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8 Tips For Money Management and Achieving Financial Stability

Money management is crucial to financial stability and independence—it’s an important skill that requires planning and practice. The trick is learning simple ways to control your expenses and incorporate them into your daily life.

When you adopt good financial habits and break the bad ones, you improve your relationship with money and give yourself and your family a better chance to achieve your financial goals without sacrificing your lifestyle. Read on to learn a few key strategies that can upgrade your money management.

Why Is It Important to Manage Your Money?

Managing your money properly is essential for ensuring your and your family’s well being. One of the biggest reasons to start saving money is to create an emergency fund. With this fund, you and your family are covered in case of an unforeseen situation (such as an illness or a layoff.) 

Another reason why managing your money is so important is it helps you save for the future. Good money management always includes a percentage of savings in order to create a fund that can be used later on to achieve your medium or long term goals, like going on vacation or retiring. By developing good financial habits you can invest your money and watch it grow. 

How Can I Organize my Budget?

Step one towards money management is creating a budget. To do this, add up all your family income and distribute the money to the most important expenses. To find out more about what a budget is and how to create one, we recommend that you read this handy guide.

Once you have a budget and know how much money you’re bringing in each month and how much you need to cover your essential expenses, it's important to plan your future expenses. A lot of experts recommend using the 50/30/20 rule. This strategy allows you to pay your monthly basic bills, save a bit, and even have a little fun. To follow this rule, keep the following numbers in mind: 

  • 50% of your income should go toward essential and necessary expenses. This includes rent or mortgage payments, food, school expenses for your kids, and other basic utility expenses like water, Internet, and electricity. 
  • 20% of your income should go toward savings. This money should be saved in a savings account like PODERcard or in a low-risk investment fund with high liquidity. These savings will give you some cushion for emergency expenses and so you can achieve your long-term goals like a downpayment on a house or retirement.  
  • The remaining 30% can be used as “fun money.” This category includes all your non-essential expenses that make you happy and improve your quality of life. This fund is for restaurants, vacations,hobbies or any other leisure expense. 

Eight Tips to Manage Your Money Effectively

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We know that managing money doesn't always come easily, but it’s important to adopt responsible spending habits. Poor money management can lead to financial problems that can negatively impact your life. In order to avoid this, we suggest considering the following tips:

1. Learn to invest

    Saving is a great way to improve your economic prospects, but keeping your money in a mattress is a wasted opportunity to grow your money. There are different types of investments with varying risk profiles. In general, the riskier the investment, the higher the potential return. A savings account is very low-risk, but its yields are also low. On the other hand, options like investing in the stock market can be an excellent way to obtain relatively high returns.

    2. Establish short, medium, and long-term goals

      Establishing financial goals is another strategy that will help you manage money efficiently. Want to buy a new TV in the next few months? Maybe you want to go on a family vacation next year, or maybe you’re hoping to buy your dream home in the next few years. Any goal is achievable with the right planning. Just remember to set realistic and well-defined goals. Limiting your goals to two or three at a time will prevent you from feeling overwhelmed, making it easier to achieve them.  

      3. Avoid abusing credit

        Credit cards and personal loans are everywhere, and getting what you want immediately even if you can’t afford it has become commonplace. The slow disappearance of paying in cash has only made this worse.

        There are plenty of rationalizations for this instant gratification which is why a lot of people get into a debt spiral which can be difficult to escape from. In order to avoid getting in this unfortunate situation, we recommend avoiding abusing credit cards and personal loans. These tools are mainly useful for important purchases like buying a car or house, but using them for bills can be dangerous for your family’s finances

        4. Look for additional sources of income

          Consider looking for additional sources of income in addition to your regular job. One of the easiest ways to do this is to monetize one of your hobbies. For example, if you play a musical instrument, you can look for local paid gigs to play at or if you like to sew you can sell your crafts on sites like Etsy. If crafts aren’t your strong suit, you can always earn a little extra money by filling out surveys like the ones in our Reward Center.

          5. Compare prices online

            Comparing prices online for products and services that you want to buy allows you to save money and time because you’ll avoid having to go to stores in person to find what you’re looking for.

            According to Alejandro Bolaños, the director of Corporate Matters of Provident, “The goal of comparing products and services on the market is to save and get the best cost-benefit ratio. If we manage to make all our purchases with this focus, at the end of the day we’ll be able to save a significant amount of money.” 

            6. Don’t forget to pay Uncle Sam

              If you live in the U.S. you’ll most likely have to file a tax return. Don’t forget to save a part of your income throughout the year to pay the estimated taxes between January and April of the following year. If you don’t do that, you’ll run into problems when you file your taxes. A good rule of thumb is to save 30% of your income for taxes and use the rest to create your budget.

              7. Make paying off your debt a priority

                Debts accrue interest, and this can present roadblocks on the path to good financial standing. Although some debts like mortgages and car payments are considered to be “good debt” because they can be paid off over the long term and budgeted for, paying off other high-interest debts like credit card debt should be your number-one priority when you plan your monthly expenses. 

                8. Don’t spend more than you earn!

                  This is probably the most important recommendation that we can make. It’s simple math: if your monthly expenses exceed your income, this deficit will accumulate, and you’ll never be able to achieve financial stability. You can adjust your budget and plan your expenses according to your circumstances, preferences, and personal needs, but spending more than you earn will always result in financial problems.

                  Get ready to reach your financial goals!

                  Practice and knowledge are essential to managing your money correctly. We hope this article has given you a few everyday tools to familiarize yourself with how to maintain your family’s financial health. No matter how much you make, financial stability can only be achieved with solid and well-planned management. If you have any questions about finances or anything else, feel free to contact us, and a team member will be happy to answer your questions. Remember, SABEResPODER.