Hope Is Not A Financial Plan: How To Manage Your Monthly Income Effectively And Reduce Debt

Having control of your money can be the difference between living well, or teetering on the edge of bankruptcy. Statistics show that people who do not manage their money are more likely to get into debt and generally struggle financially. If you do not keep an eye on your budget and know exactly where the money is going, then you could find yourself in hot water.

Keep calm, it’s only payday: How to approach the big day

For many people, payday is highly anticipated. It is an anxiety-inducing few days leading up to the day you check your bank account. But imagine not having to feel all the anxiety or the worry of waiting for the exact moment your income deposits into your bank account? Imagine not having to worry about depending on every single paycheck.

For some, this idea may seem strained and far-fetched. However, it should be more of an attainable goal to set for yourself. Payday is a good day, but it should not always be a day you depend on. Knowing how to manage your money properly can make for a smoother transition into not always feeling anxious about payday.

Although payday should be a day to look forward to, it should not be a day to be anxious about. You want to reach a level with your finances that you are not so dependent on this day coming each and every time. Financial responsibility means you need to be self-disciplined and well-educated on finances. Like all things, when you make things a daily habit, it becomes part of your lifestyle and a routine.

Act your wage: What you should do on payday to manage your money

  • Adjust your perspective

Managing your money properly will lead to seeing payday in a different and more positive perspective. For instance, instead of awaiting the deposit, you could change the way you react to that and maybe have more of an excited or relaxed outlook about it. Changing your perspective will lead you to feel more gratitude, rather than anxiety.

  • Sort out your money properly

Plan out your finances before you decide to spend. Hold off on spending until the end of the month, as you never know if something unexpected will arise. The last thing you want is to return new clothes due to sudden car issues. Make sure you pay your bills first, hold off on spending any extra money until you have put some aside in your savings.

  • Make note of transactions

Before you start creating budgets and plans to get you out of debt, you need to know how much money you spend a week. In order to be realistic, you need to remember that your expenses will change over a period of time. The best way to calculate the amount of money you will need on an average week is to keep receipts for one month. Then work out the mean (average) amount you spend in a week.

  • Create a budget

A budget will help you to know where all of your money is going on payday. Structure your spending. Once you have a reasonable idea of how much you will be spending in a week, set your budget. It is a good idea to set aside bank fees and credit card debt each month before you allocate the rest of the money. This will prevent you from spending more than you can afford. Rent and bills should have higher priority than food shopping, snacks and days out. Once these important costs have been budgeted for, you can use the remaining money for enjoyment or be responsible and place it into your savings account.

  • Utilise your savings account

Open a savings account and commit to putting away a certain amount each payday. This account will gain value over time with the interest rates provided by the bank. No amount is too small and you will find this will be useful for any emergencies, unexpected expenses, or even to save up for a trip in the future.

  • Be reasonable

Do not count every penny that you spend. Prices and needs change, and a little bit of flexibility will account for this. Keeping your budget so tight that you cannot manage to even buy an extra packet of crisps or a drink occasionally will not benefit you. The tighter you hold onto your money, the more likely you are to find it running out of control.

  • Avoid relying on credit cards

When you are trying to manage your money, there is nothing worse than spending heavily on credit cards. Using a credit card can get you into debt. It is better to try and pay off credit cards, rather than using them to pay bills. Do not let the total reach the credit card limit, or continually increase the limit to meet your short-term needs. The chances are that you will not be able to clear the credit for a long while. This can affect your credit score and inhibit your chances of gaining a mortgage.

  • Set up an emergency fund

It has been calculated that less than half the population keep an emergency fund. Even if you do have some money put aside, it may not be enough. Research has shown that people typically put aside enough money to cover at least 6 months of bills, shopping and essentials. Most people could not afford this sum, but try to put aside as much as possible. Even if you never need it, it is better than trying to manage without a regular income.

Best way to stick to your budget is to start one: Apps to help sort your finances

  • Mint is a free budgeting app that allows you to connect all of your financial accounts in one digital space. This provides a high-level overview of your financial health. The app also allows users to track spending and savings and set and track budget goals.
  • Yolt works with banks and card companies to bring all your accounts together into one simple, attractive budgeting app. It can collate your current accounts, savings accounts and credit cards, so you see at a glance what’s coming in and going out, and your balance.
  • Moneyhub is a budgeting app that aims to help you budget better by showing you all your accounts in one place. It is a personal finance assistant that uses smart technology, but it also has a human touch. You can talk to a real-life financial adviser in the app too.
  • Monzo is a bank that lives in an app. It helps you budget better, takes the stress out of spending abroad, and even lets you earn interest on your savings. Although it is an app, you can get help from real humans, whenever you need it. You can use Monzo to do the basic things you would expect from your traditional bank, as well as much more.

Save money and money will save you: Best types of savings accounts

  • A high yield savings account is a type of savings account that typically pays 20 to 25 times the national average of a standard savings account.
  • A certificate of deposit is a savings account that holds a fixed amount of money for a fixed period of time. This could be for six months, one year, or five years, and in exchange, the issuing bank pays interest. It offers the top rates, but limited access to funds.
  • A cash management account is a separate account that helps manage cash across a portfolio and pay fees where possible. It also provides a place to keep cash when you have yet to decide which account you would like to invest in. High-interest rates and bank transfers are easy. Although, it is not a bank account.
  • A money market account is an interest-bearing account at a bank or credit union. Most money market accounts pay a higher interest rate than regular passbook savings accounts.

Out of debt, out of danger: 6 steps to manage and reduce your debt

  • Take account of your accounts

Make a list of all your outstanding debts. Include the interest rate on each so you will be able to determine which ones are causing you the most financial pain/damage.

  • Check your credit report

Request a free copy of your credit report. This will help you make sure you have not forgotten about an outstanding debt. Make sure there are no accounts on there you do not recognise. If you want to find out your credit score, check with your bank or credit card company to see if they can provide you with your score at no cost.

  • Be honest about your spending

If your debt feels overwhelming, it is worth taking an honest look at what you are spending each month. Are there expenses you can cut back on or eliminate? Part of reducing your debt is limiting the additional debt you take on. Spend wisely.

  • Determine how much you have to pay

Determine how much you have to pay each month by noting the minimum payments and put the total into your budget. If the amount is more than you can manage in your budget, you may need to contact lenders to arrange different terms. Otherwise, you may put yourself at risk of going into debt.

  • Figure out how much extra you can budget

Once you have the baseline of how much you have to pay each month in your budget, determine how much extra from your budget you can devote to debt reduction. Hopefully, those expenses you reduced give you a little more money to put toward this goal.

  • Determine your debt-reduction strategy

The two most popular strategies are to pay off balances with the highest interest rates first or to pay off the lowest balances first. The former will save you more money over the long run, but the latter can help you keep momentum and see progress. Either way, you are taking steps in the right direction, so stick with your plan!

Written by Lewis Bridges

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