Many of us go through life receiving our monthly pay packet and just hoping that the sum we receive will last us until the next time that we are paid. But this is such an inefficient and generally irresponsible way to deal with our finances.
In order to guarantee your financial wellbeing, you’re going to have to take active steps to secure it. Sure, you may be able to wing your way through life for a little while, but before long, you’ll find that your mismanagement may result in you having to take out loans or credit cards in order to keep up with necessary payments, and you could find yourself slowly sinking into debt.
Besides the negative repercussions that come hand in hand with being in debt on an emotional and mental level, this can pose you further problems, such as a negatively impacted credit score and a consequent inability to take out a mortgage or important loan down the line. But not to worry. Here are a few steps that you can take to manage your personal finances effectively.
The first step that you should take when it comes to managing your finances is to come up with a budget. While this process may seem basic, you’d be surprised at the sheer number of people living without a budget in their lives. First, you need to work out your take-home pay. This means taking your salary and deducting necessary costs such as taxes.
If you are employed, the company that you work for will probably do this on your behalf, but if you are self-employed, you may have to complete this step of the process independently. We’ll speak more about this below. Once you have your take-home pay, you should deduct further necessities, such as rent or mortgage payments, energy bills, and basic grocery shopping. The figure that you are left with is your disposable income. This is the money that you have to play with each month. As long as your spending never exceeds this figure, you should stay in the black and avoid debt!
Paying Your Taxes
Now, we have briefly mentioned taxes. Sure, paying taxes is simple if you are employed. But if you are self-employed, you take on a whole lot more responsibility. The importance of paying your taxes correctly cannot be emphasised enough. If you do not pay the correct amount of tax, whether you do this purposefully or through genuine miscalculations, you may find yourself under investigation for tax evasion or tax fraud, where you will then have to make use of a Disclosure Facility. Instead, you could avoid all of this stress and pay your taxes correctly the first time around. If you are ever in doubt, call in the help of a professional accountant, who will be able to file your taxes on your behalf.
Taking Out Insurance Policies
No matter what you want to ensure, there’s bound to be some sort of insurance policy out there that will cover it. Now, many people will assume that they don’t need insurance. They will either assume that nothing negative will ever happen to them, or they will seek out a policy, see the quote, imagine this figure coming out of their bank account on a monthly basis, and put it off. But insurance policies are so important when it comes to protecting your finances.
You can never guarantee that life will go to plan, and having comprehensive insurance policies on expensive assets in your life (such as your home or car) will help to ensure that you don’t go bankrupt should you experience misfortune. Just remember that all policies aren’t equal. Some providers will charge significantly larger sums of money for a cover that you can find cheaper elsewhere. So, take the time to browse the market and use price comparison sites. This will help you to find the best deal at the same time as protecting yourself and your belongings.
You don’t necessarily have to spend all of your disposable income every month. Sure, you could go out and spend it all without too much negative consequence. But if you are actively seeking financial stability, you should seriously consider setting up some sort of savings account. A savings account will be separate from your main bank account and will have a much higher interest rate.
This means that if you put your money into one of these accounts, you will gather more interest on it over time, essentially seeing your money grow. There are various reasons to have a savings account. If you want to make some sort of large purchase down the line (such as a mortgage deposit, a wedding, or a major holiday), you can start putting towards it well in advance. Alternatively, you don’t even have to know what you want to spend your savings on. You can just put extra money away as a form of a safety blanket. You can then dip into these funds in times of emergency, or when you want to treat yourself in the future!
As you can see, managing your finances effectively is a feat in itself. You have so much to consider and there are so many steps that you can take in order to stay out of debt or improve your personal finance management that it would be nigh on impossible to tackle all of your options in just one post. However, hopefully, the above steps will help you to get started in the right direction!