Most individuals talk about how to earn more money, but fewer people discuss efficient money management. While building wealth is important, it’s also crucial to secure your money and manage it carefully. To maintain long-term stability and liquidity, your hard-earned money needs to be saved, invested, and used sparingly in a disciplined manner. Effective money management is one way to do this.
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Here are some ways to manage your money wisely:
Make A Monthly Budget
The first and most crucial step in money management is creating a budget. In order to make a budget, estimate how much money you will ideally need to spend each month depending on your income, lifestyle, and wants. You may better manage your finances and plan your spending and savings by having such an estimate. You can track, reach and manage your financial goals more successfully without sacrificing your lifestyle if you have more control and knowledge over your spending patterns. Budgeting will help you avoid spending more than you need, and this means you will have more money to save.
Say No To Debt
While borrowing money to accomplish your goals in life is a typical strategy, there are some drawbacks. Your funds can be eaten away by the high interest. Multiple loan commitments can negatively impact your credit score, making it more difficult for you to get credit when it’s really needed. So, strive to keep your debt to a minimum. Your budget can suffer if you are too dependent on credit cards or take on too much debt.
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Save Your Salary Increase Or Bonus
Whenever you get a pay raise, incentive or bonus, it’s tempting to use it to reward yourself. Lifestyle enhancement is a real thing! Isn’t it? Just because you earn more doesn’t mean you have to spend more! Fight the temptation, save from your salary and invest the extra money directly in savings.
Pay Your EMI On Time To Avoid Penalty Charges
If you have any loan or credit card payments going on, make sure you don’t fail to make monthly payments. Missed or delayed payment means late fees or penalties, which can take a significant amount out of your salary and hurt your savings potential. So, avoid late payments and consider making automatic payments from your bank account every month.
Create A Separate Savings Account
The first thing you should do before saving your money is opening a separate savings account and automating it. Automating your savings means transferring a part of your earnings every month to another bank account to save. This is needed because whatever money you want to save, you can deposit that money in your separate savings account. At least 20% of your salary should be credited to this account immediately. If you take these precautions, it will help you avoid spending money unnecessarily.
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Build An Emergency Fund
Create an emergency fund so that you can dip into when unforeseen circumstances in the form of a job loss, an accident or an unexpected health emergency strike. Even if your contributions are small, this fund can save you from risky situations in which you’re forced to borrow money at high-interest rates or possibly find yourself unable to pay your bills on time.
Start Investing Early
It is advisable to start saving and investing money as early in life as you can. This gives you more time to grow your wealth, and get back higher returns in the long run. Therefore, aim to start saving and investing from your first paycheck. Even if your ability to invest is limited, small contributions to investment accounts can help you use your earned money to generate more income. You can also choose Systematic Investment Plans (SIP) for mutual funds. However, the biggest disadvantage with the stock market is the inherent risk involved. There is no guarantee of returns and your investment is subject to market risk. For safe and best investments read this: Top 9 Investment Options That Provide High Returns
Chits Funds is also another saving option. They are actually an instrument of regular monthly savings with the added advantage that you can withdraw the entire investment at the time of need, any time during the investment tenure. No penalties, no hassles.
Choose an online, digital, registered Chit fund platform like The Money Club that has a long standing reputation and you can expect to gain about 12%-15% return on your investment with absolutely no risk.
Related: Related: Traditional Chit fund Companies vs The Money Club
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Some Myths About Money Management
Informal guidance from friends and family, TV and media commercials, newspaper headlines, and other sources has a significant role in how the average person manages their finances. Some of the people giving us advice may be prudent with money and have our best interests at heart. Some of the other commercial, unverified sources, on the other hand, are compelled to act in their own best interests. Therefore, it is essential for us to stay away from such unreliable sources of information. In the long run, it’s crucial that we acquire our own expertise and rely on our own judgement when making investment or borrowing decisions.
Here we have compiled a few of these frequently spread myths that are frequently given to us as financial advice.
It's okay if expenses increase because your income will keep increasing over time.
The majority of the young people believe this. There is no assurance that your employment will be secure for the foreseeable future unless you work for the government. A significant portion of our people experienced an employment crisis as a result of the numerous steady firms and companies that failed, particularly during the Covid era. Even if you retain your job, it can come with a salary that is stagnant or even reduced. Therefore, it’s crucial to provide equal attention to budget preparation and expense reduction. Never forget that saving money is equal to earning money.
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Only bad debt causes problems; good debt is fine.
Technically speaking, good debt does not exist. Unless, of course, someone offers to lend money at 0% interest! In case of businesses, the interest on the debt that must be repaid is substantially lesser than the income generated by a company, so this kind of debt is permissible. For salaried people, however, hardly any debt falls within the category of good debt. Your salary credit earns only 2.5–3% interest in a savings account. But you have credit card debt of thousands of rupees. By paying the minimum amount due, you are in fact paying interest and penalties of anywhere between 18%-40%! The same holds true for installment purchases or bank overdrafts. Hence, stay away from all debts.
Emergency situations are very unlikely.
This presumption is totally incorrect. When you are young and healthy, everything appears to be secure, appropriate, and sound in your eyes. As a result, you cannot envision experiencing any unforeseen circumstances. Emergency situations can take many different forms, including family health problems, accidents, job losses, company setbacks, etc. Who would have imagined that a condition called Covid would drain the savings of millions of individuals worldwide for medical costs!
So, making an emergency fund should be the utmost priority. It must be a manageable sum and readily available in a high liquidity instrument. Chit funds are a wise choice, according to us.
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Approval for a credit card implies that my financial situation is solid.
It is true that credit card companies tempt users with attractive card offers in an effort to grow their customer base. However, they begin investigating your creditworthiness as soon as you express interest. They might nonetheless provide you an offer for a credit card even if your credit is bad or your ability to make payments seems a little dubious. You are listed in their records as a high risk consumer, which is the catch in this situation. The interest rates you pay are substantially greater, and the excessive non-repayment fees. Additionally, your credit limitations are reduced. You end up spending more for less in the end. For example, a person with excellent credit would be eligible for a car loan at significantly lower interest rates than you. Be cautious, and take steps to increase your creditworthiness rather than impulsively applying for a loan or credit card.
In this article we came to know about money management secrets to improve your finances. The first step towards better money management is altering your personal habits. Some of these adjustments will be simpler than others, but if you stick with it, you’ll develop excellent money management skills that you can use for the rest of your life.