Managing your money is very much like dieting. On the face of it, there’s a simple correlation between how many calories you eat, and how many you burn off; eat more calories than you burn, and you’ll gain weight, eat less than you burn and you’ll lose weight. But that doesn’t account for the complicated psychology of food and eating, social pressures, choice, and all the other influencing factors. Similarly, balancing your finances is a simple correlation between what you earn and what you spend. Earn more than you spend, and you’ll have no money problems; yet spend more than you earn, and you’ll soon rack up the debts. However, the same influences of psychology, social pressure and choice affect your spending habits as well as your eating habits, making both dietings and being financially secure highly complex issues for many people.
Why money management matters
Being able to balance your income and expenditure is an essential life skill, and achieving that balance can be a big boost to your confidence and self-esteem. Knowing you can pay for what you need and still have cash left to save, invest, or spend as you wish isa highly liberating feeling. In contrast, experiencing money problems can have a significant effect on your mental well-being, and the stress can affect your physical health as well.
Basics of sound money management
Your first step to financial security is to examine your income and outgoings in detail and prepare a budget listing all your expenses each month. This can take several hours to accomplish, and it must be a true reflection of what you spend, with nothing missed out and all the figures calculated as accurately as possible rather than just estimated. By extrapolating the first year’s expenditure for another couple of years, you’ll be able to see how your finances will shape up over that period of time, and work out where you need to make adjustments. If your outgoings exceed your income, you’ll need to examine all your expenses and work out how to cut back on some of them, and/or look at ways to increase your income.
Savings, investments and contingencies
Once you are starting to make more than you spend, your first task is to have a contingency fund to cover any large, unpredictable expenses. Nothing derails a budget as quickly as having to cover one of these types of emergency costs. Having a savings account is always a good idea, whether it’s to save for something specific like a vacation, or a just to have a buffer against any future financial problems. Once you have sufficient savings, using the money to invest in a long-term portfolio is one of the best ways to increase your capital. This needn’t be prohibitively expensive, as you can register with an investment broker that uses robo-adviser technology to trade your stocks for you. You can find out more about this method of investing by checking out a Betterment investing review that gives you all the information you need on taking those first steps.
Having money worries is one of the major causes of stress, unhappiness, and relationship problems. By taking charge of your finances, you’ll reduce the stress and other negative health effects money troubles can cause, and feel happier and stronger as a result.
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