Most people can’t answer how much they spend on everyday items within a week, and that’s a problem. Even if one is well-off and doesn’t feel financially restricted, one should plan their finances.
Sometimes people seem to earn enough for a living but struggle to cover their expenses and utility bills. But why so? The statistics state that only 57% of adults in the United States are financially literate.
It means that almost half of the U.S population doesn’t know how to plan their finances properly. This article aims at explaining how to plan finances. We have gathered some of the most valuable and easy tips so you can plan your resources.
The Importance of Financial Planning
Before we dive into the eight most valuable tips for financial planning, let’s check why it’s important to plan finances. Here are a few advantages of financial planning:
- Financial planning offers direction to a person’s goals and dreams. Suppose you want to buy a new electric car. Buying a car is your goal, while financial planning offers guidelines. You have to check the price of the car and then estimate how much money it’s possible to set aside to buy a car in one, two, or three years. Now the goal is more achievable.
- Budgeting reduces unnecessary expenses. Some expenses, like food, utility bills, or insurance policies, are necessary. However, people spend a fortune on things they don’t need. These expenses pile up quickly and “consume” people’s funds. Financial planning gives you control over your spending habits.
- Awareness of how much money you spend. Knowing how much you earn and how much you spend is the easiest way to put two and two together and estimate how much funds are left. You can set aside these funds, invest in something, or open a savings account in a bank.
- Easier planning for the future. Undoubtedly, it’s important to enjoy your life. However, planning for the future is critical if you want to enjoy your life when you’re older or retired. Planning for the future allows us to make bigger purchases, such as a house, an apartment, etc. These purchases are achievable as long as you plan for them.
Financial planning enables people to reach their goals faster. The goal may be anything from buying a house, a car, or collecting funds to invest in cryptocurrency.
Note: if you want to invest in cryptocurrency, use only spare funds. It’s also recommended to analyze the crypto you want to buy on open crypto databases, such as ICOholder. Never borrow money to invest. The general rule of thumb is to invest the amount of money you are willing to lose.
Top 8 Financial Planning Tips
Check out these easy-to-follow tips to manage your finances!
Regularly Check A Monthly Budget
Regular monthly expenses tend to change from time to time. Suppose you have to pay a smaller amount for electricity in August, whereas in December you receive a bigger bill. Moreover, we all have different needs during various months. Keep track of monthly expenses to avoid accidental overdraws of a bank account.
Adjust As Needed
Suppose your monthly salary is around $3,000, and you have $1,500 as a monthly budget. You set aside $1,500 every month. Around $240 cover utility bills, $400 cover rent and around $300 covers insurance expenses. You get $560 to spend on other needs.
But what to do if you need to spend more than $560? For example, you prefer going to a specific restaurant with friends, and you overspent. You would have to take some money from the $1,500 you set aside. However, it should be a good lesson for the future.
If you know that you’ve overspent on something, cut other expenses. For example, instead of driving to the office, consider riding a bike. You will save money on gasoline. Or don’t come by Starbucks to buy coffee. Instead, take coffee from home.
Use An App
Most people believe financial apps are only for people who invest. However, there are useful apps that enable people to plan their budgets. There are plenty of free basic apps online for tracking daily and household expenses. All users must do is immediately add all those expenses to the app. By the end of the month, you see how much you’ve spent.
Choose a budgeting app based on reviews and ratings. The easiest way is to download an app on App Store (or the Play Market if you’re an Android user). Use the app to check how much of your monthly budget is still left to plan your spending.
Keep Your Bills In One Place
Always keep your bills in one place. It may sound odd since most bills arrive electronically, but you still receive some bills by regular mail. For instance, property tax and homeowners’ arrive by mail quarterly or annually.
The best way to store such bills is to use a separate file cabinet or categorize bills and keep them in signed folders. Keep these documents near your desk or wherever you typically write checks or pay bills online.
Pay Bills As Soon As You Get Them
Cover your bills as soon as they arrive. Remember to have enough money in your bank account to avoid overdraft. As mentioned, we all receive paper bills. Some of these paper bills also arrive electronically. Ensure you don’t pay one bill twice. Proceed to read the article to learn how to avoid double paying.
Create A Checklist For Bills
One might think that creating a checklist of expenses is unnecessary. However, checklists allow you to plan how much you will spend within a month. Moreover, use the checklist to cross out expenses you’ve already covered. That’s how you avoid spending twice on one bill.
Coordinate With A Partner
It’s surprisingly easy to bounce a credit or debit card payment if you share expenses with a partner and have no clue how much they spend. For example, your significant other wasn’t aware that they had to cover the utility bills.
It’s easy to avoid this situation by simply coordinating your actions with a partner. Sit down together and calculate how much you spend in a month. Then divide these expenses. The best way is to create a separate checklist for each person.
When it’s time to pay, each person pays for their part of the expenses. Overall, you can achieve your goal faster if a partner is participating in financial planning. For example, you are married and want to buy a house. It’s easier to achieve this goal when both of you set aside some money.
Verify That You Got Your Salary
Today, many people prefer direct depositing of their bank accounts. People expect their salaries or wages to arrive when it’s payday. However, different companies use different payment schedules.
For example, instead of paying every second Friday, an employer pays every 15th. Sometimes, the 15th day in a month is during a weekend or a holiday. So, the employer pays either earlier or after the 15th day. If you want to spend money on something, ensure you got your salary to avoid overdraft.
Create And Use Two Bank Accounts
You may also set aside a debit card for rent and utility bills and use it only for these expenses. Having two bank accounts means having one account for essential expenses, such as rent or bills, and another for other expenses, including non-essential purchases.
It may be a little bit challenging to plan your budgeting, but it’s easy to get used to it. Planning your budget is critical, especially if you want to set aside money for different purposes. People want to set aside enough money for their savings accounts, safety cushions, emergency funds, etc. However, they also manage to reach their goals when planning their budgets.