How to make the most of what you have.
The way we spend money can have a big impact on what we have left at the end of the month and whether we’re able to reach financial goals. So, how do you priotise spending to make sure that your income works for you?
Step 1 – take the blinkers off; how much do you really spend?
When spending gets out of control it’s often as a result of simply not keeping track of it. We have a tendency to “forget” about some purchases, particularly those we know we shouldn’t really be making, and that can end up causing financial chaos. It’s those purchases that can lead us into trouble with bad credit scores then we end up looking for bad credit loans which have high interest rates and so the spiral of debt can start.
So, when you start looking at the best ways to prioritise spending, work out where you’re spending unnecessarily – even unconsciously. Keep track of every single purchase over the course of a month so that you can see exactly where your money has gone. There are many apps and personal finance tools now that will show you how much you’re actually spending – as opposed to what you think you’re spending. Use a budget tracker so that every purchase you make is recorded and nothing falls through the cracks.
Step 2 – differentiating between essentials and what is nice to have
If we’re honest, the new shoes, the Friday night pizza or the trip to Disney World is not an essential when it comes to what we need to spend our cash on. If you want to learn to prioritise spending well then it all starts with analysing whether your money is going on essential purchases or you’re wasting your money on items you don’t really need. Use the information that you’ve gathered from a month of spending tracking and make a list of every single item that appears. Remember it’s only by doing this that you can avoid serious debt with the likes of bad credit loans and doorstep loans. Go through the list and identify your “essential” costs – for most people these will be any or all of the following:
- Rent or mortgage payments
- Transport costs
- Medical costs
- Utilities bills
Be brutally honest with yourself about what counts as an essential and then split what you’ve spent into two columns – “essential” and “non-essential.” You might be surprised by just how many of the things you buy actually aren’t essential at all.
Step 3 – apply what you know about your spending to your budget
Now you know exactly how much of your monthly spend is being applied to essential costs and how much is being wasted on “non-essentials.” This is where you can start to change how you manage your cash. Make a list of your financial goals, whether that’s simply making ends meet, starting a savings account or paying off debt. Work out how much you need to put towards this each month. When your next salary payment comes in, apply it first to the “essentials” list and then funnel a percentage of it to your financial goals. Use only what is left for items that appear on your “non-essentials” list. That way you will always be sure that the money you have is being put towards your priorities first.