Economics and finance may not be the most fun things in life – but staying on top of your expenses is one of the most important parts of personal finance. If you want to get ahead, effective expense management is a key skill.
The financial markets may exist in a constant state of flux, but personal financial management is much easier today than it was a few decades ago.
You work hard for your money, so let’s start thinking about some of the ways you can stay on top of where that money goes, and make the most of the work you do every day.
Start by asking yourself two simple questions:
-When you have money – what will be the first thing you do with it?
-Have you ever thought about how you would manage your money in a more efficient way?
If you’re not finding any good answers off the top of your head, let us help you find ways to become a great financial manager, and keep track of how your money is spent.
5 Ways to Become an Efficient Expense Management Master
Many people have financial problems and always stress out about how to live within their means. Coming up short on funds all the time might seem like fate, but people have the power to take control over their finances.
In order to have more abundant financial resources, besides increasing your income, you also need to manage your expenses effectively.
In fact, most of the problems associated with overspending are rooted in personal habits. Let’s learn how to manage your finances so that you no longer have trouble with having enough money.
1. Know Where Your Money Goes
You will not be able to control your financial situation if you don’t know exactly what you are spending your money on. Let’s start by looking at your monthly expenses right away, so we can understand the costs that will be hard to cut.
You need to spend money on things like rent and transportation, so these expenses can come right off the top.
To manage personal finances well, first of all, you must know the budget, know your monthly income and expenditures.
You can start by answering these questions:
-What is your total monthly income?
-Which expenses are vital to your survival (be honest)?
-What kinds of spending could be cut?
-What seems to influence your spending the most?
-How much income do you have coming in which could be saved?
Once you have the answers in hand, you’ll have an overview of your financial situation and spending habits. From there, you will need to start budgeting.
Regularly recording daily income and expenditure is the best way to understand the financial situation of your own, and there are tools like Acorns which can really help.
If you want to try using a notebook first, that is ok, but when all your spending is recorded by a platform like Acorns, you won’t miss anything.
2. Understand Your Spending
Some people choose to use an expense notebook to list their sources of income and expenses, but you have many options to choose from when it comes to keeping track of your spending.
At the end of the month after summarizing your spending may take a lot of time, so it makes sense to look into automated solutions. If you are still using a handful of different plastic cards to spend, it might be a good idea to look into other solutions.
While Acorns started off as a wealth management platform, today, it offers its clients Acorns Spend, which is basically an online checking account that gives you a tungsten (the metal) debit card to spend with in the real-world, and also use at ATMs.
The upshot to Acorns Spend system is that all your spending is done from a single account, and is fully integrated into an overall wealth management system. Acorns isn’t the only platform out there that helps you invest, as we will discover in a minute.
3. Modernize Your Personal Financial Management System
Thank goodness, we’re in the century of automated wealth management!
There are numerous platforms that will help you put your money to work once you have figured out how to save it. Some platforms, like Acorns, will automatically put aside the change from everyday transactions, so that your savings plan is totally automatic.
So if you can’t control yourself, let machines and automated systems give you a hand. Basically, the money management system will transfer a fixed portion of money to a savings account every day.
In addition, there are now smart financial management tools that support you by recording personal expenses, and even remind you when you get close to overspending.
M1 Finance is another helpful app that combines a range of financial services, from building an investing strategy, to managing your expenses.
Much like Acorns, M1 Finance offers you a spending solution that lets you spend from a single account that is fully integrated with a top-tier investment platform. There is no need to have multiple accounts, and it is simple to put your money to work with these automated investment systems.
4. Savings Should be Automatic
Once you’ve decided on your monthly savings goal, you need to put your money away as soon as you have it in your account. While many people use banks for this, there aren’t many great investment options available at a bank.
Platforms like Acorns and M1 Finance allow you to save money from daily spending, and then invest it in areas like the stock market, which offer much higher rates of return than a standard savings account. Especially for younger people, these tools can really make a difference over time.
A platform like M1 Finance can help you save daily, but it is better if you are able to create excess cash every month, and put it into investments. This might seem like a lot of work, but today, it is very simple to invest money efficiently.
For people that already may have some savings, and want to make the most from that capital, looking at a service like Blooom makes sense. All of the platforms we mentioned so far can help you invest money, and ensure that your retirement accounts keep up with the markets.
5. A Simple Money Management Strategy
If you are still wondering how to create excess money in your monthly budget, the simple 50/20/30 method could be a lot of help!
With this system, 50% of your income is used for essential expenses in life such as rent, food, accommodation, transportation, utility bills like electricity, water, internet. Start with setting aside 50% for your essential expenses after you receive your salary.
One thing you should notice is that spending 50% doesn’t mean you need to spend it all on essentials. If you can spend less than 50% of your income on the basics of life – do it. If you are able to slash your expenses to 40% of your income, or even less, great.
To save money, you could use public transport instead of a private car, or have dinner at home instead of eating out. Find ways to make cuts, and get your financial life into great shape.
After spending no more than 50% of your income on the essentials, you should set aside 20% for financial goals including savings, debt repayment, reserve funds and investments. This 20% portion is quite important for your future.
How you use this 20% will depend on your current financial situation, and what you need to do in order to maximize its utility.
The Debt Question
A lot of people have some debt. Depending on what kind of debt you may have, it could be a good idea to pay it off before you start investing.
The reason for this is simple. In most cases, debts have high interest rates. If you are able to make 10% per year from stock investments, that is a pretty amazing year for a retail investor.
Think about it, if you are paying 20%, or more, on a yearly basis for a credit card debt, it makes sense to pay it off before you start putting money into the markets.
By paying off your high interest rate debts as soon as possible, you open up the potential for much higher levels of investment growth later on.
What About the Other 30%?
The remaining 30% of your income in this system is used for personal expenses such as travel, entertainment, or shopping. All of this is completely flexible spending, and you can spend this money on whatever you like.
As the scope of this expenditure is so broad, it represents a larger percentage of the financial goal. However, you need to be aware of controlling this part of spending because it is easy to spend too much on your hobbies.
Clearly, you don’t have to spend this 30% on fun experiences and other discretionary items. If you put this money to work for you, it will pay off later.
With the 50/20/30 rule, you know how to divide your income, and keep an eye on how you are spending. From there, you can plan your financial life in a controlled way, and make your savings goals a reality.
Getting Ahead Should Be Easy!
Making money isn’t always easy, but effective expense management will ensure that once you have the money, it doesn’t go flying out of your pocket.
Consider using an automated platform like Acorns or M1 Finance to keep track of your spending, and put extra money aside every day.
With a little bit of planning, and staying on top of how you spend, over the course of a year, you can dramatically change the direction of your financial life!
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