Financial stability is a dream for many individuals but it’s not something that happens overnight. In fact, you must take conscious steps over time to achieve your goals and become the master of your finances. This article will explore what it means to manage your money and why it is essential. We will also discuss practical tips that will help your clean spring your finances for a stress-free summer!
Let’s begin by understanding what managing your money actually means.
What is money management?
Money management is a broad term that includes various facets of your financial responsibility. It refers to budgeting, spending, investing, and saving in a way that enables you to attain your ultimate goals. Interestingly, understanding and managing your money inflow and outflow is the key to financial stability.
Many people think that one has to be a financial geek to become financially stable but that’s not true. All you really need is the basic knowledge about money management and investment to build a solid routine. Once you start making informed and conscious decisions, things will start falling into place one by one, and you will eventually master the coveted art of ‘financial stability.’
Now that we’ve discussed what the term ‘money management’ means, let’s have a look at why it’s essential in an adult’s life.
Why is money management crucial for survival?
Managing money efficiently has obvious monetary benefits, but that’s not the only advantage. It teaches other vital lessons and instills good habits and practices in your routine life. The following are some notable reasons why money management is essential in an adult’s life.
It develops self-discipline
When you set goals and work consciously towards them, you practice self-discipline to make them happen. For example, when you decide on your monthly budget and set aside the amount you will save and spend, every move you make after that takes you one step closer to the finish line.
It means you will curb the desire to spend your ‘savings’ money on an impulsive purchase and stick to the plan you made for yourself. That’s self-discipline- a valuable personality trait.
It enables you to set goals
While the idea of not having any goals and simply spending whatever you earn is more tempting than anyone would care to admit, it’s not a smart way to live. When you’re able to understand your saving and spending patterns, you’re in a better position to set short-term and long-term goals.
For example, if you want to buy a house, your first priority would be to save up for a down payment. If you’re planning an early retirement, you will start investing in retirement accounts or search for channels of earning passive income.
It helps you manage risk
Money management also includes taking calculated risks; the trick is to identify risks that are worth taking and which aren’t. For example, if you are thinking about starting a business, you will know how much you can invest in it while still being able to meet the rest of your financial responsibilities. Going all-in might not be a risk worth taking in your position.
Understanding how your money works helps you identify the effects of your short-term and long-term goals.
It allows you to control your finances
Many complain their finances control their actions instead of the other way around. However, if you manage your personal finances effectively, you can take charge of your financial situation and make smart decisions.
For example, if you’re swamped with debt, you can work actively towards paying it off and decreasing your debt ratio to get in a more stable position. Similarly, if you want to increase your income streams, you can look for side hustles or investment opportunities for passive income.
It reduces mental stress
Studies have revealed that almost 70% of people believe finances to be a leading cause of stress in their lives. Since, most people struggle with making ends meet every month, gaining an upper hand on your financial situation can be a major achievement.
When you know your money matters, you take calculated risks, reducing the chances of making mistakes. Better control of your finances can help minimize your anxiety and stress and give you a sense of achievement.
How to spring clean your finances
Now you know why managing your finances is essential, but many people need help getting to a stable position. Worry not, because we are here with practical tips to help your spring clean your finances for a brighter summer!
So, let’s dive right in.
- Remove unused subscriptions
If you want to manage your finances better, checking your subscriptions is a good place to make a start. Subscription payments are an expense that silently leaves your account without making any fuss. Since they are small amounts, you don’t notice them until you look at the total deducted from your account under that category at the end of the year.
Canceling your unused subscriptions can save you hundreds over a year, but the main trick is identifying which ones to discard and which to keep. To make matters worse, many companies offer retention offers whenever you try to cancel. While that means you can enjoy the subscription at a lower price, it also means staying stuck in the same payment cycle for something you don’t actually need.
Here’s a quick guide to follow for removing subscriptions you no longer need:
- Start by looking at how much you’re paying in the name of ‘subscriptions’ and identify any deductions you can’t make sense of. Make a list of what you need and what you can discard.
- Look for any free trials that you still need to cancel.
- Check for any streaming service you subscribe to but don’t watch anymore. Now is a good time to cancel your membership.
- If you have multiple entertainment apps like Spotify and Apple Music but you only really use one, cancel your subscription for the other to avoid unnecessary expenses.
- Many items can be bought cheaper individually, so if you have signed up for various subscription boxes, you can shortlist the ones you need and the ones you can do without.
- Review existing credit cards
Different credit cards come with various perks and rewards, which is why people are encouraged to own multiple cards simultaneously. The only downside is that most people need to remember to review it regularly. Hence, an excellent way to spring clean your finances is by reviewing each card’s benefits, annual fees, etc., to understand where you stand in terms of debt or bad debts.
Here are a few things you should review with each credit card:
- Find out how much you’re spending with each card and check its limits. Keep an eye out for any card you may need to pay down to keep yourself out of a difficult financial situation.
- Cards have annual fees that may change over time. Therefore, keeping track of how much you’re paying annually is a good idea to sustain each credit line. This will also help you identify if you should downgrade to a no-annual-fee card to cut down on expenses.
- You can analyze how much you’re spending on one card and make sure that your spending is balanced and that you’re not using one card more than the other. By reworking your credit card strategy, you can maximize credit card rewards and avoid overspending on a card you don’t even use.
- Prioritize your debts
A common confusion many people face is whether they should save or pay down their debts. The answer is simple: You should calculate the opportunity cost of doing one over another. The best approach is to find the right balance between the two because both can occur at the same time.
Here is an example to understand opportunity cost. If you’re saving in a retirement plan that pays you 6% interest but, on the other hand, you have amassed credit card debt where you need to pay 20% interest; the smart way out would be to clear the debt first. That’s because the 20% interest you pay will cancel out the 6% you earn through your savings.
The golden rule in paying down debt is to tackle the high-cost first, such as a high-interest personal loan or credit card debt. Similarly, if there’s any debt overdue, your priority should be to clear the dues so you can avoid late fees and any negative impact on your credit score.
- Automate your savings
Saving is a goal that everyone wants to achieve, but only some have the self-discipline to work toward it. If you’re someone who promises to start setting aside money for the future each year but deviates from their plan easily, then automated savings is the perfect solution for you.
Money tends to be fickle, quickly slipping out of our fingers. However, if you set up an automatic investment plan, you don’t have to make an effort every month to ‘pay yourself first.’ Hence, automation takes the willpower to save out of the equation.
Automating your savings means taking a set amount out of the account rather than investing from the amount left after paying all your bills. That deduction eventually becomes a part of your budget, slowly creating a stream of predictable investment contributions.
Atome- A smart way to manage your finances
Shopping for products and paying for services is a regular part of life, but expensive purchases can often mess up your monthly budget. That is why people prefer to pay with credit cards so they can own whatever they want immediately and pay over time. The problem with this approach is that your debt keeps building up thanks to the high-interest rate generally accompanied by credit card usage.
Headquartered in Singapore with over 15,000 partnered merchants and available in 7 markets, Atome offers its users the choice and convenience of flexible payment options for a variety of products and services. The app allows shoppers to split their purchases across three interest-free monthly payments by scanning a partner retailer’s in-store QR code or upon website checkout. By splitting their payments, Atome users will be able to better manage their budget while making quality products and services more reachable.
A buy-now-pay-later service like Atome empowers you to immediately own the things you want without worrying about their total cost or increasing credit card debt. It allows you to manage your finances and stay within your spending budget at all times. Hence, Atome is indeed a smarter way to shop. So, download the app today and explore all the products and services you can access through it!