If you’re eager to improve your financial situation, but you’re not sure where to get started, one of the best things you can do is make sure you master some basic skills.
Becoming financially responsible doesn’t mean knowing how to make millions of pounds a year, or how to save every penny you earn. Usually, if you want to manage your cash better, all you need to do is make a few basic changes to your routine.
To help set you up for success, we’ve put together 5 of the basic principles you need to know.
1. Budgeting is Crucial
A good budget is critical if you want to ensure ongoing financial success. While budgets aren’t the most fun in the world, they help you to see where your money is going each month, which can also inform you where you need to cut or adjust your spending. Budgets are a way to tell you how much you can reasonably afford to spend on things for you, and what you need to do to reach goals like putting a deposit on a house or going on holiday.
While creating and sticking to a budget isn’t always easy, remember that you can always try different types of budgeting if one option doesn’t work. For instance, there’s the envelope system, the cash-only budget, and more.
2. Learn to Use your Credit Cards
Credit cards don’t seem like the most complicated things at first. All you need to do is swipe them, and you’ve bought the thing you want – it’s that simple. However, you could have been using your cards wrong all this time without realising it.
When handled correctly, credit cards help you to improve your credit score, improve your chances of better loans in the future, and even give you access to rewards like free air miles. Of course, if you want to get all the benefits you can out of credit cards, you’ll need to use them properly. For instance, make sure that you always have enough money in your bank account to pay off what you owe on your credit card at the end of each month.
3. Always Compare your Options
One of the worst things that any consumer can do is assume they’re getting the best deal for something, without checking. Ultimately, no matter how good of a price you think you’re getting for your new loan, your television, or your car, there’s always a chance that you could find a better offer elsewhere. The best way to improve your chances of a financial win is to make sure that you go searching online before you commit to a purchase.
There are comparison websites online today that will allow you to check if you’re getting a good deal on your loan, or whether you can save cash with your utility provider. These services only take a few minutes to use, and they can save you hundreds of pounds in the long term.
4. Pay Yourself First
To some people, this advice seems practically impossible to follow. When you’re living on a strict budget every month, it can seem as though all of your cash goes to everyone but you. However, paying yourself first means that every month, you set aside some money that you can save towards your goals. You need to do this before you do any discretionary spending.
Tuck the funds you’re saving away into your emergency fund, your retirement account, or even your savings account. Of course, you’ll still need to have enough money left over to pay for the essentials. However, that’s where your budget comes in, to show you how much you’ll officially have “leftover” before you start allocating cash to savings. If you put your savings before other costs like entertainment and “extras,” you’ll avoid wasting money that could be crucial in the future.
5. Make Sure You’re Living within your Means
It’s easy to compare yourself to the other people in your life and decide that you need to spend more, buy more, or even have more savings. However, the truth is that everyone is different. Just because your neighbour can afford to splash their cash on a new car doesn’t mean you should be rushing to try and keep up with them.
You never know whether the people who seem to be doing so much better than you are actually getting themselves into a lot of debt or borrowing money from their friends. Focus on living within your own means and forget about what other people are doing.
This is a collaborative post.