It's safe to say that money is a pretty important part of life, and having a sufficient amount of it is often the dream of many. However, being rich won't prevent you from going broke, and in fact, the only thing that can keep you in a state of financial security is learning to track them or with Rates.fm — manage your finances smartly. For those with the funds to do so, that may require hiring some financial adviser who demands a premium for their services, but not everyone can afford it.
Fortunately, the concepts used to aid even the richest people apply to everyday individuals living from paycheck to paycheck. Let’s discuss a few of these to ensure that you at the very least, know how to stay financially stable.
How mismanagement occurs
Here's an interesting statistic for you, in the US alone, as of 2022, around 64% of consumers were living paycheck to paycheck. It's been hovering around that mark for a while. This is due to several reasons, many of which you can't control, which is why knowing how to manage your finances smartly, as it is the one thing that gives you power.
How mismanagement occurs
Here's an interesting statistic for you, in the US alone, as of 2022, around 64% of consumers were living paycheck to paycheck. It's been hovering around that mark for a while. This is due to several reasons, many of which you can't control, which is why knowing how to manage your finances smartly, as it is the one thing that gives you power.
Now, before we get into some of the things you can do to be in control, let's look below at a list of things that take it away from you:
- Lack of training regarding money: this can be pointed to as the ultimate source of poor money management, as it may give those who are impressionable (especially children), a false idea, of what money is
- Poor budgeting: this involves allocating your income in a disproportionate manner that ultimately leaves you with nothing
- Getting into debt: heavy debt, be it long-term or otherwise takes out quite a bit from your income
How to stop it
With the above in mind, let's look at how you can sort this problem out and ensure that you don't have to live paycheck to paycheck. Now before we get into how you can manage your finances smartly, be aware that the following will require a lot of discipline, otherwise, it won't work. Now that it’s out of the way, let's get into some solutions:
Understanding your spending habits
If you've been having some money issues and have no idea where the money went, chances are that's precisely the problem. If you have no idea where the money went, you can't know what measures you can take to improve. As such, you'll need to be aware of what you're spending on, how much is being spent on it, a task that can be done manually or with the help of an app.
Being frugal
Just to be relatable imagine the following situation. A guy living in Chicago, Illinois spends the entire amount of US Dollars in his American Express Card on an expensive dinner. Unfortunately, he forgot to pay for accident insurance from Aflac. Clearly, he needs to rethink his priorities.
The previous point shows this rather nicely, because frugality is one of the things of awareness. Once you know where the money is going, particularly what is taking up the most amount of money, you can start budgeting properly. So, in our Chicagoans case, he might want to cut down on how much is being spent on diners and maybe consider an alternative.
Recommendations
Now, this doesn't mean that he should completely cut out certain things immediately, as he may be used to his lifestyle. So while frugality may mean reducing spending on some things to save money, make sure that the resulting budget created can be met, so don't do anything too drastic. Based on your lifestyle, some frugality measures include the following:
- Buying a used car
- Moving into a smaller apartment with less utilities
- Reducing spending on clothes, jewelry
- Eating out less
Getting into saving
You may look at the frugal way of living as a way of saving money, but to save also means setting aside some of whatever is left from your budget and keeping it there just in case. To take this even further, once your salary comes in, set aside a predetermined amount that you're not going to use unless there's an emergency.
What's being created here is an emergency fund, which should ideally be able to sustain you if things go wrong for a good amount of time, typically around a year. Now, it may take a while for this to be set up based on your income. However, always have enough perseverance to continue saving and sufficient discipline to not touch the money, until it's needed.
Searching for something passive
Now, saving can only get you so far and after you've saved about a year of living expenses, the money can be taken elsewhere, ideally to an investment or retirement plan of sorts. The reason for taking this step is that inflation and fluctuating rates are a thing and they can negate your savings over time. If you have money working for you, that can be combated, so just be wise about where your money goes.
Getting creative
With frugality adopted, savings established and money invested wisely, the hope is that enough money is circulating that you no longer need to live paycheck to paycheck. Because of this, you can now think of expansion, particularly by doing something that you actually like, be it a standard business or something unique. With proper management of funds, the possibilities, especially in 2024, are endless according to Rates.
Final thoughts
It's important to reiterate that the above issues that plague people in regards to the management of funds and can affect people, on any point of the income spectrum. As such, if you lie on any point of the income spectrum, knowing how to manage your finances smartly with the above tips is valuable. However, your mindset going into this endeavor has to be solid.
This means that your expectations should be tampered with just a little, after all, you're not going into it to be a billionaire, as that's unrealistic. It's all about doing the most with what you get, whatever it is.
