At the start of this year, people made different kinds of New Year resolutions. The most popular resolutions had personal finance undertones such as getting out of debt or saving up more money. Many New Year resolutions have started to fizzle out on the altar of what’s ‘practical’ as people return to their old ways. Interestingly, your finances tend to have a direct influence on other areas of your life; you can’t afford to watch your personal finance resolutions fizzle out. This article provides four practical insights on how you can take charge of your finances.
1. Track your spending
One of the biggest concerns that make people feel ‘powerless’ financially is not knowing where their money is going. The first step towards taking charge of your finances is to know where your money is going so that you can make the money do the work that you want. To track your spending, you’ll need to develop the habit of writing down your expenses.
Many people underestimate the importance of writing down expenses as part of efforts to keep tracking of your expenses. However, it is quite easy to lose track of how you spend money when you spend a couple bucks here and there. Writing down your expenses will provide you with factual evidence of your spending habits and you’ll be in a better position to actually take charge of your finances.
2. Make a budget
After you have succeeded in writing down your expenses, you’ll observe some surprising patterns in your spending habits. The patterns in your spending habits will in turn provide valuable insight into why you think you are not in control of your finances. For instance, you might discover that you make tend to make impulsive purchases even you don’t have enough money to cover utility and groceries.
Budgeting is an art that requires you to allocate your finite resources towards meeting the most important of your infinite needs. To budget effectively, you’ll need to put pen to paper or use an online budgeting tools or apps. Go back to the list of expenses (see 1 above) and start writing out the most important items – food, utilities, paying down debt should rank high on your list. The most important point is that your budget is supposed to help you make a conscious decision on how you spend your money.
3. Prioritize savings
When you start drawing up your budget (see 2 above), you’ll be surprised to find out that your monthly income will be scarcely enough to cover ALL your monthly expenses. Most people hardly have enough money left over when they live from paycheck to paycheck. Interestingly, their inability to make ends meet often reinforces the fear that they are not in control of their finances. Nonetheless, if you want to take charge of your finances, you’ll need to prioritize savings even when it is hard to make ends meet.
You should endeavor to apply at least 10% of your gross income towards a savings account so that you can graduate from being a spender to being a saver. Building up a nice nest in savings will improve your psyche and make you to feel control of your finances. When, you’ve saved up a decent sum, you can apply the savings toward investment to make your money work for you in opening up more streams of income.
4. Acknowledge your victories and failures
Taking charge of your finances won’t happen overnight – there’s no magic wand and you’ll need to stay committed to slow steady improvements. Interestingly, the fact that you’ll be undergoing a slow and steady journey to take charge of your finances suggests that you’ll have some missteps, disappointments, and mistakes along the way. In essence, you’ll need to develop a winner’s mindset to celebrate your victories and learn from your failures.
For instance, if your credit is messed up, you should celebrate when you are able to get a loan with bad credit even though having a poor credit score suggests that you are still a long way off from taking control of your finances. You should celebrate when you succeed stick to your budget for one full month. You should also acknowledge any personal finance mistakes you make so that you can prevent a re-occurrence in the future.