Dreams nowadays come with hefty price tags.
Let us tell you why.
A decent car today costs at least 5 Lakh. A home's price is no less than 50 Lakh. You need several more lakhs for your child's education and marriage. If you wish to have a cushy retirement, you must have saved at least a few crores.
Due to rapidly rising inflation, basic needs like these have become dreams. You need a high paying job or strategic financial planning to achieve these 'dreams'.
While the first may not always be so easy, the second option is definitely achievable if you are good at money management. Once you learn managing personal finance, you will have a safety net for your planned and unforeseen expenses.
But before that, let's understand why it is so hard to save money. Then we will help you improve your money management skills.
Why Do You Struggle To Save Money
Want to know an interesting thing?
Most people who struggle to save money know why they are struggling. They know that they are bad at financial planning.
- But some people still don't know where their money is going. The lack of expense tracking would be one of the issues. It is normal to lose control over your savings when you spend without any plan.
- Another reason could be your fear of missing out, commonly known as FOMO these days. It stems from peer pressure. When you go out with your friends, you don't want to feel left behind when your friends purchase something or go out to boutique cafes and restaurants or wear the trendiest clothes. Even though you are reluctant to spend money, your social status comes in the way.
- Furthermore, financial ignorance and the lack of financial literacy are some of the critical reasons millennials and Gen Zs struggle to build wealth despite having high-paying jobs.
Despite elders' constant reminders to start saving and investing money carefully, most of us are ignorant about it. Do you agree? But luckily, times are changing. Thanks to social media influencers, youngsters are becoming aware of the profit gains that careful investment can give.
- If you think you are a shopaholic, it could be one of the biggest reasons behind your inability to grow your money sufficiently. Read our article about how to control impulsive spending habits and improve savings to learn more.
So, What Is Money Management? Why is Having Money Management Skills So Important?
The relation between money and money management is the process of budgeting, conserving, investing, expanding, and overseeing the usage of the capital of an individual or a group of people.
You are never too young, rich, or old to learn money management skills. In simple words, money management skills help you from losing all your money. It's an important life skill that you can take advantage of.
By learning important money management skills, you can easily accumulate wealth at a faster pace instead of pointlessly spending it on unnecessary wants. When you build wealth, you create security for yourself and your family, make smart investments, live the lifestyle you desire, and create a comfortable cushion for your post-retirement life.
There's no better sense of security than having the assurance of having enough money to tackle any adversity of life. Now that you know the importance of saving money, let's find out some great money management tips.
8 Simple Money Management Tips
Sometimes, getting started is the toughest thing about saving money. This guide will help you with simple and realistic tips to help you learn how to manage money and kickstart your journey toward achieving financial freedom.
1. Track Your Expense
The first step of saving money is finding out how much you spend. Keep track of your expenses for a month on your preferred medium. You can choose to record your expenses in whatever way is easy for you. It may be on pen or paper or a spreadsheet, or even an expense tracking app on your smartphone.
Every time you spend money, record what it was for. Note down how many times you are outside, you had a coffee run, went shopping, gave tips, shopped for groceries, paid your bills etc. Once you have the data, organise it by categories such as utility insurance loan payment etc. This way, you will easily identify your unnecessary expenses.
2. Prepare A Budget & Give Yourself A Fun Reward
Prepare a budget for every month. Try to be disciplined about following this budget. To encourage yourself, play small games. For instance, set a target of no unnecessary spending days and if you fulfil your target, give yourself a small reward for your wants. This way, you will not feel pressured in the beginning. And once you develop the habit of following the budget diligently, it becomes so much easier for you to save money.
3. Include Savings In Your Monthly Budget
Financial experts suggest the 50-30-20 formula for budgeting. It means you should spend 50% of your net salary on your living expenses, 30% invest, and the remaining 20% you can spend on your wants, but the best way to build wealth is to add saving to this formula. For instance, half of the 20% you should set aside for saving. This way, you will be able to limit your overspending and make saving your habit.
4. Trim Unnecessary Expenses
When your salary is limited, and your wants are on the expensive side, maybe it's the time to cut back on some expenses. Identify your non-essentials and the items you can spend less on to trim those expenses.
For instance, if you generally shop your groceries or vegetables online and want to increase your monthly savings, shop from the local market. You will realise how much extra you are spending in the name of convenience.
Plan your meals and cook yourself instead of hiring a chef or ordering takeouts.
5. Give Yourself A Breathing Period
When you come across a big discount or a great deal, do you feel the itch to shop immediately? Or do you shop when you are bored or having a bad day? This is called impulsive spending. It can become a serious psychological disorder if left untreated. So next time you feel like shopping for something, wait for a day or a week. Examine yourself whether you really need that item. By giving yourself a breathing period, in many cases, you will realise it was an unnecessary expense, which you can easily avoid to maximise your savings.
6. Start Investing Early
The only way to grow your saved money is to invest it carefully. But before you start investing, define what you are investing for. Set a goal. It can be of two types: short term and long term.
For short-term goals, you should opt for a savings account, fixed deposits, or highly liquid mutual funds. These goals can include setting up an emergency fund. It should be used for emergency expenses such as medical bills, sudden home renovations, etc. It could also include a vacation or down payment for a car.
Common long-term goals are retirement, a major home renovation project, your child's education or marriage. An excellent way to future-proof your retirement is having a provident fund. Both long-term mutual funds and equity investments yield good returns for long-term goals.
7. Pay Off Debts Quickly
Pay off debt quickly or start investing – it is a common dilemma every millennial suffers from today. These are extremely important for your financial health. But we suggest you manage finances and prioritise paying off loans first. If you delay paying your debts, you risk damaging your credit score. Non-payment or delayed payment can lead you to pay high interest and penalties.
Read our blog on paying off debt or investing -- finding the right balance to understand this better.
8. Automate Your Payments & Investments
It may not seem too important, but automating your payments can immensely improve your financial habits and health. By automating your loan payments, insurance payments, and other bill payments, you will be able to improve your credit score. However, you have to review your expenses and payments diligently every month.
If you shop online, consider using the jar app. It is India's first automated investment app. This app allows you to round off online transactions and automatically invest the sphere amount in digital gold. It is an extremely safe method of reaping profit.
Read our blog to know more about this app and understand how to use it. Install the Jar app to automate your investment journey.
These money tips have led you in the right direction. In the beginning, everyone needs help with finances. But, before you embark on your savings journey, make sure you have covered the basics of financial management. Understanding this may encourage you to find more innovative tips for money management and hit your goals quicker.