There is an interesting phrase financial experts call lifestyle inflation. This is the corresponding change in behavior depending on your income. The more you earn or advance in your career, the more you spend. One interesting characteristic is the desire to acquire objects.
That colleague who was driving a Toyota gets a promotion and immediately buys the latest Mercedes Benz. Such individuals live in a vicious cycle of money in, money out. You could refer to it as a paycheck to paycheck existence. Long term, they have no wealth to speak of, despite a high-flying career.
Even without lifestyle inflation, many people cannot afford their day-to-day living expenses. They end up incurring serious debt to survive. The truth is, keeping finances in check is a huge problem for many. But, there is a solution and we will show you how.
1. Budgeting Remains the Number One Tip
Unless you have an unlimited source of money, you cannot go about life without budgeting. Look at the total income you have. Now, sit down and think about your expenses.
Write a complete checklist to show where all your money goes. Brutal honesty is important because you should not leave out anything. Yes, that means even that occasional treat you give yourself should be on the list.
The process can be an eye-opener. You may discover that you are wasting money on things you do not need.
A good idea is to have two sections in the checklist. The must-have expenditure, and what you can do without. Credit card payments, rent, utilities, and savings go to the former.
Salon trips, night outs, and eating out goes to the second list. Don’t worry though, we will show you what to do to continue enjoying the things you like.
Here is a good tip to help you budget. Have some financial goals in mind. It will motivate and keep you focused, allowing you to use your money better.
2. Work On Maintaining A Good Credit Score
It is so easy to find yourself in debt. You may borrow from family or friends. Other sources of financing include loans and credit cards.
With the first source, you may get away with promises to give them back their cash. Your close relationship can give you some leeway without incurring penalties.
But financial institutions require you to pay, both the principal amount and interest. If you do not keep up with the payments, you will affect your credit score. It will impact your ability to get financing from such institutions in the future.
Effective credit control techniques include keeping up with payments as per agreed timelines. Why does your credit score matter? Well, financial institutions charge higher interest for those who have poor credit scores. They do so to protect themselves in case you are not able to make the repayments.
Keep a close eye on your credit report and rectify any errors in good time. Credit repair professionals can help with such tasks.
But, there are some simple steps that can help repair or maintain a good credit score.
- Think twice before you swipe that credit card. Every amount you spend attracts interest, so use cash if you can. Do not skip any payments or you will have to deal with penalties on top of the interest.
- Pay off the high-interest debts first. Credit card interest rates, for example, can get pretty high. So take care of such debts immediately.
3. See How You Can Save Money
Let’s go back to point number one above. We had promised to show you how to continue to enjoy some of the things you like.
If you’re reading this article, there is a high probability that you consume content from platforms like YouTube. You have come across tons of DIY tutorials.
Remember the money you use in the salon? Well, learn how to take care of some of your beauty routines in the house. Don’t go for the full treatment and styling. Buy or make your treatment and only go in for styling. It could cut your salon spend in half.
Don’t go to the restaurant for meals while at work. Cook and carry lunch from the house. You get the gist, right?
Here is something to motivate you. Get a piggy bank, yes a piggy bank. Every time you save money, put the amount in it. If you have discipline, wait for a whole year before you open the piggy bank. If not, wait for at least six months. We would love to know how much you saved.
4. Prioritize Saving
Savings must be on the priority list of where your money goes. Put aside something in:-
- Normal savings, which should account for 5% of your income. That means what you have before meeting any other financial obligations. A good idea is to set up automatic deductions from your paycheck into a separate savings account.
- Emergency fund saving to bail you out during tough times. The rule is to have enough to survive on for 4-6 months when you have no income.
- Retirement plan whether self-sponsored or employer-assisted. Remember, there are tax benefits you get when, and the more you save.
- Have a sinking fund for big bills that you know will come up in the future. Instead of borrowing to remodel your house, save towards the project.
Keeping finances in check will help you avoid money worries. You live within your income and can stay off the debt train.
Take the time to come up with a proper budget depending on what you bring in. Establishing financial goals is critical in better management of your money.
Have clarity on needs and wants to help make better decisions around your spending.
Keep up with the debt repayment so that you do not affect your credit score. A credit management agency can give you advice on how to go about the process.
Prioritize savings so that you have money for emergencies, retirement, or other needs. The idea is to limit borrowing as much as possible.
We would be lying if we said that proper financial management is not difficult. But, it is achievable with discipline and the desire to live debt-free.