Getting your personal finance in order is trickier when you already have issues to deal with. The loans you need to repay, the irregular income you receive, and other details about your current personal financial state will affect how you can get things reorganized and in order. Still, it is possible to work on your personal finance and improve it gradually.
Gradual improvement is the key. You have to be willing to make small changes – and sacrifices – in order to regain control over your personal finance. To help you get started with reorganizing your personal finance, here are the best tips and tricks you can use right away.
Review Your Expenses
One of the first things you need to do when you are trying to reorganize your personal finance is doing a complete review of your expenses. The goal here is getting a clearer picture of how you spend your money. That clearer picture will help you complete the steps that follow the review more effectively.
Pick a day and start documenting every expense you make for the month no matter how small it can be. To make the process simpler, use an app that you can install on your phone and keep track of your expenses meticulously.
The day you choose will be the beginning of your budget cycle. This is how you know exactly how much you are spending each month and how you can better manage those expenses to regain control over your personal finance.
Make Changes to Those Expenses
At the end of the previous review, you should know how your income is spent. You may find that you are spending more than you earn, in which case you need to start cutting back on your expenses drastically.
Start with the expenses that are not essential. Dining out several days a week, the cable subscription you seldom use, and other expenses in between must go. Spending more than you earn simply means you cannot afford them at the moment.
You also want to look into the loan repayments you have to deal with every month, including your average credit card bills and the money you put into repaying them. If you spend more than 30% of your income to repay loans, you have more work to do.
Learn to Create a Budget
After making those changes, it is now time to make a budget and gain better control over your finances. Rather than going through the complicated process of budgeting for every expense from the start, you can use ratios to your advantage.
Allocate 20% of your income for savings. Use another 50% of your income to deal with expenses and bills. The remaining 30% can be used for non-essential expenses, including holidays and buying that big LED TV you have been wanting to get.
These ratios can be adjusted, but you want to get as close to them as possible. If you cannot afford to save 20% yet, start with 10% (or even 5%), but make sure you save a portion of your income at the beginning of every month. The same can be said for the other two posts.
Think in Days
The earlier budget will help you control your finances better. Since the budget also acts as a target to reach – plus you now use an app to keep track of your expenses – you will find staying within the budget to be a lot easier to do.
Another thing you can do to make your personal finance more manageable is dividing the expenses into daily expenses. Let’s say you earn £2,250 a month; that’s £75 per day that you can allocate for the previous posts. With a budget of £700/month for rent, you’re taking £24 out of the daily £75.
The 20% saving turns into £15 per day that you can set aside. The same goes for other expenses in your budget. Dividing the entire monthly budget into daily income and expenses lets you tackle even the most demanding financial situation easier.
Stay on Course
The next big challenge to overcome is staying disciplined. This is a crucial ingredient to regaining financial control. Now that you have a budget to work with, you need to stick to it no matter what. The amount you put into your savings, for instance, need to stay in your savings account even when there are lucrative discounts on your favourite ecommerce store.
You cannot turn your personal financial state around overnight, especially when you start with problems like loan repayments that eat into more than 30% of your income. However, you now have the ability to work on the state of your personal finance gradually. The more effort you put into it – and the more you can stick to the plan – the sooner you will see improvements, and the better control you will have over your financial future.