Essential money management skills everyone should know

With smart planning and discipline, financial freedom is achievable.

Adulthood can be overwhelming and exciting at the same time. You have your freedom now, but are you truly free from bills?

One of the most important skills you need in this phase of your life is money management. How do you do that?

Let’s talk budgeting

Think of a budget as your financial roadmap. It tells you where your money comes from (income) and where it goes (expenses). Here’s how to build yours:

Track your income: List all your income sources, like salary, part-time jobs, or allowances.

Track your expenses: For a month, record every single expense, big or small. This includes rent, groceries, phone bills, and occasional eat-out.

Categorise your expenses: Group your expenses into categories like housing, transportation, food, entertainment, and debt repayment.

The big picture: Compare your income to your expenses. Ideally, your income should be higher than your expenses. If not, it’s time to adjust!

Here are some budgeting tools to make things easier:

Pen and paper: This classic method involves writing down every expense, big or small, for a month.

Spreadsheets: Simple and customisable, perfect for spreadsheet wizards.

Budgeting apps: Numerous apps offer user-friendly interfaces and budgeting reminders.

The envelope system: A physical method using labelled envelopes for different expense categories.

Mastering the art of saving

Saving helps you build a financial safety net and achieve your goals, whether it’s a dream vacation, a down payment on a house, or a secure retirement. Here are some tips:

Pay yourself first: Treat saving like a bill. Set up automatic transfers to your savings account on payday before you even see the money.

The 50/30/20 rule: This popular method allocates 50% of your income for needs (rent, groceries), 30% for wants (entertainment, dining out), and 20% for savings and debt repayment. Adjust these percentages based on your situation.

Set savings goals: Having a specific goal in mind, like a new phone or a travel fund, can motivate you to save consistently.

Beware of debt traps

Debt can be a useful tool, but you need to manage it responsibly. Here are some tips:

Distinguish between needs and wants: Before taking on debt, be honest with yourself. Do you need it, or do you just want it?

Shop around for loans: Compare interest rates and terms before committing to a loan.

Create a repayment plan: Develop a plan to pay off your debt quickly and efficiently.

Adulting doesn’t have to be scary. By mastering these essential money management skills, you’ll be well on your way to financial independence and peace of mind. Remember, it’s a journey, not a destination. There will be bumps along the road, but with a little effort and these tips in mind, you’ll be a financial pro in no time!