Managing your finances isn’t always an easy task but keeping your money matters in order is a good life skill to have – and even more Important in times like these when faced with the cost of living crisis.
Inflation has had a negative impact on the spending power of the average household, with real consequences for millions – from difficult decisions about heating and food costs to juggling debts just to stay afloat.
Money management does not come easy, but with a little time and effort, you can soon get a handle on your income and expenditure to ensure your budget is sufficient to meet your bills.
Here are some of the smartest ways in which you can manage your finances for the medium and long term?
Keep to a Budget
Discipline is key to managing your money and is a key aspect to help you achieve specific goals or ambitions you might have for your household. Whatever you are hoping to achieve, from saving for a home to paying down debts or even meeting a key financial milestone, your route to success always begins with the budget.
This needn’t be a complicated process to begin with. All you need to know is exactly how much you bring in each month, and how much goes out on regular and necessary costs: i.e.: rent, utilities, and car- or transport-associated costs.
Once you’ve compiled your budget at least you know how much or little you have left over and available to spend or save.
Pay Down Debts First
It may be the case that your money management efforts are focussed on reducing or eliminating debt – this is a good first step and should be your priority before you start to consider a longer-term savings strategy.
This is because the interest rate on any outstanding debts you have will always outstrip the interest you might receive on savings, reducing your saving power – it’s a bit like engaging the handbrake and the accelerator pedal at the same time. Focus on paying your debts as your first step, starting with those that have the highest interest rates, and then move from there.
Save, Save, Save
Once you’re in a better financial position overall, you can start to think about saving your money. There are many ways to approach this, all of which have their own merits, but a basic savings account with an institution you trust is an excellent start. Such accounts are easier to access than longer term fixed accounts or bonds, giving you the flexibility to meet any emergency costs you might incur in your early days of saving.
Create an Emergency Pot
Speaking of which, it might be helpful to approach saving with the same shrewdness as debts. Before putting money aside for pensions or property, you should focus on building an emergency pot equivalent to two or three months of household living costs. This pot will be an essential safety net and a good start before you move on to a wider range of cash savings and investment choices to meet you longer term goals.