Are you earning a decent income but still living paycheck to paycheck? Does your business make huge profits, but you still find yourself looking for financing from money lenders? If this describes you, it’s time to polish your financial management skills to help you stay afloat. The following are ten successful money management tips to guide you.
1. Create a Budget
Whether it’s your personal or business finances, working with a budget is important. It’s the surest way of monitoring how you spend your income and revenue and one of the most successful money management tips for ensuring financial security and stability. When drafting your budget, be realistic and avoid making drastic adjustments to your lifestyle, like strictly eating home-cooked meals when you currently order takeout every other day. Alternatively, allocate a specific amount for takeout.
A budget ensures you aren’t spending money you don’t have. If it’s not in your budget, it’s probably not that important. However, credit cards have made it more difficult to stick to a budget. In fact, according to the Federal Reserve, 80% of adult Americans hold at least one credit card. If you don’t want to be a part of the majority, creating a budget is a step in the right direction.
A budget also helps you track your spending. It allows you to see how and where you spend your money and keep tabs on all available balances in your accounts. You can use accounting software to track your expenses without hiring an auditor.
2. Stick to Your Budget
Creating an up-to-the-mark budget and not complying with it is pointless. You need to ensure you stick to your budget for successful money management. One way to do this is to automate your drafts. You can give your bank an order to debit your account immediately after the money hits the account. These automated drafts will help you stick to your budget by ensuring you pay your bills before you access the money.
Planning out your meals is also a great tip. It helps you beat the urge to eat out on days you didn’t intend to. You should also check and stick to your social calendar. How often do you intend to hang out with your friends that month? How many family gatherings have you scheduled?
You need to answer these questions when drafting your budget. They’ll help you estimate how much money you would spend at any of these social gatherings, ensuring you avoid unbudgeted expenses. Part of being an adult is learning to say no by making decisions based on the most beneficial to you. You don’t need to attend an impromptu after-work party or buy the latest phone to stay on top of trends.
An accountability partner can help you stick to a budget. An accountability partner could be a friend, relative, or spouse. They’ll act as a cheerleader and encourage you to realize your goals, but they’ll also call you out whenever you stray.
3. Pay Your Bills on Time
Paying your bills on time is a successful money management tip. One great benefit of sorting your bills in good time is that you avoid unnecessary penalties. However, there are other noticeable benefits.
According to Vantage Score and FICO, two of the leading credit scoring companies in the United States, how you pay your bills directly affects your credit score. Paying your bills on time will help improve your credit score. Having a good credit score will give you access to loans with better interest rates. The status of your credit score is also a criterion that landlords use to determine whether or not to give tenancy.
Paying your bills on time also reduces stress levels. There’s no better feeling than knowing you’re up to date on your budgeted bills. After paying your bills on time, you can rest easy knowing you won’t get any additional expenses from late payments. A good credit score guarantees lower monthly payments resulting from lower interest rates, making it easier to pay your bills.
4. Increase Your Cash Reserves and Savings
Cash reserves are monies companies or individuals set aside for emergencies. Even with proper planning, unforeseen circumstances may strike at any time, so making regular contributions towards saving is a successful money management tip to cushion you against financial emergencies. For example, you may have dug yourself into a messy hole that lands you in jail. In such a case, you must access your cash reserves for cash bond money to bail yourself out of jail. Should the matter go to court, you would need to consult with attorneys, leading to additional expenses for attorney fees.
Other advantages of cash reserves include:
- They cover you when business is slow or you’re out of work.
- Cash reserves can serve as funds for business expansion.
- They provide cash that’s needed for large purchases.
- They allow you to take calculated risks.
- You get to enjoy the benefits of compound interests.
- They help you evade high-interest rates.
- Helps to reduce stress levels.
5. Get Insurance
Getting insurance is another successful money management tip. The main reason why individuals and organizations take up insurance is to safeguard their financial stability and security. Insurance policies help to cushion losses when financial emergencies occur. Consequently, you can rest easy knowing that your insurer’s got your back should you find yourself in a financial emergency.
Another benefit of having insurance is that it helps to support your credit. For example, when collateral against a loan gets damaged, the insurance company guarantees that the loan gets paid back to the lender regardless. The ability to pay back the loan increases your chances of securing a loan and reduces any doubt a lender may have about defaulting on your payment. Examples of policies to consider include:
Auto insurance: It’s mandatory to have car insurance in most states in the United States. According to Ibis World, almost 215 million Americans have auto insurance. An auto insurance service cushions you against out-of-pocket payment for car repairs or when you need to replace junk cars.
Home insurance: A home insurance policy covers you against unexpected events that occur within your home. According to the National Association of Insurance Commissioners, 85% of homeowners in the U.S. have a home insurance policy. This just goes to show how beneficial home insurance is.
Business insurance: If you have a business, then you know there are many uncertainties involved in running a business. Insuring your business will protect it against risks such as lawsuits, employee injuries, theft, vandalism, and damage to property. There are many business insurance companies today, so you shouldn’t have trouble finding one for your business.
6. Separate Personal and Business Funds
Separating your business and personal funds is critical for successful money management. There are several reasons why you need to separate your monies. Starting or expanding a business requires a lot of capital. If you don’t have enough money in your savings, you’ll need to take up a loan. Before a lender gives you the financing you seek, they look at the business income to determine the amount you qualify to get.
When both your personal and business accounts are blended, determining the business credit becomes a difficult undertaking and can affect your loan application. Separating your finances also helps to avoid overdraws. When your accounts are blended, it’s difficult to determine what money belongs to what account. Consequently, you may end up digging into your business funds or vice versa without your knowledge.
7. Cut Cost and Increase Revenue
Businesses all over know that for successful money management, they need to cut down on expenses and increase revenue. However, this isn’t as straightforward as it may seem. If you own a business, there are steps you can take to increase your profits and reduce expenses. One way to do this is to get the best deals on services and supplies. There’s always more than one provider in the market for whatever service enrollment or product you need.
Be sure to negotiate the pricing of products and services to ensure you get the best price. If you already have a supplier, look for a different supplier with lower prices and use it as leverage to get your current supplier to match the price. When taking up an insurance policy, compare the prices of different providers and choose one with the most competitive rates. Avoiding unnecessary debts will also lower your expenses.
You should also cut production costs. Try and get a buyer for leftover waste, such as scrap metal, cardboard, or wood, instead of recycling. You could also use the office spaces for different functions. For example, the break room could also act as the meeting room.
8. Have an Investment Strategy
Investing is one of the most successful money management tips. It’s an effective way of expanding your income streams. You’re missing out if you have reservations about investing and prefer stashing your money in a safe.
Investing offers financial independence. What next after retiring from employment? How will you sustain yourself financially when you’re no longer salaried? These two questions should be reason enough for you to invest and accumulate a retirement corpus to ensure you’re financially independent after retirement.
One lesson that people have learned since the pandemic is that you can’t rely on only one source of income. Therefore, having a side hustle that brings in money will help provide an alternative source of income when your regular income is affected. Investing also cushions you from the effects of inflation. No one can avoid inflation. Investing the money that you have in your hands today will ensure that the money doesn’t lose its purchasing power.
9. Diversify Investments
Diversifying your investments allows you to spread the risks. Ever heard the saying that you should not put all your eggs in one basket? The same applies to your finances. As we have seen earlier, investing is a successful money management tip.
However, it is still a risky undertaking. Therefore, if your finances allow, ensure you spread the risk by investing in different areas. For example, if you’ve channeled all your investment towards shares of a company that ends up bankrupt, you risk losing all your money. An investor may choose to diversify their investments by diversifying across asset classes.
The main asset classes are bonds, cash alternatives, and stocks. It’s difficult to determine which assets are superior since they perform differently when subjected to similar market conditions. Consider risk tolerance levels to determine what percentage to invest in each of the assets. You can also diversify within asset classes. If, for example, you opt for stocks, the various ways you would diversify are by industry, geography, or size of the company.
10. Managing Inventory
Proper inventory management is a successful money management tip that helps a business determine what products should be purchased and when. Other than ensuring customer satisfaction, managing your inventory has other financial benefits. For example, it improves the cash flow. Businesses that manage their inventory stock up on fast-selling products and cut back on slower-selling products, ensuring adequate flow of cash throughout the business.
Managing inventory also saves you money. Businesses lose money by acquiring inventory only to have it accumulate dust in storage units. Inventory management ensures that businesses only have in stock what is necessary to satisfy consumer demand. The same principle can apply to your personal finances. Keep track of the supplies you use most, stock up, and avoid making frequent purchases of the ones you use least. When you spend money on things you don’t need, you end up spending more to get the things you need.
If you keep finding yourself in tight financial situations, you need to reevaluate your financial habits and make necessary changes to manage your finances better. Note that this isn’t something that you can achieve overnight. However, if you stay committed, you’ll eventually develop successful money management practices. Use these money management tips to ensure a secure financial future.