Financially, most of the world has been hit hard over 2020. The unexpected pause and slowing of many economies meant that businesses and individuals struggled or couldn’t service their monthly debt payments. For the average person, a monthly debt payment, such as a bond, is not usually a worry, since each month their salary more than covers the payment. But the unexpected shock of Covid-19 meant that people’s salaries were reduced, or even lost. Those who had months of emergency savings available could use this to make their debt payments, those who couldn’t have had to use retirement savings (further, they were forced to sell shares and cash out at a bad time), and for many, who had neither of those options, they are likely to lose their homes as breaks from the banks and government support come to an end. Whether you have been affected or not, you have likely had a wake-up call regarding your personal finances – no matter what age you are.
Here are some ideas to help you to manage your finances more efficiently.
What is Your Relationship with Money?
This may seem like a strange question but it is often something that most of us don’t ever consider unless we are asked. So the first step in becoming more efficient with managing your finances is to identify what you value and not what others value. Perhaps a fancy car is not that important for you, perhaps it’s something that you have always dreamed of and it is something you are willing to spend money on. The important thing is to ask some questions to identify what you actually want and to separate yourself from societal pressures. In doing so you can create a financial strategy for yourself. By outlining what you value most and what you value least, you create a hierarchy of priorities and can allocate money to the most important things first. However, while it’s important to plan and to have financial goals, it’s equally important to save just for the sake of saving, considering how financial shocks, like Covid-19, are unexpected.
Make Use of Modern Tech
Once you have clarity on what money means to you and a strategy for how you spend it in place, you can start to improve your efficiency with it further by making use of modern technology. There are tons of awesome budgeting tech out there which are powerful tools in helping you to manage your finances. Money management applications and websites can now provide you with full transparency of where your money is being spent, like having a personal bookkeeper. The major benefit of this is that you can identify where and when you are spending money unnecessarily and unconsciously, such as excess charges and fees. You can also see how much you actually spend on this take-out food, coffee, and clothes and then start to make desired behavioral changes if necessary. By making use of this technology you can monitor yourself, identify opportunities where you can save money, and track progress towards your financial goals.
Do You Have a Separate Savings Account?
One of the simplest ways to become more efficient with your finances is to open a separate savings account. When you try to keep your money all in one account, you might feel good keeping a higher balance (at least at the start of the month) but this makes it easier to spend on small things that slowly erode your savings over the month. If you add this up over a year, you have actually spent quite a bit that you would have rather saved or spent on something more valuable to you. Not to mention, considering the compound effect of putting this money into savings.
So, open a separate savings account, it does not need to generate interest, for starters it just needs to be a separate account so that your savings and monthly spending funds are not in the same place. When your salary comes in each month, pay all your bills first and transfer your savings into your savings account immediately. The money that you are left with then is your spending money for the month and you can monitor how you use this with the money management tech discussed earlier.
By implementing these simple ideas, you are on your way to becoming more efficient at managing your own finances. Understand your relationship with money so that you can formulate your own personal strategy, make use of modern tech so you can see exactly when and where you spend money, and finally, have a separate savings account to pay into as soon as your salary comes in.