One of the hardest things for many of us to do is to manage our finances properly. It can be hard if you’ve had no training and you’re used to just spending freely, whenever you want. There are thousands of people out there that can’t balance their checkbooks let alone plan for their future, but there is no shame in that. You just need to take that first step towards learning about how to start managing your finances and getting ready for the future.
For some, this may just not be possible, and again, there is no shame in that. If you simply cannot make sense of your money, you will need to get some help before you get into trouble. An accountant can really make a difference if you’re struggling and they usually do not cost that much money. You’ll actually be saving money in the long term and you’ll be able to spend less time worrying about your money.
But for most of us, it’s important to learn how to do this on our own. Unless you are incredibly bad at math, there is no reason that you cannot manage your finances. It’s really just basic addition and subtraction and anyone can do it. It takes a little bit of focus and you may need to learn a few terms along the way. However, you’re investing in your future when you learn how to manage your finances and it will pay off.
Let’s start off with basic financial planning. A lot of people hear that term and simply turn off. However, it’s actually pretty easy. Here’s an example – You need to ask yourself, how much money do I want to have saved five years from now. Now, divide that number by five. This is how much money you’re going to need to put aside every year to meet that goal.
If your goal isn’t reasonable, you may need to fine-tune it a little bit to bring it into line with your income. Now, you’ll need to take that yearly figure and divide it by twelve. This is the amount you’ll need to put aside every single month. Set up an interest-bearing savings account and make that deposit every single month. You may need to discipline yourself for the first few months, but it will get easier. If you find that your finances are a little tight, try revisiting a few of your expenses to free up some cash.
Lastly, it is important to understand how debt works. There is bad debt – which most of us are in, and then there is good debt. A simple formula to tell the difference is:
Bad debt = money spent on consumables and things that will never give you a return
Good debt = money spent on something that will create new income streams or pay off in the future. By using good debt, you can reach your savings goals a lot faster and it won’t be so difficult.