Personal finances do not only refer to how much money you have in the bank. It is how you manage your money that truly defines your financial worth. Improving your financial worth is all about planning for the future, managing your finances and learning how to budget.
Spend Less than you Earn
This goes without saying. Spending all of the money in your pay check is hardly the smart thing to do. It doesn’t matter how much or how little you get paid. Designate a portion of your pay check to savings. Make a separate savings account and automate how much it draws from your pay on a monthly basis. This will help you keep track of how much you spend, how much money you have in your bank account and how much money you have in your savings account.
As you climb the corporate ladder, you have more money to spend. Of course, this means that your lifestyle will get an upgrade as well as so will your spending habits. You might find yourself splurging on things that you would think twice about such as eating on once a week or shopping for clothes from the most popular (read expensive) brands. After all, matching your colleagues’ spending habits can be hard. You may be able to afford luxuries with your new job description but the decision can come back to bite you. You do not want to be living off pay check to pay check. In times like these its best that you -
Separate your needs from your Wants
This will help you make better spending choices in the long run. Your needs will be items or priorities that you will need to survive. This includes groceries, food, shelter, clothing, transportation and of course, healthcare. Set aside some savings as well. After you have identified your needs, make a budget for them. For example, make a separate budget for your monthly groceries.
Next, identify your wants. Your wants are items that you desire but don’t necessarily need to survive. However, most people tend to blur their needs with their wants. Let’s explain this with an example. Say, that you need a family car to drop and pick your kids up from pre-school. You can opt for a less expensive car or more practical car. Instead, you choose to purchase a luxury SUV that costs more and is a gas guzzler to boot. You have just blurred the line between your wants and needs. The luxury SUV is money that you didn’t have to spend but did anyway because you wanted to.
There is an easy way out of this quandary. Prioritise your needs over your wants. Set aside any additional income for your wants after you determine that your needs can be paid for. You don’t have to spend all the money that is left over each month. Save it in a savings account for an item that you want.