saving money. The best option is to set up a savings account in a bank and deposit your money there. This way you can also earn interest on the money you save and you will be sure that your savings are not getting mixed up with your income and being accidentally spent.

Investments

As your savings budget starts to develop you don’t want to leave that money sitting idle. Over time it will only lose its value as inflation goes up. The smartest thing to do is to start investing in some kind of asset. Buying property might not be possible right away but there are other smaller assets that you can invest in which will help not only retain your money but will actually grow your wealth.

You could invest in small businesses, you could buy gold, you could invest in stocks, or you could even buy things that will appreciate in value. Invest in something that you are familiar with and something that is easy to liquidate when you need to.

When drawing up budgets you also need to make room for unexpected expenses. There are always going to be things that happen out of the blue that you didn’t account for and that need to be taken care of right then and there. This is why it helps to have a monthly budget that still leaves some money over for these types of situations. If you have a month where this money isn’t used consider it a bonus. If the money does get spent you’ll know that it isn’t upsetting any other budget and is not being a strain on your savings account. Discuss your budgeting goals with your spouse and your family and try to achieve these targets as a unit. This way everyone will know what they are working towards and will know how to manage their personal spending to achieve the family goals.

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