*Backward* Ways You’re Managing Money (and what to do instead)
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*Backward* Ways You’re Managing Money (and what to do instead)
Being better with money is a process that involves patience, practice, and planning. However, even with a solid money management method in place, there’s always room for improvement.
So here’s a look at four backward ways you might be managing your money and what you can do instead. By making a few tweaks and adjustments, you can significantly improve your financial situation and achieve your money goals.
1. Facing irregular expenses as they happen
Many expenses aren’t monthly but rather annually or quarterly, and it’s easy to overlook or forget about these. This oversight, however, can cause financial stress – particularly if you’re living paycheck to paycheck or have limited disposable cash.
To effectively manage irregular expenses, consider creating a sinking funds account specifically for “expected” annual expenses.
Estimate your annual expenses by reviewing your statements from the previous 12 months, and then divide that number by 12. Deposit this amount into your sinking funds account each month. This way, you can cover these expenses without dipping into your emergency fund. If you anticipate $3,000 a year in irregular expenses, you’ll save $250 a month.
Common irregular expenses include vehicle maintenance, personal property tax, gifts, annual renewals, travel expenses, etc.
2. Postponing saving until you pay off debt
A common question in personal finance is whether to prioritize debt repayment or saving.
Many individuals postpone saving until their debt is fully paid off. But while it may seem logical to put all available cash toward debt repayment, doing so can leave you without a safety net.
The realty is, emergencies can still occur. And without any type of savings, it only takes one event to push you deeper into debt. Therefore, it’s important to have (at the very least) a small emergency fund while simultaneously working on debt repayment.
3. Using this month’s income to pay this month’s expenses
Using each month’s income to pay that month’s expenses can leave little room for financial error.
Instead, strive to get one month ahead on your bills by living off the previous month’s income. In other words, by the last day of a particular month, aim to have enough money in the bank to cover all expenses for the following month.
This approach can relieve financial pressure, plus you’re able to pay your bills early. In which case, you’re less likely to make late payments or get hit with late fees.
Understandably, it takes time to save up an entire month’s expenses. Even so, you can build up your account by tracking your spending, sticking to a budget, participating in a no-spend challenge, saving windfalls, and decluttering and selling items.
4. Not immediately transferring money into savings
Paying yourself first is a fundamental concept in personal finance. However, it’s essential to actually follow through by immediately transferring the allocated amount into your savings account.
Leaving money earmarked for savings in your checking account increases the temptation to spend…plus it defeats the purpose of paying yourself first.
Going forward, treat your savings like a bill and transfer the designated amount as soon as you receive your paycheck. This proactive approach protects your savings and enables you to make consistent progress toward your financial goals.
By addressing these backward ways of managing your money, you can create a solid foundation for financial success. Remember, managing your money effectively is a continuous journey of improvement and mindful decision-making. Implementing these strategies, however, will help you navigate your finances with confidence.
Add to the list, or let us know what you plan to do differently…