Having a better understanding of your finances is not only an important life skill but can also help you to gain control of your money and see your bank balance go up. Below we have put together some of the factors that make up having a good understanding of your money. From how to budget, to understanding how to use credit cards and loans responsibly, we’ll cover some of the key skills to master to have better control of your finances. Keep reading to learn more.
Learn About Budgeting
Learning how to budget and create budget plans is arguably the most important skill in learning how to control your finances. Budgeting involves having a thorough awareness of your income and outgoings and how they are distributed. To keep track of your finances you will need to create a budget plan. A budget plan features all the incomings and outgoings you have, and how they will be distributed.
It allows you to plan ahead for each month, and for you to know how much you’ve got to spend for each different area of your life. As well as budgeting for the short-term such as monthly, you can also create long-term budget plans. For example, they can be used for wedding planning, saving up for a home, and traveling the world. You’ll be less likely to spend money on unnecessary spending, such as subscriptions and memberships you don’t need. Keeping on top of your budget plan will allow you to avoid overspending on areas such as shopping and meal out. You can either create your own design for a budget plan or use pre-made templates online for inspiration.
Keep A Spending Diary
To help you put together a budget plan, you could keep a spending diary listing purchases and bills. This will allow you to keep on top of your spending habits and see where you could afford to cut back. If you’re more aware of how many purchases you’ve made in the day, the less likely you’ll be to keep overspending. When it comes to finances, ignorance is bliss- until the payments all come out of your bank account.
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Cutting Down Household Bills
Look at your household utility bills and see if there is anywhere you could afford to cut down costs. For example, it’s common for the price of your energy to soar in the winter. Avoid this by turning down the heating and layering up or using hot water bottles. You could also make sure your heating is timed to only come on at certain times of the day to avoid wasting energy when you won’t get the maximum benefit from it. Make sure you’re switching off lights when you walk out of the room and switch off sockets when not in use to save on electricity.
Being a brand snob is unlikely to help your finances. Be willing to shop around for the best deal and find what you’re looking for at the best value. This doesn’t just apply to products, but also when it comes to things such as mortgages and utility bills. It might take longer, but when all the savings you’ve made are added up, they can make a big difference.
Keeping Up Appearances
In modern society, especially with the presence of social media, many of us feel pressure to keep up with the trends and purchases of friends or influencers. But this kind of behavior can quickly lead us to become in debt from buying things we very often can’t realistically afford. To save money, you will need to not let the pressures of competing with others and their possessions get to you. Whilst it’s understandable to treat yourself from time to time, try not to let it get out of hand. You should never allow yourself to get into debt you struggle to pay off quickly trying to follow the crowd.
Try And Save Up An Emergency Fund
An emergency fund is a pot of savings you should always have in place for unexpected circumstances. The general rule for the amount you should have for an emergency fund is for it to be three months’ worth of your income from your job or business. This is because should you lose your job or income from your business, it will give you time to get another form of income in place. This way you can keep paying bills and buying necessary things for the time you’re unemployed, without getting into debt or borrowing money from friends and family. An emergency fund also takes the stress out of unexpected costs such as car repairs or hikes in bills and rent. Knowing you always have a certain amount of money in place for emergencies can help with your general wellbeing and stress levels in daily life.
At certain points in life, it may be necessary for you to take out a loan to help with different scenarios. For example, a payday loan such as that from Payday UK can be used as a short-term solution to help with unexpected costs or to help pay for something you don’t currently have the money for, but will after being paid. They should never be used as a long-term financial solution. You will need to check with the provider of the loan as to how quickly it will need to be paid back. If you fail to pay the loan back in time, it can lead to you owing even more money back, and can severely affect your credit score.
Find Out About Credit Scores
A credit score is a number rating based on your credit history. It gives lenders an indication of your ability to pay bills on time, pay back loans, and generally be responsible with money. If you have a poor credit score, it’s likely your application for a loan will either be declined, or will come with very high interest. Some of the things that can affect your credit score include:
- Being rejected for credit applications
- Failing to pay bills on time
- Being in debt
If you’re looking to improve your credit score you will need to ensure you’re paying bills and direct debits on time and not getting into high levels of debt. Avoid making credit applications until you’ve improved your credit score.
Use Credit Cards Wisely
If you’re going to use a credit card, you need to understand how to use them sensibly. Firstly, before taking out any credit card, you need to make sure you read the terms and conditions to know exactly what you’re signing up for. You should know the interest rate and the penalties for late repayments. You should never spend more than you can afford to pay back within a certain time frame.
Make responsible purchases and have a plan for how you will be able to pay back the purchase, so you don’t get into debt. Make sure you’re reading your monthly statements so you can keep on top of how much the balance is on your credit card. Be prepared to switch your balance if the interest rate increases.
Learning how to understand and manage your finances is an important part of adult life, and can help you to improve your financial wellbeing. Use these tips to help you save for important purchases and reduce your financial worries.