How to Start Managing Your Money, For Those Who Never Learned Growing Up
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While kids and teens get to learn about a lot of stuff, most families and schools do not teach them how to manage their money. In some families, it is considered a taboo subject and many friends a...
Most of us know how much we make, but we need to pay close attention to how much money is actually coming in post-tax, and how much is going out.
You can start by writing down your Starbucks, Uber, Amazon, and take-out expenses, along with your car insurance, utility bills, subscriptions and memberships. Slowly we can realize that many of these small expenses add up to huge figures.
By noting down all your expenses on pen and paper, or on the PC excel sheet, you can start to review and analyse your spendings on a weekly or monthly basis. This will make you find innovative ways to save money, catching hold of ‘runaway spending’ that went unnoticed before.
Example: You could find that the $5 Smoothie that you had every day, could cost much less if you made it at home.
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Convenience stores add a huge markup because they don't purchase food in large quantities. They make you pay more for the convenience they provide.
Unless it's an ...
Using a cell phone plan that does not suit your needs, or paying for extra services that you do not use can be costing you money each month.
Compare and determine which plan provides the most value based on your needs. Get rid of the extra features like text messaging and mobile internet if you are not using them.
Soft drinks have one of the highest markups of any restaurant item and thus provide lower value for your money.
Dine out, but consider to rather opt for water.
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The bulk of your budget is made up of necessities like rent, phone and internet bills, insurance, etc. If you can lower your monthly expenses, you can save a lot for unplanned events.
There are a couple of paths you can take to pay off your high-interest debt when you're on a tight budget.
Financial professionals will advise you to cut out expensive nights out. In truth, you will have night's out, even when you're dirt poor.
To incorporate unplanned entertainment, set aside an amount each month. Be realistic. You can open another savings account for fun spending or you can use cash only.
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You don't have to sacrifice all of your free time to start a side hustle, use the time you’re comfortable with and make a little bit of progress every day.
Get to working on improving your finances today, not tomorrow. Reading the steps and thinking you’re capable of doing it but postponing it is just an excuse, an unprofitable one.
Talking about your financial goals, and scheduling time once a month to go over your finances together can prevent money from affecting your relationship.
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No matter how little or how much money you earn, creating a monthly budget is one of the most important aspects of managing your finances. What gets measured gets managed.
The Envelope system is a way to track your variable expenses like food, entertainment, and drinks.
This method, preferably used weekly, allocates a certain amount in each category in labeled envelopes (food, drinks, movies, etc.). Once the envelope is empty, you are done spending in that category.
The principles that make a good budget, something you can stick to:
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There are five different types of financial personalities, each of them having their own set of values and outlook towards money:
After you have figured out your financial personality, here are a few tips to save money:
The popular 50/30/20 rule states that you should reserve 50 percent of your budget for essentials like rent and food, 30 percent for discretionary spending, and 20 percent for savings.
Assuming you're in your 20s or 30s and can earn an average investment return of five percent a year, you'll need to save about 20 percent of your income so you can reach financial independence when you're older.
Financial independence means that you can maintain your chosen lifestyle entirely from the interest of your investments and dividends.
The four percent rule states that you could withdraw four percent of your principal balance every year and live on this indefinitely. That means you need to save 25 times your annual expenses to become financially independent.
The four percent rule is not perfect. There is no risk-free investment that yields that much today. Sudden inflation could also cause a problem.
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Banks don’t like to give away their money. That mindset is reflected in the interest rates of checking and savings accounts of 0,5% and 0.9% avg. annual interest respectively.
When you deposit your money in the bank, the bank turns around and invests that money at 7% a year or more. After they collect their profit, they give a tiny shaving of it to you.
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