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Are you wondering why you just can’t be financially free? A good reason is that you haven’t even figured out your finances already! It is easier to work and make money but managing money is harder- simply because we haven’t formed the culture of tracking our finances.
If this is you too, let’s help you figure out your finances today so you’ll be on the right path to knowing how to manage your finances. Eventually, become a good steward for your money and this will surely open doors for more financial opportunities.
See The Contents
- 1 Why Should You Figure Out Your Money?
- 2 Where do You Start?
- 2.1 Quick Tip…
- 2.2 Note…
- 2.3 Tip…
- 2.4 Note…
- 2.5 Pin This…
- 2.6 Share this:
- 2.7 Like this:
- 2.8 Related
Why Should You Figure Out Your Money?
Most likely, you don’t know how to handle your money because you’re working on autopilot- earning and spending without planning, and reality only hits you when your pocket is running dry and you need to get money fast before you starve.
Well, we’re tired of living from hand to mouth, swirling in debts, and never making deliberate goals towards a financially free future. That’s why we must figure out our finances. It is the first step when it comes to managing your finances.
So, A Quick One…
Figuring out your finances:
- Awakens your financial sense and you stop living on autopilot. This makes you deliberate in spending.
- Helps you to recognize and realize the money habits that are keeping you poor.
- Grants you low interest rates because you get a high credit score which means you have paid your bills on time and kept your total debt level relatively low.
- Helps you know the assets and liabilities you have at hand.
- Ensures you create a budget and live within your means.
- Allows you to spend money on your needs and not waste it in your wants.
- Ensures you earn more money and invest more because you are able to determine how to invest the surplus that accumulates above what you spend.
- Reduces stress and conflict that arises from not paying your bills on time and other debts as well.
- Allows you to enjoy your money and enjoy life because you will be able to plan for your vacation and experiences too!
As you progress in your career and earn more money, understanding how to manage your finances and invest wisely becomes important to reaching milestones such as paying for a comfortable home.
So clearly, we must figure out our finances and this knowledge will help us manage our finances better.
Where do You Start?
1. Track Your Expenses
If you want to win with money, you must make change your actions with money and that begins with having a workable budget.
But before you do that, note down the amount you spend on food, transport, phone credits, data packages, rent, and any other expenses you could be having.
While many track their expenses monthly, it is easier to track your expenses daily as you start out.
2. Track Your Income
Tracking your expenses doesn’t make a whole lot of sense unless you know how much money you have to work with.
Thus, begin by writing down what you earn each month, from your basic salary-if any- to the money streaming in from other sources-even if you were gifted the amount.
3. Check Your Debts
If you’re in the deep with credit cards, student loan payments and car loans, take note of this. Truly, debts suck and everyone wants to be out of debt sooner-particularly with student loans.
While many go for debt consolidation programs, it can also be a financial nightmare if you choose the wrong company. However, just being aware of your total debt and any interest rates is a good start.
Now that you have this information, go into a payment calculator tool like Pigly, and calculate the gross amount of your debt as accrued over the years.
- helps people figure out their blended average interest rate to help determine if it makes sense to consolidate debts using the Pigly Average Interest Calculator
- allows you to figure when a given debt will be paid off along with how much interest you will spend on the debt & the average monthly interest using the Pigly Debt Payment Calculator.
- Helps breakdown a loan’s payment into its principal & interest components for any payment using the Debt Payment Breakdown Calculator.
Now that you have figured out your total accrued debt, we can proceed.
4. Determine Your Net Worth
Take an honest look at your entire financial situation — what you own and what you owe. This is a “net worth statement.”
If your assets are larger than your liabilities, you have a “positive” net worth. If your liabilities are larger than your assets, you have a “negative” net worth.
Don’t be discouraged if you have a negative net worth. Many people start here and it only goes to show you that you need to be more deliberate about your finances in order to start winning.
If you are spending all your income, and never have money to save or invest, start by cutting back on expenses. When you watch where you spend your money, you will be surprised how small everyday expenses can add up.
On the other hand, if you always have some more money left after you spend, consider using the remaining amount in your investments.
5. Review Your Credit Report
A credit report is a statement that has information about your credit activity and current credit situation such as loan paying history and the status of your credit accounts. Your credit report summarizes your financial reliability and impacts your credit score.
The credit score is the numerical value calculated from the information in your credit report that helps to predict how creditworthy you are, that is, how likely you are to repay a loan and make the payments on time.
It makes sense to check your credit report from time to time to make sure there are no mistakes or that you haven’t missed any payments without realizing it.
Your credit history is built up slowly over time as you increase the number of on-time payments you make.
The longer the bill goes unpaid, the greater the likely impact on your credit score. So, keep a close eye on your credit score to help spot issues. Check out these tips on how to improve your credit score on the Money Advice Service.
6. Create A Budget
A personal or household budget is a summary that compares and tracks your income and expenses for a defined period, typically one month.
Typically, a budget will show you how much money you expect to bring in, then compare that to your required expenses—such as rent and your discretionary spendings, such as your Internet, clothing, beauty products, or entertainment.
Instead of viewing a budget as a negative, you can view it as a tool for achieving your financial goals.
A budget only works if you are honest about both your income and expenses. To make an effective budget, you must be willing to work with detailed and accurate information about your earning and spending habits.
To help you, use the Pigly budget planner to check how much you might need to change your spending habits to match your current income. The planner allows you to allocate percentages of your spending and calculate if your total exceeds your income.
This knowledge is vital because you’re able to know if you’re actually spending more on what’s necessary or not.
7. Do Away with Unnecessary Expenses
After setting up your budget, you must monitor and continue to track your expenses in each category, ideally every day of the month.
Recording what you spend throughout the month will keep you from overspending and help you identify unnecessary expenses or unhealthy spending patterns.
Take a few minutes each day to record your expenses, rather than putting it off until the end of the month. Once this is done, it’s time to rule out all the unnecessary expenses that are only killing your financial goals. This takes discipline for you to be effective by the day.
8. Create A Savings Plan
You should review how you have structured your budget-listing down your basic needs and discretionary expenses, or your non-essentials. Be sure to also write down how much money you spend on both lists.
Finance experts praise the 50-30-20 rule. In this case, limit your basic needs to 50%, limit your wants to 30% and spend 20% on your savings and debt. However, this is done after you’ve calculated and taken out your taxes.
Now that you have your 20% left, you know what to do with it. Pay down on debt, save for an emergency, and plan for your future.
Set monthly savings goals to get you into the habit of saving regularly.
You can use the Pigly Savings Calculator to determine how much interest you will earn based on a single deposit, a recurring set of deposits or a combination of the two. The calculator also provides estimates of income taxes due and the after-tax future value of a periodic investment in today’s dollars.
Be sure to create an emergency fund. Emergency funds create a financial buffer that can keep you afloat in a time of need without having to rely on credit cards or take out high-interest loans.
Some of the ways you can save more in order to build your emergency fund include saving:
- Side hustle income. A good side hustle would be starting a blog just like this one.
- Pay increase.
- Cash gifts from family.
- Over-time pays.
- Tax refunds.
- Change after purchases.
9. Use Personal Finance Apps
There are so many apps people use to manage their finances, and statistics have shown that most smartphone users have finance apps on their phones. Mint is a popular budgeting app that allows you to track bills, set budgets, and ensure you don’t go over your spending threshold. It’s awesome but hey, you also need a financial calculator!
Even before you can manage your finances, you must be able to figure them our first using a financial calculator. We use Pigly, a free and ad-free calculator that helps people with personal finance.
Pilgy allows you to estimate and calculate:
- The total amount in debts and loans that you have,
- Your savings and interest income,
- How much you will need to save each month to fully fund your retirement.
- The annualized yield of various investments,
- Your monthly principal & interest payment along with the full PITI mortgage payment when buying a home.
- The long-term costs of multiple credit cards which may have varying annual fees, introductory rates, or ongoing rates of compounding intervals. Thus, you know which credit offer to go for.
- An affordable vehicle price based on your current savings and monthly budget. And much more…
Attending to every financial detail with this bookkeeping work may seem arduous at times, but financial calculators are profitable and practical tools for money management. Good enough, financial apps can be accessed at any time and in any place.
Taking the time to manage your finances better can really pay off: It can help you stay on top of your bills and save thousands each year.
Take these 9 steps and manage your finances well, from today!