Do you find it challenging to manage your income?
You’re not alone. A good percentage of Americans have a hard time properly managing their money. The U.S. lags behind several countries, like Germany, Italy, and Spain when it comes to personal finance.
The nation has taken initiatives to address this issue, though. As of 2020, 21 states have made it a requirement for high school students to take a personal finance course.
However, it begs the question:
Why is it so hard to manage money in today’s modern environment?
Why Is Managing Money so Hard?
The reasons vary from person to person, but there are some that seem to apply to everyone. Here are four reasons:
- A busy lifestyle: Most people don’t have time to dedicate to thorough financial decisions because they’re stretched thin by the demands of daily life.
- Credit cards: Credit cards often undermine money management. They’re certainly convenient, but they contribute to impulsive spending.
- Lifestyle pressure: Many people overspend on things they can’t afford but feel obligated to have.
- Lack of proper training: Lots of people leave school and join the workforce without any training in proper financial management.
Top 5 Ways To Manage (and Save) Your Money
Regardless of how challenging it may be to wisely manage your finances, the truth is that you can do it.
It’s easy, too. The only catch is you’ll need to adopt some strict financial habits.
Here are our top strategies for managing your income while saving:
1. Plan for Everything
Can you account for every expense you incur down to the last coin?
If the answer is yes, congrats! You’re already a step ahead.
The first step in managing your income is understanding where it all goes. You do this by writing everything — the money you’ve spent and the money you plan to spend — down on paper or in a spreadsheet.
This practice is also known as budgeting.
You plan for every expense, both big and small. Remember, small expenses tend to pile up, so you have to account for them. If you could jot down every small thing you spent money on for 30 days, you’d realize just how serious the numbers get.
If you usually don’t already include everything in your budget, try doing it. You’ll notice right away just how much money you spend and how much you could be saving.
Budgeting Tips for Beginners
Here are three tips to help you budget successfully:
- Come up with clear budgeting goals that will leave no room for interference later on.
- Try to be as realistic as possible when allocating money to each budget category. Make sure you can fully paint the picture of your expected spending.
- Your budget should have a bit of flexibility. Overspending defeats the purpose. If the budget is too limiting, it becomes pointless, as it’ll force your hand into your savings.
2. Work Out Your Income
We’ve touched on accounting for every dollar you spend. How about accounting for every dollar earned?
This is an essential step because if you can’t figure out how much you make, you’ll easily overstep your limits.
Bear in mind that we’re not simply referring to your salary or the income from your main job. This includes everything else on the side.
Today, lots of people have multiple income streams to supplement their primary income channel. It could be as simple as a day job and a side hustle like online tutoring or blogging.
Before you start budgeting, make sure you know exactly how much you make.
3. Start Saving
When you’re ready, designate a portion of your income to go into your savings account. If you’re not sure how much to contribute to your savings account every month, the recommended baseline is 20% of your income.
If, for some reason, you’re finding it hard to make these monthly contributions towards your savings, consider an automatic savings plan.
Once you’ve set up recurring contributions to your savings account, the process will automatically deduct the specified amount from your income. It’s a convenient process that you’ll soon forget is even there.
4. Prioritize Expenses
Unless you’re pretty loaded, it’s unlikely that you’ll buy something you don’t really need. With that said, you don’t want to go for the latest iPhone if there’s an essential household item that needs your attention.
Prioritize needs over wants. This will train you to discipline yourself and curb disastrous habits like impulsive spending.
5. Set Aside Extra Cash
This is unbudgeted money that serves as a cushion for emergencies.
Don’t mix up this money with your savings. It’s meant for any unexpected expenses that spring up over the course of the month.
The benefit of setting aside some extra cash is that it helps you stay away from funds that shouldn’t be touched. It also serves as a safety net if you run out of money sooner than you expected.
Remember, certain expenses may end up being more than you’d previously assumed. If you have emergency cash, you won’t panic when that happens.
When you lack the skills to manage your income, you risk falling into financial problems. You may find yourself with a heavy debt burden and no idea how you got there.
The opposite is also true — effective financial management sets you up for an easy life in the future.
If you haven’t put your finances in order yet, the time is now. And the sooner you get it down, the better things are going to turn out.
Caitlin Sinclair is the property manager at Cielo at Little Italy. With five years of property management experience and many more in customer service, she has a passion for her community and looks forward to making Cielo the place to call home.