Keeping track of your finances can be a full time job. Add in a family plus a career and what you’ll probably end up with is a migraine. Spending cautiously doesn’t have to be incredibly time consuming nor does it have to be complicated. All you need is the right knowledge and a grasp on some central ideas. Here are the ABCs of financial literacy:
Accumulate
The first component in effectively managing your finances is to be aware. Being aware involves knowing where all your assets lie and the monetary channels of inflow and outflow. To do this however you need to accumulate all your financial information.
- Gather your bank, credit card statements, monthly bills, and any other paperwork which has a direct relation to your money. These will provide the outline you need to later establish a budget.
- After you gather the paperwork, run a credit report. A credit report is a summary of all your past borrowings which indicates your “creditworthiness”.
Budgeting
Budgeting is a basic building block of finance. They are the key to paying off debts and meeting financial obligations. If you’ve already accumulated all the necessary documents (see above) then making a budget will be a piece of cake!
- Organise expenses between fixed and variable. Car payments, rent, and mortgages are examples of fixed expenses because they stay constant month to month. Variable expenses include gas and grocery bills because their prices fluctuate according to market rates.
- Stick to a spending plan. If money is tight, you need to go over your spending and evaluate what needs to be cut. Frivolous shopping sprees or entertainment costs can be easily cut to allow more money to go towards your necessities.
- Create goals. If you’re buried in debt, assign a percentage of your monthly income to go towards paying them off.
Continuity
Don’t get discouraged if your budget isn’t perfect. It is likely to evolve over time and adapt to your lifestyle. When new expenses are added make sure to document them in your budget and make adjustments if necessary. For example, if you receive a salary increase, put it in your budget. Hopefully this will allow you to pay your debts off faster or allocate funds for entertainment.
These are the building blocks of financial responsibility. Once you take a proactive role in your finances, you’ll be able to be more proactive in achieving goals and accomplishing your dreams.
photo credit: Holger Zscheyge via photopin cc
Indeed, keep it simple. The worts part of it is the accumulation phase. I am down to just a few places where I spend my money from and where I keep it. It is simple….a few years ago, not so much!