A Beginner's Guide to Managing Your Money

A Beginner's Guide to Managing Your Money

Reading Time: 8 Minutes

As 2023 draws to a close, for many of us, now is the best time to make 'improving your personal finance' a New Year's resolution/goal.

After all, who wouldn't want a little more financial security? 

Let's jump into a world where checking your bank account doesn’t lead to a heart attack.

Create an Emergency Fund

Let's talk about having emergency funds. This kind of fund saves you from unexpected expenses, like losing your job or your car breaking down. 

To be on the safe side, try to save enough money to cover your living expenses for at least three to six months. The 50/30/20 rule can help you gradually  achieve this. You should spend 50% of your income on things you need, 30% on things you want, and 20% on savings and debt repayment.  For example, let’s say you have a monthly income of $5,000. $2,500 (50%) should be spent on necessities like groceries, rent, or utilities. $1,500 (30%) can be spent on things you want, shopping and hobbies for example. Lastly, $1000 (20%) should be dedicated towards your emergency fund. 

Tackling Debt

When you use your credit card right, it can either save you money or result in you spending more than you have. If used responsibly, credit cards offer rewards like cash back on purchases, travel points or discounts at various retailers. You can potentially earn something with every dollar you spend. The goal is to keep your credit score high. Repayments, however, should always be made on time, and if you can and always try to pay more than the minimum.

These are two strategies you can use to pay off your debt: the Debt Snowball Method and the Debt Avalanche Method.

Debt Snowball Method: No matter what the interest rate is, this is how you pay off your debts: from smallest to largest. Pay off your smallest debt as quickly as possible while paying the bare minimum on your other debts. You move on to the next loan after paying it off. That's the reason the snowball method works so well. Every loan you pay off gives you a mental victory and pushes you to take on the next one.

Debt Avalanche Method: With the avalanche method, the debts with the biggest interest rates should be placed at the very top of the list.  You pay more on these bills while making minimum payments on your other debts. Over time, the avalanche method will save you more money on interest, but it may take longer to pay off your first debt than with the snowball method.

You can choose the way that works best for you based on your priorities: short-term wins or long-term interest savings. The most important thing is to stay determined and on track with your plan to pay off your debt, no matter what you decide.

Setting Goals

As many different kinds of ice cream there are, so are your financial goals. Just as choosing an ice cream flavour depends on your mood or preference, your financial wants and needs can change over time. You might want to spend money immediately to satisfy your needs for a new gadget or go to a concert. What if you want to think ahead, like putting together an investment portfolio? Your goals should reflect your priorities and circumstances. Setting both short-term and long-term goals is important, whether you want to save for a trip or retire.

You could make a short-term plan to save money for a down payment on a house, a trip abroad, or a new car. Most people can reach these goals in a few months to a few years, but only if they carefully plan how much they spend and save.

Long-term goals are all about the big picture and long-term commitment. Your main goal is to save money for retirement, not about taking it easy on a beach in your golden years, but about being able to live well even if your income goes down. Saving money to start your own business, pay off your house, or send your kids to college might also be a long-term goal.

Budgeting

Make a budget. It might not sound fun but think of it as your personal road map to getting ahead financially. Use planning apps like PocketGuard, Honeydue, and YNAB (You Need A Budget) to keep track of how much you spend and how much money you make each month. Regular monitoring will let you see where your money is going. Budgeting can help you avoid buying things online that you don't need, make sure you pay your bills on time every month, or look for ways to lower your daily costs.

Pay attention to small fees and subscriptions if you want to get the most out of your money. In the long run, these things can dent your financial growth. Try to review your subscription services. Do you really need six different streaming services or a magazine that you only read once every so often?

Invest Early

Putting money away early is like planting a tree today so that you can enjoy its shade tomorrow. Your money can grow for a longer time if you start investing early. This could mean a savings account, discovering mutual funds or the stock market.

New Year, New Financial You

Managing your money is a process, not a goal. 

You need to put in the work, get ahead financially and make changes to meet your needs and help you reach your goals. This should guide every decision you make and penny you spend and change how you budget. Here’s to a year full of smart money decisions that give you long-lasting peace of mind and safety.