Most financial problems are not related to low income but to the inability to manage income and expenses. How to manage money correctly in order to avoid loans and afford expensive purchases? In this article, you will learn about recommendations regarding the proper management of money. You can also improve your financial situation through control of money exchange – Rates is the best solution for this.
What Is Financial Literacy?
Financial literacy can be considered the ability to objectively assess the level of one’s own income and the ability to manage it. A person must know how financial instruments work: bank accounts, credit cards, investments.
With this knowledge, a person can make better financial decisions, avoid debt and credit history problems, save money, and secure their own financial future.
Creating a Budget: How to Plan Your Expenses Correctly?
Budget planning is an important component of financial literacy, helping to control your own expenses. This is a complex process that includes:
- Collect information about expenses over the past months (you can take a period of up to six months) using invoices, checks, and bank statements.
- Determination of main cost categories. Typically these include food, transportation, entertainment, insurance policies such as from Aetna, etc. You can use any of the popular cost-tracking programs to automate this process.
- Setting restrictions for each category. Having determined the amount of expenses, you can set limits: these can be fixed amounts or percentages of income.
- Track expenses. Again, special applications or mobile applications will help with this.
- Budget analysis on a monthly basis. To properly formulate a budget, it is important to ensure that the established financial limits are not exceeded. Costs can change over time, so you should adjust your budget as needed.
It is also important to budget for unforeseen events, such as medical emergencies or repairs. To do this, you need to keep a spare amount of money.
Saving Money: How to Save On Everyday Things?
Saving plays an important role in developing a person’s financial literacy. How to save money correctly? Here are the most common savings rules:
- Prepare a shopping list in advance when going to the store. You will avoid buying unnecessary things. Additionally, use discount coupons and great deals from the store;
- Buy groceries from the supermarket and cook at home. It’s much cheaper than eating fast food or processed foods or going to establishments;
- Use cashback programs from banks and companies. Even small savings make a difference;
- Give up bad and costly habits. The daily purchase of cigarettes, alcoholic beverages or ready-made coffee takes up the lion’s share of the budget;
- Consider using energy-efficient devices in your home to reduce your energy bills;
- Consider purchasing used goods: clothing, household appliances, furniture, gadgets;
- Give up your car in favor of a bicycle or public transport;
- Store your savings in a special account. This will be your financial cushion. Alternatively, assets can be used for investment. If you have experience investing in cryptocurrency, you may want to consider investing in Bitcoin and other cryptocurrencies through Binance, Coinbase, PayPal, or other services. According to a Forbes survey, about 30% of the world’s richest people invest directly or indirectly in cryptocurrency.
Credit Сards: Proper Use
When using credit cards, the main rule is not to spend more than you can afford. Any loan comes with obligations and additional expenses. If at a certain stage of your life, it is difficult to live without borrowing funds, follow a few rules:
- Use your credit card only for certain types of expenses. For example, spend money on urgent treatment or necessary repairs;
- Use a cashback credit card to get at least a small portion of your expenses back (for example, Visa from Bank of America);
- Check details about the refund grace period to save on fees;
- Pay off debts on time to avoid additional charges and interest rate increases;
- Be sure to track transactions using your banking app or account statements.
Setting Priorities: How to Spend Money on What Really Matters?
A person who has mastered financial intelligence knows what expenses are preferable to him. Here are a few things to consider when setting your financial priorities:
- Have a list of things you really need to survive and things you want to improve your comfort. This will allow you to understand which purchases can be postponed until later.
- Distribute your budget. You need to financially cover all basic expenses.
- Give priority to urgent expenses: for example, dental treatment.
- Determine strategic priorities. For example, if it is important to move quickly to get work done, and public transport is poor, buying a car will be a priority.
Investing Money: How to Make Your Money Work For You?
Investing is the process of placing funds in various financial instruments in order to increase their value. Before making any investment, it is important to study the market and become familiar with the price dynamics of financial assets. This will help you understand your possible abilities.
However, investing involves the risk of losing money. It is important to balance possible losses with potential gains to ensure an optimal investment strategy. Investing in different financial instruments will help reduce risks and increase potential income. You can diversify your portfolio by investing simultaneously, for example, in stocks, cryptocurrency, and bank gold.
Don’t make emotional decisions and change your plan because of short-term changes in the market. It is important to have a long-term strategy and stick to it.
Wrapping It Up
Fund management is a skill that can be learned. This can be done by constantly tracking your expenses and income, creating a budget, meeting the budget, and analyzing the results. It is also important to reduce spending on unnecessary things, set priorities, and control expenses using different tools. If you regularly make currency exchange transactions (dollars, euros, etc.), we recommend using the Rates service to track the exchange rate of currencies in Ukraine. The service is available around the clock wherever you are – Seattle or Rio de Janeiro.