Staying on top of personal finances is a crucial task for anyone who wishes to live a balanced, stress-free life, with greater peace of mind. However, as the needs of everyday life pile up, many people eventually lose control of their expenses and end up in debt or financial trouble.
The good news is that there are convenient and affordable ways to get your finances in order and ensure a healthier financial life. We’ve listed 10 essential tips for staying on top of your bills, improving your financial health, and ensuring your long-term well-being.
Know your financial reality
Any kind of financial planning starts with knowing exactly where you stand financially. Many people fail to have a clear picture of the actual state of their finances. This sets back any attempt to get the bills in order.
So, how do you get acquainted with your financial reality?
1. Start by writing down all your sources of income, and all your expenses. Comprehensively list all the money that comes in, whether it’s from your job, additional services that you provide, investments, or other sources.
Important tip: If there is a service you are capable of providing to people in other countries while getting paid for it in a stronger currency, that can make a big difference. If this topic is of interest to you, our blog has a comprehensive list of the world’s strongest currencies.
2. Next, do the same thing with your expenses, both fixed ones (such as rent, electricity, water, etc.) and variable ones (such as leisure, transportation, and food). It’s important to do this thoroughly and get a clear picture of how much money is going into each kind of expenditure.
With that clear vision, you’ll be able to figure out if you’re spending more than you earn, and if there’s something you can save on. This initial analysis is vital, as it is the basis for the next stages of your financial planning.
The only way to rid yourself of debt is to know exactly where your money is going. You can only make informed, successful decisions about your finances once you understand your cash flow.
The only way to rid yourself of debt is to know exactly where your money is going. You can only make informed, successful decisions about your finances once you understand your cash flow.
Keep a personal budget
Once you’ve understood your financial reality, the next step is to keep a personal budget. A budget is nothing more than a plan for your money, where you decide in advance how every penny will be spent.
This is a powerful tool to stay on top of your finances and ensure your spending is in line with your priorities. There are many ways to draw up a budget, and you can choose the one best suited to your lifestyle.
One of the popular options is the 50-30-20 method, where 50% of your income goes to basic needs (such as housing and food), 30% to wants (such as leisure and hobbies), and 20% to savings and debt repayment.
Another option is to assign every expense to a specific category and then allocate a fixed amount to each category.
It doesn’t matter which method you intend to use. The important thing is to review your budget regularly and adjust it accordingly. This will help you avoid overspending, and it will keep you on track to achieve your financial goals. Read more about how to make a personal or family budget.
The key to financial success is thoroughly planning how your money will be spent, invested, and saved. Without planning, the chances of losing control are enormous.
Set goals to save money
Saving money may seem like a very difficult task, but setting clear goals makes the process much easier. Having a specific goal in mind — such as buying a house, taking a dream trip, or simply putting together an emergency fund — turns saving into a specific priority and a clear target for your goal.
Start by setting short-, medium-, and long-term goals. A short-term goal could be something like saving for a larger acquisition or cutting down on overspending. A medium-term goal might involve building an emergency fund for unforeseen circumstances such as medical bills or home repairs. Finally, long-term goals usually include retiring or buying a property.
To ensure your goals’ effectiveness, it is crucial to set specific, measurable, achievable, and relevant goals with clear deadlines. That way, you can set a clear path and track your progress over time.
Proper financial management does more than ensure stability for you or your family. It is also the key to achieving long-term success, as it enables you to deal with unforeseen events without compromising your budget and your goals.
Limit your spending
If you analyze your budget, it is likely that you will find opportunities to cut costs. Maybe you’re spending too much on leisure, clothes, or monthly subscriptions that you don’t use very often. Cutting back doesn’t mean depriving yourself of all the good things in life; it means knowing where you’re overspending and how you can cut it down.
Being a conscious consumer is an effective way to limit spending. Before every purchase, ask yourself, “Do I really need this?” Or, “Is this a valuable item to me?” Questions like these lead to more thoughtful purchase decisions, preventing impulsive spending and boosting savings.
At home, you can also look for items that you purchased and never used, or haven’t used in a while. This will help you think before you buy. The same goes for monthly subscriptions. Is it worth keeping a service that you haven’t used in months?
Check prices from different retailers before making big purchases, and try to put off non-essential purchases. If you give it a few days, you’ll often realize that seemingly necessary item was not so important after all.
Avoid unnecessary expenses
Just as it is important to cut back on expenses overall, it is essential to avoid completely unnecessary expenses. Unnecessary expenses are those that can be avoided or replaced with more economical alternatives. They are good financial planning’s biggest enemy.
One of the main causes of unnecessary spending is impulse-driven consumption. It can happen while at the shopping mall, while browsing online stores, or even while shopping for groceries without making a list beforehand. To avoid this, make sure to always write a shopping list and only buy the things that are on it.
Another important tip is to avoid the uncontrolled use of credit cards, which often facilitate impulse-driven purchases. By paying cash, you can feel the immediate impact on your finances. This allows you to better reflect on whether the expense is worthwhile. This will put an end to the good old “I can afford it if I pay for it in installments.”
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“People spend on things they don’t need, with money they don’t have, to impress people they don’t even know.”
Dave Ramsey
Steer clear of debt
Debt can quickly get out of hand and become a major obstacle to your financial health. If possible, do your best to avoid debt — especially high-interest debt like personal loans or credit card revolving credit.
But if you’re already in debt, the best strategy is to prioritize paying it off. Start with the debts with the highest interest rates, as they tend to grow faster and end up costing more in the long run. A good way to manage debt is to consolidate it into a single loan, with a lower interest rate, making it easier to keep track of payments.
You should also draw up a plan to pay off your debt gradually, allocating a portion of your monthly budget for this purpose. Avoiding new debts while paying off current ones is essential to regaining control of your finances. Once your debt is paid off, think very carefully before getting into debt again. If it’s not an emergency, it might be wise to wait a little longer and make your dream come true by paying for it in cash.
Set some money aside for yearly expenses
In addition to monthly expenses, it’s essential to set aside some money to cover recurring yearly costs, such as taxes, car insurance premiums, and tuition. Such seasonal expenses are often overlooked in financial planning. This leads to budget crunches as they come up throughout the year.
Planning ahead is the best way to deal with these expenses. Divide the sum total of these expenses by the months in a year, and save up the resulting amount each month. If you do this, you’ll have the money you need by the time the bill is due, and you won’t have to take out a loan or pay in installments.
Keep an emergency fund
An emergency fund is essential so you can be ready for unforeseen events like job loss, health problems, or family emergencies. This fund should be enough to cover between three and six months’ worth of expenses. It’s not always easy to save up such a large amount, but you should keep these amounts in mind as an end goal.
Start building up this fund slowly, saving monthly until you reach the ideal amount. You should also keep this money in low-risk, high-liquidity investments, such as savings accounts or other cash investments, so that you may quickly access it when you need it. For instance, investments with yields matching the central bank’s interest rates and immediate, no-penalty withdrawal are an excellent choice (such as investments with yields equal to 100% of the Brazilian CDI rate).
You never know when the tide may turn. That’s why it’s vital to keep an emergency fund, to insulate yourself from the uncertain.
Manage your personal and professional finances separately
If you’re self-employed or own a business, it’s important to manage your personal and professional finances separately. Handling the two separately makes financial management easier. It avoids confusion and helps you monitor your business performance.
Keep separate bank accounts for your personal and professional finances. Never mix these funds. This will give you a clear view of your income and expenses from each source. It will prevent tax and planning problems down the road, and it will show you exactly how much profit you’re making from your business.
Take advantage of technology
Technology can make a great ally in financial planning. There are many apps and tools available to help you control your spending, keep budgets, and track your financial goals. Some examples include financial planning apps, banking apps, Excel or Google spreadsheets, and even online financial consulting services.
These tools give you a clear, up-to-date picture of your finances, making it easier to control them and to avoid unpleasant surprises. Many apps allow you to put your expenses in specific categories, set payment reminders, and even automate the savings process, making financial planning simple and easy.
The importance of financial planning in everyday life
Financial planning is more than just avoiding crunch at the end of the month. It is directly linked to your quality of life. When you have your finances in order, you can make better plans for the future, fulfill your dreams, and live a smoother life. In addition, financial planning provides security and stability, allowing you to better deal with unforeseen circumstances and make better decisions in your daily life.
Getting your personal finances in order may seem like a challenge at first. However, with proper effort and adequate strategies, it is possible to achieve a healthy and balanced financial life. By following the tips in this article, you’ll be better prepared to make the right financial decisions, steer clear of debt, and achieve your long-term goals.
Remember, financial planning not only gives you peace of mind on a daily basis, it also ensures security for the future. Start with these practices today and begin reaping the rewards of a more stable and sustainable financial life.
If you’re already on the right track and have a well-built emergency fund, you should start considering the best ways to invest your surplus money in the stock market. Visit the Trader's blog for the best investment tips. And if you’re already investment-savvy, find out how to make your first deposit with FBS.
FAQ
Why is it important to get my personal finances in order?
The importance of getting your personal finances in order is that by having a clear view of your financial resources and commitments, you may steer clear of debt and ensure greater financial stability. With proper planning, you can stay on top of your bills, make plans for the future, and achieve your financial goals more effectively.
Can I learn to get my finances in order on my own?
Yes, learning to get your personal finances in order on your own is totally possible. You can use various tools, such as expert blogs, personal finance apps, books on financial literacy, and even online courses. Anyone can achieve good financial planning by practicing and using these tools.
Why do some people fail to get their personal finances in order?
Low financial literacy is the reason many people lack the wherewithal to get their finances in order. As only a handful of schools and universities offer courses on personal finance, many people are not equipped to manage their money efficiently. Lack of planning and excessive consumerism also contribute to these difficulties.
