Adulting is hard; that’s for sure. With bills piling up left and right, it almost makes you want to wish that you’re back at your parents’ crib and your only worry is what your mom is cooking for supper tonight. When you’re a full-fledged adult living on your own, it’s easy to succumb to the everyday demands of life – especially when you’ve got due dates haunting you one after another.
However, being an adult and becoming independent is something everyone has to go through one way or another. There are those who get the hang of it from the very start. There are also others who take some time to warm up to the new realities they’re experiencing in life. Regardless of which is true for you, one thing is certain: we all could need a little help in this thing called adulthood, especially when finances are concerned.
Here are 8 things you need to know that can significantly help you manage your finances better:
1. Never Overestimate Your Capacity to Earn
This is where it all usually starts. Oftentimes, the reason why so many people can’t save up isn’t because they aren’t earning enough. It’s because they always end up overestimating their income and spending more than what they can actually afford. This is usually the beginning of every debt spiral; it is when people start spending money that have yet to enter their bank accounts by using credit cards and microloans only to find out later on that the money they’re making can’t keep up with their spending.
To avoid falling into the same trap, always keep in mind that what you earn is limited — regardless of how many figures those are. It is quite common for people’s lifestyle demands to increase together with their earnings (read more). The key is to keep living a humble lifestyle while increasing your income. This is how you can achieve financial stability in the long run.
2. Create a Monthly Budget & Stick to It
Keeping to a budget is not a bad thing. While some people may argue otherwise and say budgeting makes them feel more restricted and they end up spending more than saving, every financially literate person out there who actually has money in the bank to prove it would tell you that budgeting is always a good idea. The thing is budgeting shouldn’t have to be about limiting yourself. You can budget and still live quite comfortably; it only means that you are setting certain limitations to avoid overspending.
One really simple but effective way to budget is by cash stuffing — which is basically stuffing money into separate envelopes and labeling them according to their intended purpose. The idea is that if the money inside each envelope runs out, then that means you need to stop spending in that category. For example, if you’ve set a budget for monthly food takeout and the money in that envelope runs out, then that means you no longer have any budget for takeout food until the next month comes. The same goes with budgets for transportation, groceries, and other variable expenses for the month.
3. Reward Yourself Sparingly
Another financial trap is the notion of “rewarding yourself” every single time you experience a small win in life. Don’t get us wrong; we’re all for indulging yourself with your hard-earned money every once in a while. After all, we’re not living just to work and pay the bills. However, all too often, this “reward yourself” slogan is misconstrued because “small wins” are pretty subjective. Before you know it, you’re running your bank accounts dry under the pretense that you deserve to spend that money.
Landing a promotion, getting a big sale, or your kid moving up a grade are all very good wins that deserve to be celebrated. However, some people take it to the extreme that even completing everyday tasks is something they feel they deserve to be rewarded for, such as finishing their work on time or finally going to the gym. Sure enough, these are wins too but hardly anything that should make you want to splurge your hard-earned money.
4. Don’t Take on Responsibility That Isn’t Yours to Begin With
This is especially true when you are still in the process of building wealth or making yourself more financially stable. It’s 100% okay to help out but not at the expense of your own financial comfort. What is not okay is going into debt because you tried so hard to help other people out without regard for your own well-being. What happens is that you might also become a financial liability to others and inconveniencing them more in the long run — plus, there really is no assurance that people will reciprocate your good will when it’s your turn to ask for their help.
The best way for you to help others, especially friends and family, is to make your life stable enough that you become fully independent. When time comes that you have more to give, then by all means do it. Although not while you are also barely making ends meet yourself. Get more tips here: https://besterefinansiering.no/40-sparetips/
5. Track Your Expenses Daily
Tedious, we know, but undoubtedly necessary. Tracking your daily expenses is something you should put in practice so that it becomes a habit. All too often, we spend money blindly and we end up wondering how on earth we could have spent so much in such little time. Small and seemingly trivial expenses can easily compound and before you know it, you’ve blown through half of your monthly budget in a matter of a few days. Tracking your expenses will give you insight on where most of your money goes and if what you’re spending it on is really worth it.
6. Don’t Take Out High Interest Micro Loans Just to Make Ends Meet
On to the next money trap, we have micro loans. These refer to small, seemingly manageable loans with fast (almost instantaneous) approval that a lot of banks and financial institutions offer as an “instant solution” to money emergencies. While helpful, the interest rates of these types of loans are also pretty steep and it’s easy to get trapped in a never-ending cycle of paying and reloaning, only to pay again. Most of your payments also go to the loan’s interest so you are basically helping banks profit more from your poor financial situation.
If you can help it, avoid taking out micro loans. If you really have to, pay it back in full as soon as you can.
7. Refinance High Interest Debts
If you’re at a point in your life where the above tips are nice to hear but hardly helpful since you saw them a little too late, then you’re probably someone who’s already done the exact opposite of everything mentioned above. If you feel stuck because you’ve spent more than you can actually handle and high interest rates from multiple loans are already haunting you month after month, then it’s high time you consider refinancing.
Refinancing can help you consolidate multiple, high interest debts into one big loan, often with a lower interest rate and a longer repayment term. This can help you lower your overall interest costs as well as help you avoid late payment fees due to having too many due dates in a month than you can handle or even remember.
8. Build an Emergency Fund
Once you’ve settled most of your high interest debts, start building an emergency fund ASAP. Make sure to include your emergency fund when creating your budget for the month. It doesn’t matter how little you can tuck away, especially when you’re still trying to pay off some existing loans but make it a point to save up. You’ll never know what lies ahead and you may be earning good money now but when stuff happens and your main income source is compromised, you would want something to fall back on.
Build an emergency fund equivalent to at least 6 months of your current income. This will give you enough time to look for other income opportunities when you suddenly find yourself in a financial crisis, such as losing your job or having sudden medical expenses.