If you’re not already a member of the super-rich, achieving your lifetime goals and enjoying a good standard of living is impossible to achieve without learning how to handle the money you have at your disposal.
No-one wants to be stuck in debt and the best way of avoiding the scenario is to develop good financial management habits and it’s never too late to start.
Finance expert Christine DiGangi offers a range of tips to help you learn how to be responsible with money to ensure your financial goals stay within your reach:
Stabilise your income
Always try to maximise what you have been paid for your time and skills and always keep your end goal in mind.
If, like many of us, you took your job just to pay the bills but you’re qualified to do more then keep working to secure a job that pays more and improve your position.
Set financial goals
Always try to work to a plan. At its simplest, analyse how much you earn a month and what it costs you to live at your current level.
Make a plan to save enough from what you have left over so you have enough cash available to pay your expenses for six to 12 months, protecting yourself from any unforeseen catastrophe like losing your job.
Short term goals are also important like saving enough to go on holiday or making a big purchase instead of taking on a loan to pay for it.
No-one is born with the knowledge of how to handle money. It’s something you have to learn.
The more interest you take and the more you learn the less likely you are to get into financial trouble.
There are financial management classes available in many areas and there is also lots of information online to help educate you.
Make a budget
Making a budget is one of the most basic skills you need to learn – working out how much money you have coming in each month and how much you have to spend.
Once you’ve set your budget it’s much easier to stay within your spending limits and also to look back over the month if you end up with a shortfall and identify what went wrong.
Save when you can
Money management involves saving money as well as spending it. In the short term savings can protect you against unforeseen difficulties and make sure your bills are paid on time.
Long term you should still be saving to achieve your lifetime goals.
You will have worked out from your budget how much you can afford to save each month so its worth considering if you can set up an automatic savings system and transfer cash into a special account every month.
Avoid expensive debt
Debt is a drain on your resources. Sometimes it’s unavoidable and we all use credit at one time or another, but not all credit is the same and some is massively more expensive than others.
Check out the options that are available to you before taking the plunge and go for the cheapest, but also bear in mind hidden costs like excessive fees for late payments.
Monitor your debt to income ratio
Credit is not all bad. Credit agreements in good standing show other lenders that you are a reliable risk who pays their bills on time.
As your credit score goes up they are more likely to lend to you if you need their help.
But you must keep a close eye on your debt to income ratio and make sure your income is enough to make the payments you owe. A suggested ratio is 25% or lower if you can.
Used credit cards responsibly
Credit cards are a fact of modern life and can be very useful if used properly, but it’s vital to remember it isn’t free money and is, in fact, one of the most expensive forms of credit available.
The best way of using a card is to pay off the balance each month and thereby pay no interest, otherwise pay off the balance as quickly as possible and don’t just stick to the minimum payment.
Maxing out a card is massively expensive on interest payments, but it will also have a negative effect on your credit rating as it shows potential lenders that you’re struggling to pay off your debt.
If you have money to invest, from your pension pot or otherwise, make sure it is invested wisely and safely.
If an offer looks too good to be true, it probably is, and you must always remember that investments can go down as well as up.