Clipping coupons and booking flights with credit card miles can help you save a few dollars here and there, but establishing long-term financial stability necessitates a much more comprehensive approach. This article details key principles on how to manage money.
We can’t discuss how to manage money without talking about budgeting. You may have heard that if you just skipped your morning Starbucks coffee, you’d be a millionaire, but it’s more likely that you can save more by decreasing spending on things like housing and transportation. In 2021, the average new car will cost approximately R370,000. However, buying the same car pre-owned could save more than R100,000, much more than a year’s worth of Starbucks Coffees.
Do you have financial goals you wish to achieve? In learning how to manage money, it is a key factor to have financial goals, not only that, the goals must be specific. It’s simple to say, “I’m going to save R60,000 for retirement this year,” but you must also specify your techniques for achieving your objective. Subgoals can assist drive your savings strategy: if you want to save R60,000 this year, consider how you can save R5,000 this month by growing your income or cutting your expenses by R1150 every week. These mile markers might help you determine how realistic your goal is and track your progress.
You may have heard that debt should be avoided at all costs, but not all debt is created equal. Debt with an interest rate greater than 5%, such as credit card debt carried over from month to month, is one sort to avoid. Also, try to avoid going into debt for items that are likely to lose value fast, such as jewelry and other luxury items. However, there are situations when borrowing money makes sense. Loans for schooling or starting a business, for example, are often considered healthy debt because they may lead to higher revenue in the future. A low-interest mortgage may be a sensible use of debt for some people because a house has the potential to appreciate. Even using a credit card, as long as you pay the bill in full each month, can help boost your credit score by demonstrating to lenders that you can manage debt responsibly. However, healthy debt only benefits your credit score if you make your payments on time, so if you want to improve your credit score, only borrow money you know you’ll be able to repay.
Depending on your circumstances, you may require auto insurance, house or renter’s insurance, or life insurance. In addition, everyone requires health insurance. According to studies, medical concerns account for more than 60% of all bankruptcies in established and emerging markets, so be sure you have at least the bare minimum of coverage. However, keep in mind that the goal of insurance is to protect you in the event of an unpleasant event. Premiums are payments made to an insurance provider on a regular basis in exchange for protection. Premiums are fixed costs that must be met on an ongoing basis. If you can afford to replace lesser goods, such as electronic equipment, you may choose to avoid insurance because paying for coverage you may never use is a waste of money.
Saving alone will most likely not be enough to meet your retirement goals. Investing can help your money increase over time. As you can see, if you bought R10,000 in equities in 1975, your investment would have been worth more than R1,300,000 by the end of 2018. How can R10,000 rise so quickly? Compound interest, or gaining interest on interest, can enable investors experience exponential growth, or growth that happens at an increasingly rapid rate, over time.
Earning money while sleeping or sipping tropical juice on the beach in Cape Town or Maldives is a pipe dream for many of us (and those who say it isn’t are definitely lying!) . Is it, nevertheless, feasible to get wealthy without ever having to lift a finger? You will need to learn how it is done. Check out our article 5 genius passive income ideas in South Africa.
Paying your bills on time is a straightforward way to assure that your money is managed correctly, and it comes with numerous advantages: It assists you in avoiding late penalties and prioritizing necessary expenditures. A great track record of on-time payments can also help to raise your credit score and lower your interest rates.
Do you pay for showmax when you already have netflix and amazon prime or vice versa? In learning how to manage money it is important to cut off unnecessary expenses. It’s easy to overlook monthly subscriptions to streaming services and mobile apps that charge your bank account even if you don’t use them on a regular basis. Examine your budget for similar charges and consider eliminating unused services to save money each month.
Remember to prioritize the big-ticket purchases when budgeting. When defining financial goals, be precise about how you intend to achieve them. Avoid high-interest debt and loans for products that may lose value rapidly. Avoid insurance for expenses that you can pay for yourself. Finally, think about investing for retirement. While there is no shortage of personal finance advice available, sifting through the clutter to focus on high-impact changes can have a long-term impact on your financial destiny.