No matter what your financial situation is, it’s essential to understand how to manage money wisely. The financial world is based on many different factors that are out of our control; the economy, the strength of our currencies, taxes, and the prices of essential goods and services regularly challenge our financial well-being.
But, for the most part, we can control our spending habits by applying discipline to the money we earn. One thing is certain: we should all consider how we manage our finances so we can maintain our good habits and, of course, nix the bad ones.
Let’s look at three signs that your finances are on the right track.
1. You Have a Firm Grasp On Your Cash Flow
To be economically stable, you must keep track of the money entering and exiting your bank account. While this might seem obvious, many people don’t know the exact amounts of their bills or when certain expenses will automatically be debited from their accounts. As such, managing your cash flow means documenting it in detail.
Everyone should have a spreadsheet that indicates all income and all expenditures. It should be as detailed as possible and include the following:
- Credits
– Salaries
– Investment dividends
– Freelance income - Debits
– Direct debits
– Monthly subscriptions
– Groceries
– Property payments (rent or mortgage)
– Credit card debt
– Vehicle payments
The key to a firm grasp of your cash flow is to be as specific as possible in your analysis. For example, if certain costs vary monthly, make a note of that and include the price range and average cost in your spreadsheet.
2. You Save Money Every Month
Saving money is one of the most challenging habits for people to learn. Many of us live paycheck-to-paycheck and, when times are hard, it’s difficult enough just to make ends meet. Meanwhile, for those of us with a little extra cushion each month, it’s often tempting to spend our extra money on luxury items rather than tuck it away for a rainy day.
Saving money is, however, essential to our financial well-being. And saving for retirement is one of the most important ways to save. While some people work for companies that offer pension plans, many are not that fortunate. For example, anyone who is self-employed should make saving for retirement their top economic priority.
Experts offer different opinions concerning how much to set aside each month, but ideally, 20% of your income should be dedicated to savings. But even if you can’t manage 20%, remember that any amount is better than nothing.
3. You Control Your Spending and Manage Your Debt
While budgeting and saving money are essential to a healthy financial life, you must also control your spending and your debt if you want to keep your finances on the right track.
To control spending, you must understand the difference between needs and wants. You need a roof over your head and food in your belly. You want that new briefcase, but you can live with your old one for now if it means sticking to your budget.
Managing debt plays a huge part too. As we all know, healthy debt like a mortgage, and necessary debt like education and vehicle loans, are inescapable for most of us. But remember never to bite off more than you can chew because that’s when even healthy debt can give you heartburn. Credit cards and store debt are helpful if you don’t let them get out of control, so make sure you’re including these elements on your spreadsheet to avoid overextending yourself and ruining your credit.
Just remember, none of us are in the same financial boat, so being on the right financial track means different things to different people. Hopefully, you’ve realized you’re on the right track for you; but if not, it’s never too late to turn that ship around.