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5 Effective Ways to manage your finances

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managing finances

Money is undoubtedly an essential tool that can not be lived without in life, and, as they say, “makes the world go round,” figuratively and literately.

Money allows you to trade and acquire assets, products and services, and if it is not used correctly, it can have a negative impact on your life.

Globally, many people have fallen into debt traps as a result of mismanagement of their finances, which may be the result of student loans, personal loans, credit cards, and other forms of debt.

Managing your finances can pay off in the long run, and can free up money that you can use for your holiday, spoil your loved ones or even invest it.

Know your budget

One of the main reasons why most people fail to manage their finances effectively is that they do not draw up a monthly budget to see how they spend their finances.

Credit cards, monthly specials or promotions, impulsive purchases are some of the most common factors that make people get debts, and the money used for such things is usually not budgeted for.

Setting up a budget allows you to see how much money is coming in and how much is going out, and to see if you ‘re spending more money than you’re making.

One of the easiest ways to create a budget is to list your monthly income and how much you spend on things like rent or mortgage, transportation costs, food and entertainment, outstanding debts. From this budget, you can see which areas you can control more or reduce costs, and which areas you can improve.

Differentiate between needs and wants

One of the biggest barriers to managing finances is spending money on things you don’t need.

Today’s world is full of superficial things, fake lifestyles, where people feel they have to take a look at social media, which has resulted in many people maxing their credit cards just to get the latest iphone, clothing label, and so on.

Learn to have self-discipline and spend money on important things, prioritize what’s important, like mortgages, savings, and so on.

You’ll be amazed at how much you can save every month when you start cutting back on unnecessary expenses that you don’t need from your monthly budget.

Pay off any outstanding Credit Card balances

Using credit cards is one of the easiest things to do, but paying them back is an entirely different story.

Millions of credit card holders around the globe have failed to manage their credit cards properly by spending too much on them but failing to pay off on time.

This alone can adversely affect your credit profile and prevent you from accessing additional credit in the long run.

If you have any outstanding credit card balances, try to get them cleared and paid on time and minimize how much you spend using your credit card.

Another important tip is to make sure that you understand the terms and conditions of your credit card when you sign up for one, make sure you know its usage charges, interest rates and things of that nature.

Have a Savings Plan

This is one of the most neglected but crucial things needed in your finances, especially with the recent global Covid pandemic that saw millions losing their jobs on short notice.

Having a good savings plan will help you manage your finances well, especially during those rainy days, and will give you a lifeline that will help you get on track if you encounter a disruption in your daily income.

One of the best ways to save is to set aside a fixed portion of your salary, such as 10%, for a separate savings account that you can not access unless it is for its intended use.

There are many savings plans that one can have and they can include a study savings plan, a mortgage savings plan, a business savings plan, etc.

A retirement plan is also one of the best savings plan you can have for yourself, as you’re saving for the future. Inquire from a number of financial institutions that offer a retirement plan, or if your employer offers a retirement plan, you can register for it.

Get an extra income stream

Another way to get on top of your finances is to create a new revenue stream that can complement your existing income, which can be a side business venture that you do on a part-time basis to give you extra cash.

A lot of people are doing this today, doing things like selling goods to their co-workers, working on the weekend just to mention a few.

Money generated from these ventures can be put aside as savings and can help you to have a positive financial standing and help you achieve some of your financial goals much faster than if you relied on a single source of income.

Although there are many other ways you can use to get on top of your finances, these are some of the best basic ways you can get started.