Category: Finance

What Is the Purpose of a Sinking Fund?

Let’s imagine for a second that tomorrow your washer machine breaks. Laundry is piling up, and your anxiety is building wondering how you are going to get caught up.

How do you plan on paying for a new washer machine? Do you dip into your emergency savings, or pull out your credit card?

The truth is, these types of expenses can be detrimental to your budget. You need to have a system in place that will allow you to pay for certain planned expenses with cash, so you are not continually going into debt.

That’s where sinking funds come in handy.

Today, we are going to cover everything there is to know about sinking funds, which funds I include in my budget, and how to use them.

 

 

What Is the Purpose of a Sinking Fund?

A sinking fund is a set amount of money for a bill, or life event that you know is coming.  A specific amount of money is aside every paycheque/payday in an envelope, cash box, or savings account and when it comes time to pay for that bill or life event, you already have the money set aside, ready and waiting. No stressing.

Having the money set aside for large bills or life events takes all the stress and anxiety out of those things for me.

A sinking fund is just a plan with a purpose to set aside a little bit of money for an expense you know is coming.  Where an emergency fund is strictly for the little surprise’s life throws at you.

According to Dave Ramsey’s Every Dollar site, the definition of a sinking fund is:

A sinking fund is merely a strategic way to save money by setting aside a little bit each month”.

And with researchers reporting that the average American saves just 3.8% of the income they bring home each month, we can confidently assume a lot of people aren’t aware of the magic of the sinking fund.

If a budget offers permission to spend, a sinking fund offers encouragement to spend—and to spend big”!

 

What Is a sinking fund used for?

So now that we have given a basic definition for what is a sinking fund, let’s talk about what sinking funds are used for.

In order to manage your money well, it’s really helpful to use individual savings accounts to make sure that you are savings for the things that you need to be.

what-is-the-purpose-of-a-sinking-fund

Creating sinking funds will help you to get out of debt and to stay out of debt as you instead save up for and purchase or pay for the things that you need.

As soon as you have a fully funded emergency fund of at least 3 to 6 months’ worth of expenses, you should start setting up additional savings accounts for irregular or unanticipated (though not completely unexpected) expenses.

If your bank doesn’t allow you to easily set up multiple savings accounts, then I recommend setting up an account with another bank that does. Here’s some good recommendations from Nerdwallet.

 

Sinking fund v emergency fund

You might be asking, “How is a sinking fund different from your emergency fund?”

A sinking fund is designed to save for a specific expense. You know what you are saving for, how much you’ll put in it, and when you will need to use it.

An emergency fund is setting money aside for the unexpected. Your goal should be to have 3-6 months of expenses saved for all possible life emergencies.

Both of these saving strategies will make you feel more at ease when it comes time to needing the money, but they are created for very different reasons.

 

 

Which sinking funds should you have?

This isn’t a totally comprehensive list of every sinking fund you’ll ever need, that depends on your personal circumstances and what you need to be saving money for.

One person may need a podcast equipment sinking fund, someone else may have a kid’s birthday sinking fund.

You never know! So here are a few sinking funds that are pretty universal:

 

Car repair

Having a car means throwing a lot of money at a big metal box that just gets you from one place to another. Fun stuff, right? Wrong.

But if you plan to own a car in your lifetime, it’s something you need to plan for. Having a car means that you’ll inevitably have to pay some kind of repairs because they break.

You can use your car fund for things like your yearly sticker, your license renewal, speeding tickets, new floor mats, any repairs, pretty much anything that is involved with owning a car.

 

Pet costs

We never want to think about our pets getting sick or passive away. If I even for a second think about my dog passing, I feel like crying instantly, seriously.

But animals aren’t invincible, and we need to plan for their injuries and illnesses as well.

Having a pet gets pretty expensive, so this emergency money can go to anything including yearly check-ups, medicine, new collars, leashes, dog food, and maybe even your pet’s birthday!

 

Home repairs

If you own a home, you’ll have to fix something soon. It may be something small, like a light bulk, but it could be something huge like a brand-new roof. You never really know what’s going to happen when you own a home and it’s always smart to be prepared.

Home repairs add up really quickly and it happens in the blink of an eye. Having that money in the bank can really change the way you treat your home, and a lot of the time you’ll pick more frugal, intelligent fixes.

 

 

Technology

If you’re anything like me, you’ve dropped a phone (or three) and cracked a screen. I once had a laptop literally overheat and smoking at home while working. This is proof that some of the most expensive things we own can just break at a moment’s notice.

Putting a $/£500 phone or a $/£1,500 laptop on a credit card seems like a good idea at the time but it can take you months to pay it all back. This is why a technology sinking fund is very important.

This sinking fund could replace your laptop, phone, headphones, security cameras, etc.

 

Travel

Travel funds can really take two forms, one fun, and one not-so-fun. Of course, you can set up a sinking fund for a yearly family vacation to enjoy.

However, the real sinking fund you should set up is a funeral/sickness sinking fund. I know, this is really depressing and morbid.

sinking-fund

However, at any given time a family member could pass away or get really sick without you having any notice.

You may need to travel across the country (or even the world) to be able to be there for the funeral and be able to take care of your family.

Plane tickets are expensive and when it happens quickly you don’t have an opportunity to plan a cheaper ticket, so it’s really great to have a thousand or more dollars/pounds in the bank just to be prepared for these occurrences.

 

Christmas

Christmas always seems to be really far away, until it isn’t. Every year after Christmas I find myself saying “next year, I’m going to start saving for Christmas before summer! I’m going to be so prepared” but it never happens.

Christmas never changes. It always comes.

Starting a sinking fund for Christmas presents is a great way to save yourself a ton of money in interest, as well as keeping your Christmas costs lower because you don’t over purchase as often when you use cash.

 

Other categories

Then the list becomes more extensive if you are a college student like me where I might add funds like:

  • hobby fund
  • holiday/vacation fund
  • insurance – life, car, home
  • medical expenses, prescriptions etc
  • annual subscriptions (i.e., Amazon Prime, Disney+, gym membership etc)
  • taxes – property, self-employment
  • new clothes for you and the family
  • beauty – haircuts, waxing, nails, etc
  • charitable giving
  • big events – your wedding, your parents 50th anniversary, etc

Remember these are only suggestions. Just because I listed it does not mean you need to have it in your budget.

 

How much do I put in my sinking fund?

A good rule is to start planning six months out for an event, but if the item is a large dollar/pound amount consider nine months. This way you’re not trying to save for “everything” all at once.

As you look ahead at expenses, start giving them a dollar/pound amount and adding them into the tally. Since this is an ever-revolving account new money will flow in, and saved money will flow out. (i.e., birthday party expenses, braces, back to school clothes, school pictures, sports fees, summer camps, etc.).

A good tip is to go back through your previous bank/credit card statements and see what kind of one-off purchases there have been. Do you have enough of one type of purchase to necessitate its own category sinking fund?

 

Where should you keep your sinking fund?

Sinking funds can be kept anywhere as long as you can keep track of them.

Consider choosing a place where your money can be liquid and you can access it simply with ATM withdrawal, quick online transfer or by writing a cheque.

You may also want to keep your funds in an envelope set aside for a specific expense. The most important thing is that you know where it is and can access it when you need it.

If you decide to open a single bank account for all your sinking funds, you need to find means to separate the money for each expense when it’s time to spend.

You can keep a ledger, tracker or spreadsheet to keep track of the amount of money in each fund at every point.

sinking-fund

You may also want to keep your funds in multiple accounts. It can be very helpful if your bank offers you multiple savings accounts, especially when you prefer doing all your transactions online.

Ensure that you meet minimum balances for each account if there is one.

However, options that allow you to access your money anytime can only work for you if you are disciplined with your savings account.

If you are not good at managing your savings account or you find yourself constantly transferring money in and out of your account, then you should consider an account that you cannot dip into when you please.

 

Keeping track of your sinking funds

It’s very easy to become distracted and lose track of your sinking funds.

Keeping track of your sinking funds is very crucial because you won’t want to forget, use your car maintenance and repairs fund for your friend’s birthday, and then start wondering about what happened to the money when the main expense comes up.

To keep track of all the funds, if you like to use paper and pen, you can keep a log. If you prefer spreadsheets, you can also use a spreadsheet.

You can also keep track of your funds with your bank’s app if your bank offers multiple savings accounts.

There are several ways to keep track of your savings. Choose one that works best for you.

 

 

Should you set up a sinking fund when you have debts?

Setting up a sinking fund when you have debts depends on what the fund is for. Your high-interest debt is an emergency, and you need to make efforts to pay it off.

However, some expenses are so very essential that you will need to come up with money from anywhere to pay for them—for instance, a new set of tires that you would be needing soon.

For such expenses, it’s best to set aside money since it’s better to pay for them in cash rather than use a payday loan or credit card.

If it’s for an avoidable expense like a vacation or holiday, then No. In such cases, you need to focus more on your debts instead.

Taking a vacation/holiday shouldn’t be a priority for you if you have a high-interest debt.

 

 

What is the purpose of a sinking fund? –  final thought

Having a sinking fund is a vital part of your financial plan. It is as important as your emergency fund.

Setting up this particular fund will keep you from screwing up your monthly budget all the time and allow you to leave your emergency fund for real emergencies.

It might seem less urgent, but it is urgent.

You don’t have all the time you feel you have until that expense catches up with you.

The earlier you start saving for that major expense, the better.

 

If you found this post useful, you might want to save THIS PIN below to your Pinterest Personal Finance board for later!

sinking-funds



budget

50 30 20 Budget Rule – Explained!

Wondering what the 50 30 20 budget rule is all about?

Knowing and following some personal finance rule can do wonders to your financial well being.

We know, at times when you have a sizeable expense, it keeps you wondering, whether you have over spent on the item or was it ok, or when you take a loan, you wonder whether you have over borrowed or no.

With this article, you would know a simple and a really handy rule to track your budget, which we call the 50/30/20 rule.

If you’re looking for a little more simplicity in your life, or are brand new to the idea of living on a budget, you may want to consider the 50/30/20 budget.

It will help you control your spending and work toward your financial goals, but it allows for a little more freedom than what you may be used to when it comes to budgeting.

 

 

What is the 50/30/20 budget rule?

The 50/30/20 budget rule helps you establish the right spending proportions.

Specifically, it uses percentages to determine what percentage of your after-tax income will be allocated to each group.

One group will get 50% of the money, a second group will get 30% of the money, and the last group will get 20% of the money.

The specific breakdown is as follows:

  • 50% of your after-tax income goes to your needs and essentials category
  • 30% of your after-tax income goes to your wants and desires category
  • 20% of your after-tax income goes to your financial goal’s and saving category

 

Why Is The 50/30/20 Budget Method Effective?

One reason for the 50/30/20 budget method’s success is how applicable it is.

By focusing on percentages (rather than exact spending amounts), this method can be applied to the lives of many people.

Poor college students and wealthy business owners alike can use it to generate budgeting estimates. Furthermore, the 50/30/20 budget method is friendly to people who may have less predictable streams of income.

Another reason why many people can find success with the 50/30/20 budget method is because it’s healthy.

50-30-20-budget-rule

The proportions may prevent people from overburdening themselves with the cost of things that don’t bring happiness, joy, and fun into their lives.

However, in a similar vein, it may also prevent people from not spending enough “fun money” on the things that spice up our lives and make them interesting.

Finally, the 50/30/20 method is safe.

If you’re inexperienced with budgeting, it can be easy to screw things up as a beginner. That usually happens when you take on challenges that are too ambitious for you or fail to incorporate the things that make you happy into your budget.

But with the 50/30/20 rule, you’ll be able to start safe and adjust later when you gain a better understanding of things.

 

How do I know if the 50/30/20 budget is for me?

That’s the thing. There isn’t always a one-size-fits-all budgeting plan that is going to be perfect for everyone to follow.

If you know that your goal is to save money, you’ve got to start somewhere to make it happen.

What people love about this method is that it’s simple, effective and easy to follow.

Right from the start, you know exactly what you should be doing with what portion of your money so there leaves little room for manipulation or movement.

And honestly, this is what some people need.

Creating a budget and following it can be really hard and stressful, but this is where these types of budgeting techniques can really come in quite handy.

 

50 30 20 Budget Rule – Explained!

If you’re on the fence about whether or not this is a good route for you to take to try to fix your finances, let’s break it down even more so you can have an even more clear picture in your mind on how you can make it work for you.

 

50% for your needs

Needs are things that you can’t do without or mean that without them your lifestyle would be completely compromised.

Things that fall under needs would be items such as rent or mortgage, healthcare, groceries, debt repayments, and transportation.

In this section, your debts can be kept to the minimum payment amount. It’s really important that you understand what your needs are.

You don’t need to have cable or even the internet for that matter (unless of course, your work life depends on it).

Make sure you are being truthful about what your actual needs are and don’t confuse them with your wants.

 

30% for your wants

I guess you could say that wants are almost the fun part of it.

Whilst this is true you still need to reserve a certain amount of restraint here.

The idea is not that you think, oh great I’ve got 30% of my income to buy whatever I want.

Oh no, that is far away from the truth.

Your 30% could be spent on things like unlimited internet data, cable, clothes or getting your hair done.

This does not mean that you should blow your money in one sitting. You should think of it more along the lines of I have 30% of my income to do something constructive with.

budget

You can use that 30% to pay a little extra on some of your debts.

By paying a little over the minimum on a credit card bill you can save yourself hundreds of dollars in the long run.

Managing your money is about being smart with it, not simply just finding ways to be able to spend as much as you want on what you want.

Believe me, there are no debt free people out there who walk around spending money frivolously.

Every single dollar/pound has a plan and a purpose.

If you truly want to be able to better manage your money then it would be a good idea to hold back on unnecessary spending and focus on trying to clear debts and put good money principals into place instead, like a savings fund or an emergency cash fund.

To help you decide what should go in this section, just remember that you wants are not needs so technically you could do without them.

 

 

20% for savings

Never underestimate the power of your savings. Your savings have the capability of keeping you out of debt.

You could even say that they are your safety net. When you look at it this way you realize how important it is to put money away for the future.

You should work towards saving for things like an emergency fund, retirement, and extra debt payments.

budget

Even though your debts are technically listed as part of your needs they can actually be covered in all 3 sections.

The more you can put towards paying off debt the more money you will be able to save in the future.

There are obviously things that are wrong with the 50 30 20 budget and it wouldn’t be right if we didn’t look at the pros and cons of it.

Let’s take a look at some of these now.

 

 

The pros of the 50 30 20 budget

Now lets look at the pros of 50 30 20

It’s easy to use

Literally, anyone can follow the budget rules and it doesn’t take a whole lot of planning to make it work.

Great starting point

It’s a great place to start if you have no idea how to create a budget or perhaps are not ready to take the time to create one.

Structure

It gives you some structure to spending your money without being overbearing.

 

The cons of the 50 30 20 budget

It’s easy to see the positives but it’s equally important to look at the negatives too which are just as important.

There are some things that the 50 30 20 budget don’t take care of and it’s important to address those, so here we go.

No real structure 

How do you know how much of your needs to put aside for your bills? There would be no way of checking to make sure that your 50% can fit in all of your needs.

Unable to track spending

There’s no way to keep track of what you have already spent.

It’s not a great way to help you get out of debt because some of the sections may have too much money allocated to them and others not enough.

No clarity

Setting aside 30% for wants can be easily misconstrued especially if you don’t have great discipline over money.

There is no clarity within each section so therefore everything is open to interpretation which leaves room for technical error.

 

 

50 30 20 Budget Rule – Final thought

Overall, I would say that the 50/30/20 rule is a good place to start as its better than nothing at all.

If on the other hand, you want to get more serious about living a debt-free life, even if you live on one income then a more conventional budget would be better suited to you.

A regular budget will help you to see exactly where your money is going and will give you the foresight to see any potential pitfalls before they actually happen.

If you don’t have a budget yet, take a look here at how to start budgeting. It’s great for beginners!

If you found this post useful, you might want to save THIS PIN below to your Pinterest Budgeting board for later!

budget



one-income

How to live on one income? Simple Guide

Today I will be talking about how to live on one income in a two income world.

It is hard to overcome the emotions and the feelings of living with less money.

However, it doesn’t have to be that way. It is easy to thrive when living on one income.

Life is about happiness – not money. Money doesn’t equal happiness.

It doesn’t matter the reason you may have choose or been forced into living on one income.

That isn’t what we are going to discuss today. Life happens.

Living on one income in a two income world may have been what you wanted, or it was thrown upon you. Regardless, you can survive and thrive in your current situation.

So, in the end, you don’t need more money in your life. Just to be purposeful with what money you have.

You can live on one income!

You may be still wondering, so… how do people survive on a single income? We are going to cover that and give you specific ways to living on one income.

Plus, you can find plenty of tips to make it more enjoyable and find success!

 

 

How to live on one income?

Today, we are going to layout the exact information you need to be successful with living on one income.

You will find the process harder at the beginning, but over time it will become easier and easier.

Whether you want to stay at home parent, a health issue, a forced layoff, or a personal choice, you are going to find tips for living on one income.

 

Make a budget

All of my posts seem to start with “you need a budget”, but without one, your finances will never improve.

If you’ve been avoiding doing a budget because you think a budget is restrictive, I’m going to tell you that’s the furthest thing from the truth.

A budget is freedom and what you will most likely find from doing one is that you’re going to feel like you got a big, fat raise!

I’ll never forget the first time I did a budget. We had so many leaks in our finances. What I mean by that is that we were making too much money to be as broke as we were.

But the problem was we had no idea where the money was going.

how-to-live-on-one-income

When you first start budgeting, it’s not only a good idea but absolutely necessary to track your spending.

This will give you a clearer picture of where your money is actually going.  A great place to start would be to begin writing everything that you spend, down.

After a month, you will begin to see a clear picture. Your bank statements are another excellent resource for finding out where your money went.

When I put everything down on paper, I found money that we didn’t know we had and where the leaks were in our budget.

You’ll be amazed that when you begin to give every dollar/pound a name, you’ll most likely have more money to work with.

Related post:

Would you like to know how to create a budget, but don’t know where to start? Then see the post below:

 

 

Check your habits and track your spending

Always track your spending and be aware of their money routes. If you will not track your spending, your budgeting will not be as efficient as it should be.

Before budgeting for your next month, when you track your last month’s spending, it becomes easy to create a budget and make any changes you need for your next month.

You might agree with me that every purchase we make seems to be very important to us. We are living in a materialistic culture, where much of the attention is given to owning things, even if we don’t need it.

I think you will agree with me on this one that If you want to achieve financial freedom, you have to track your spending and figure out the unnecessary purchases.

It will be easy to figure out your budget when you know, exactly where your money is coming and where it is going. There are a lot of apps to track your expenses but you can do it old school way also.

Take your pen and paper, and start writing down your expenses. This is the best habit you can develop to stay debt-free.

Related post:

Would you like advice on cutting down your monthly expenses, but don’t know where to start? Then see the post below:

 

 

Decide your debt payment

There’re two schools of thought on a debt payment approach.

Whichever option you choose, you start by making minimum payment for all debts.

Then you pick one debt to attack at a time.

In choosing which debt to attack first, you have two options: you either pay down the debt with a high interest rate (the debt avalanche method) or attack the smallest debt, regardless of interest rate (the debt snowball method).

The Debt Avalanche Method

Choosing the debt with the highest interest rate. 

This debt payment method will save you more money than the debt snowball method, since you repay the debt with a high interest rate first.

If saving money on interest rates motivates you, go with this method and work your way down from the high interest rate debts.

The Debt Snowball Method

Choosing the smallest debt regardless of interest rates. 

This debt payment method plays on our psychology than a monetary gain.

If you have, say, 5 credit cards debts, paying off the smallest debt gives you a sense of victory and achievement early into your debt paying journey.

It may cost you more money than the debt avalanche method, but encouragement from an early win inspires you to continue attacking the remaining debts.

 

 

Set specific financial goals

Having financial goals is great because it keeps you motivated to work towards something you actually want to achieve.

Financial goals are very subjective and not one size fits all. One person’s financial goal might be to become a millionaire by 50, and another person’s goal might be to get out of debt by 30.

It all depends on you and your specific circumstances.

Once you know what your goals are related to your finances, you can start coming up with a plan.

goals

If you are someone who has a lot of debt and wants to pay it off before you turn 30, look at how much you owe. Then, calculate how much you would have to pay every month until you reach 30 to pay it all off.

Sometimes, you may find that you can’t reach those goals in the exact time-frame you set out for yourself.

And that’s ok. In that case, set smaller goals which will ultimately get you to your bigger goals and to where you want to be with your finances.

Related post:

Want help setting goals? See my post for setting SMART financial goals:

 

 

Have an emergency fund

Take some of the stress out of life by building up a solid emergency fund for rainy days.

It’s not a case of if you’ll need that money someday, it’s when.

Boilers break, cars need repairing, jobs don’t work out and unexpected bills can land on your doorstep at any moment. If you’re not financially prepared for these situations, then you can end up resorting to credit cards or loans to help you out. That’s how you end up in serious debt, and it makes an already stressful situation much, much worse.

Work on building up a rainy-day fund that’s enough to cover 3-6 months (or more if you can!) worth of bills and living expenses should you not be able to work for any reason.

Related post:

Would you like to know how to create a emergency fund, but don’t know where to start? Then see the post below:

 

 

Pay your bills on time

I cannot stress the importance of making sure you pay your bills on time. I know there are situations that occur that are sometimes out of our control but being financially savvy and creating good money habits is about avoiding debt and financial trouble.

There are legitimate reasons why you may not be able to pay your bills on time but there are also reasons that just boil down to not making the correct money decisions.

Your bills should come before anything else. That’s why I always recommend paying your bills as soon as you’ve been paid. That way all the important stuff is out of the way and you don’t have to worry about keeping your money back to pay off your bills.

Aligning all your bill payment dates is another really handy tip to ensure that your bills are all getting paid on time. Make sure all your bills have the same payment date or are very close together rather than being spread out across the month.

 

Negotiate your bills

Unfortunately, you can’t cut them completely but chances are you can lower them. Most people miss this one because they think bills are bills and there’s nothing you can do about them, but that is the farthest thing from the truth.

Start by calling around to make sure you have the best deal. 

reduce-your-expenses

You can also cut your heating bill by 3% for every degree you move your thermostat.

Many companies offer a discount if you sign up for autopay. Make sure to ask because sometimes they only apply the discount if you ask for it.

We also cut our internet bill in half by asking about their current promotions. This alone saved us £360 this year. Once you start adding up all savings you found on bills, you’ll find several hundred pounds/dollars in savings

 

Know the difference between want and need

Another important habit to have is the ability to know the difference between a want and a need. Making a poor purchase on a want will give you temporary satisfaction, while buying something that you need will be enjoyed long after and won’t be a straining burden on your finances.

When you’re weighing a purchase, you need to take a look at whether it will add more value to your life, or if it will be a setback in your long-term goals.

That’s not to say that you should never buy something that brings pleasure, but you should always consider what value it adds to your life.

Related post:

Would you like to know how to complete a no spend month to save money? Then see the post below:

 

 

Save save save

This might sound strange but it’s so important to save if you can.

For a long time, we didn’t save any money, partly because we felt that we weren’t in a financial position to be able to do so but also because we just weren’t used to it.

Saving actually felt like a punishment.

In order to save money, you have to have a positive attitude towards it.

You must habitually, purposefully do it otherwise you won’t do it at all. Believe me, I’ve been there.

In the past, the only time I have successfully managed to save was when there was something that I really wanted and my goal was to reach it.

Like the time we needed a bigger house or the time we needed a second car.

Set yourself saving goals, long term ones as well as short term goals. This will make it so much easier for you to save up your money.

 

 

Have a positive money mindset

A money mindset is the attitude you have towards your financial situation.

If you have a negative mindset and continuously think this is the best you can do and it won’t get any better, then that’s where you’re going to be stuck.

If you always focus on what’s wrong, it’ll be impossible to stay motivated. By changing to a positive money mindset, you’ll start making better choices about your finances.

People who are never broke know that money always comes back to them. Just keep thinking to yourself or saying there’s more where that came from.

Related post:

Would like to learn more about how implementing a money mindset can help you achieve financial freedom and live a happier life? Then the post below:

 

 

Put side-hustle money to one side

I made the decision that any side hustle money was to be put in a separate pot.  I’m not what motivated me to do this in the first place but it worked wonders.

Seeing my side-hustle income grow independently made me realise how hard I hard been working to achieve it.  It also inspired me to make more.

When the figure didn’t grow much over one month, it would give me a kick up the bottom to find more ways of producing income.

Related posts:

Interested in earning some extra cash through a side hustle? Then see the posts below:

 

 

How to live on one income – Final thought

If you want to live off of one income then you need to work out a plan together. If you aren’t on the same page then it will be hard to manage your finances.

Plan out a budget together and discuss what goals you want to accomplish financially and how you will do that.

I hope these steps were helpful. Living on less is completely achievable with a little bit of work and a lot of consistency!

If you found this post useful, you might want to save THIS PIN below to your Pinterest Debt board for later!

one-income



Quickest Way To Pay Off Debt!

Today I will be talking you through the quickest way to pay off debt.

Britain is in the midst of a debt crisis. The average UK citizen now owes a whopping £8,000 in debt – and that’s not even including their mortgage payments!

There are millions of people out there who can’t make ends meet, pay off debt and living payday to payday. They worry that a debt-free future will forever remain an impossible dream.

Here’s another shocking statistic: The Financial Conduct Authority reports that 4.1 million UK adults are in financial difficulty.

This means that they are struggling to pay domestic bills and manage their credit repayments.

 

 

Are you swamped in debt?

Are you one of those people sitting on a pile of debt and looking for the fastest way to pay it off?

Depending on the amount of debt, paying off debt can take years.

This might sound frustrating, but think about how long it took to accumulate debt.

Whether it’s a student loan, credit card debts, personal loans, car loans, or a combination of all, we have accrued debt over a long period of time.

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So, make peace with the existing debt and the time it’ll take to pay off – it’s what it is – and most of all, give yourself a pat that you’re looking into ways to pay off debt and take action.

It’s the burying our head in the sand that makes us miserable, depressed and stressed. 

The moment you decide to take action and tackle debt (as you are now!), you reclaim a control of your finance.

You no longer let your debt situation bring you down.

By the time you finish this post and implement the suggestions outlined, you’ll feel more optimistic about paying off debt with an actual plan to make debt go away in the shortest time possible.

 

Quickest way to pay off debt

Here’s the first thing you need to do to pay off debt quickly.

 

Know all your debt

If you have paid little attention to each debt or avoid knowing exactly how much your total debt is, now is time to get up close and personal with all your debt.

We want to know everything about the existing debt, e.g., the type of debt, the amount, interest rate, the minimum payment and the payment due date.

I suggest you dedicate a notebook for this and write down everything.

Related post:

Would you like to learn more about advice on how to pay off debt, but don’t know where to start? Then see our posts below:

 

 

Take one snap shot of debts

Expanding on the above, devote a page of your chosen notebook to list all your debts in details.

Write them down with details: the type of debt (credit cards or store cards), the amount owed, interest rate, the minimum payment and due date.

Now you have a full picture of how many debts you have and the total amount of debt.

This one-page summary tells you exactly where you stand right now.

 

Decide your debt payment method

There’re two schools of thought on a debt payment approach.

Whichever option you choose, you start by making minimum payment for all debts.

Then you pick one debt to attack at a time.

In choosing which debt to attack first, you have two options: you either pay down the debt with a high interest rate (the debt avalanche method) or attack the smallest debt, regardless of interest rate (the debt snowball method).

The Debt Avalanche Method

Choosing the debt with the highest interest rate. 

This debt payment method will save you more money than the debt snowball method, since you repay the debt with a high interest rate first.

If saving money on interest rates motivates you, go with this method and work your way down from the high interest rate debts.

The Debt Snowball Method

Choosing the smallest debt regardless of interest rates. 

This debt payment method plays on our psychology than a monetary gain.

If you have, say, 5 credit cards debts, paying off the smallest debt gives you a sense of victory and achievement early into your debt paying journey.

It may cost you more money than the debt avalanche method, but encouragement from an early win inspires you to continue attacking the remaining debts.

 

 

Pick one that suits you

Know your psychological tendency and pick the method that will serve you better in eliminating overall debt.

If you’re an emotional spender, for example, the debt snowball method will highly likely work out better for you.

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Remember, there’s no right or wrong.

The one you choose is the right one for you.

Once you’ve chosen the right method, consult your one-page summary above and pick your first debt to attack.

Related post:

Would you like learn more about bad money management? Then see out post below:

 

 

 Automate your payments

Having made a list of all debts, decided the right debt payment method and picked the first debt to attack, set up an automate minimum payment for all debts, so you never miss payment and incur fees.

It also frees up your mental energy for other important things with one less decision to make.

And it stops you from dwelling on debt until it’s time to review it.

 

Throw all the money into one debt

Having set up a minimum payment for all debts, it’s time to laser focus on the one debt you have picked to attack.

Throw every spare money into paying down the debt.

Whether you receive unexpected money, a bonus from work or an extra income from side hustles, the spare money goes to this one debt until it’s paid off.

And do this relentlessly until you pay off all debts.

 

Be realistic with debt payment

Yes, throw all spare money into paying down debt and be reckless, but make sure you take care of your needs first.

Planning to eat ramen every day until you pay off debt, for example, will backfire your debt pay off plan.

Not only will it make you unhealthy and miserable, you’ll most likely give up.

It’s better to have a realistic goal and see it through than beaten by an unattainable goal, back to the square one and feel bad about it.

Related post:

Would like to learn more about how implementing a money mindset can help you achieve financial freedom and live a happier life? Then the post below:

 

 

Enjoy detoxing from spending

Debt paying off journey is an opportunity to detox ourselves from spending.

Buying quality stuff to enjoy a comfortable life is one thing, attaching so much meaning to material possessions is a whole different story.

By putting a lid on mindless and emotional spending, we regain control of ourselves and our life, focusing on what’s really important to us.

Related post:

Would you like advice on cutting down your monthly expenses, but don’t know where to start? Then see the post below:

 

 

Read good finance books

Learning is always good, but reading finance books during your debt pay journey is even better.

Good finance books will inspire you to keep up with paying off debt and help you understand why you do what you do.

Besides, we all can benefit from learning the magic of compound interest that enables us to live a financially independent life.

 

Be aware of friends and family

Keep financially savvy friends close – those who are on the same journey as you – and stay away from friends who encourage you to spend money.

Peer pressure is one of the most meaningless things, but difficult to let go.

Make it easier for you by hanging out with the right people so you can maintain your debt pay off commitment.

 

Keep 10% for yourself

This important principle in building personal wealth is based on pay for yourself first budget.

You might think saving is the last thing you want to do when you’re buried deep under debt, but saving for yourself makes you feel secure about unforeseeable events in the future.

Saving also boosts your spirits as, by saving, you know your life isn’t just about being a slave to debt but learning discipline, figuring what’s truly matter in life and preparing for your future.

 

Ditch your credit cards

If you’ve accrued debt from various credit cards spending, it’s time to reset your money habits and eliminate temptation of spending.

You can definitely undo bad money habits.

Start by leaving the monsters at home!

Do not carry credit cards. Don’t go online shopping. Don’t get tempted by bargains/sales.

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Do not rationalise your spending with:

It’s only $/£5

Oh, it’s buy 1 get 1 free – I’ll need it 6 months later…

If not buying today doesn’t inconvenience you, you probably don’t need it.

Racking up more debt will seriously hamper our progress.

Learn to live without credit cards by practising cash only challenges regularly.

I can tell you from my experience that it’s not only beneficial to our bank balance, but it’s also fun.

Related posts:

Want to learn more about paying off credit card debt? Then see out post below:

 

 

Add a side-hustle

Increase Your Earning Power, hustlers are everywhere, you can be one too.

Start hustling while keeping your day job.

Not only will it make you money, you’ll also discover your new passion or/and talent.

You’ll be more conscious about the way you spend time, learn tons of stuff, increase your skillsets, become a more valuable/high skilled employee, have a better chance of promotion and pay increase or, who knows, go on becoming the next millionaire!

Most of all, you haven’t got time to check out what’s the next shiny thing to buy!

Related posts:

Interested in earning some extra cash through a side hustle? Then see the posts below:

 

 

Quickest way to pay off debt – Final Thoughts

If you follow the suggestions outlined in this post and take immediate action, trust me, money worries will go away as you take control of your finance.

Look at your one-page summary, think about your motivational factor as mentioned, set up an automate payment for all debts, choose your first debt to attack, throw all the spare money into it and repeat the process until debt becomes history.

With a solid debt pay off plan in place, you’ll start enjoying a money stress free life even if you have debt.

Debt no longer brings your spirits down because you’ve taken the control of it.

You start shifting your attention to things that bring you joy and start living.

If you found this post useful, you might want to save THIS PIN below to your Pinterest Debt board for later!

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Improve your finances – Simple Guide!

Today I will be talking about how you can improve your finances.

Have you ever looked at your finances and wondered what you could to do to improve them? Even if you are in a great financial position, I am sure there is something you may want to change.

If you’re struggling to handle your money and stressed about paying the bills, good financial management can seem out of reach. But your finances can improve with a bit of ongoing effort and diligence.

Just like improving your tennis swing or your piano playing, you can develop smart money practices with some practice each day too.

Your financial situation won’t change overnight, but you’ll find yourself more knowledgeable about finances and better at money management over time.

Here’s some tips on how to improve your finances.

 

 

Improve your finances

Make a budget

All of my posts seem to start with “you need a budget”, but without one, your finances will never improve.

If you’ve been avoiding doing a budget because you think a budget is restrictive, I’m going to tell you that’s the furthest thing from the truth.

A budget is freedom and what you will most likely find from doing one is that you’re going to feel like you got a big, fat raise!

I’ll never forget the first time I did a budget. We had so many leaks in our finances. What I mean by that is that we were making too much money to be as broke as we were.

But the problem was we had no idea where the money was going.

When you first start budgeting, it’s not only a good idea but absolutely necessary to track your spending.

This will give you a clearer picture of where your money is actually going.  A great place to start would be to begin writing everything that you spend, down.

After a month, you will begin to see a clear picture. Your bank statements are another excellent resource for finding out where your money went.

When I put everything down on paper, I found money that we didn’t know we had and where the leaks were in our budget.

You’ll be amazed that when you begin to give every dollar/pound a name, you’ll most likely have more money to work with.

Related post:

Would you like to know how to create a budget, but don’t know where to start? Then see the post below:

 

 

Set specific financial goals

Having financial goals is great because it keeps you motivated to work towards something you actually want to achieve.

Financial goals are very subjective and not one size fits all. One person’s financial goal might be to become a millionaire by 50, and another person’s goal might be to get out of debt by 30.

It all depends on you and your specific circumstances.

Once you know what your goals are related to your finances, you can start coming up with a plan.

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If you are someone who has a lot of debt and wants to pay it off before you turn 30, look at how much you owe. Then, calculate how much you would have to pay every month until you reach 30 to pay it all off.

Sometimes, you may find that you can’t reach those goals in the exact time-frame you set out for yourself.

And that’s ok. In that case, set smaller goals which will ultimately get you to your bigger goals and to where you want to be with your finances.

Related post:

Want help setting goals? See my post for setting SMART financial goals:

 

 

Check your habits and track your spending

Always track your spending and always be aware of your money routes. If you will not track your spending, your budgeting will not be as efficient as it should be. Before budgeting for your next month, when you track your last month’s spending, it becomes easy to create a budget and make any changes you need for your next month.

You might agree with me that every purchase we make seems to be very important to us. We are living in a materialistic culture, where much of the attention is given to owning things, even if we don’t need it.

I think you will agree with me on this one that If you want to achieve financial freedom, you have to track your spending and figure out the unnecessary purchases.

It will be easy to figure out your budget when you know, exactly where your money is coming and where it is going. There are a lot of apps to track your expenses but you can do it old school way also. Take your pen and paper, and start writing down your expenses.

Tracking your spending for even just a month will give you a far clearer picture of where your money is going and what you need to work on in your budgeting plan.

You can use an app if you prefer that method.

I’ve listed a few awesome money trackers below for both UK and US readers:

These are all completely free to sign up to, so take advantage of the software and have a go at tracking your spending and finances for the month.

This is one of the best habits you can develop to improve your finances.

Related post:

Would you like advice on cutting down your monthly expenses, but don’t know where to start? Then see the post below:

 

 

Make a list of all your debts

Start with your smallest debt, such as a store credit card, and move to your largest, like your mortgage.

Make a note of which debts can be paid off within months, and which could be paid off in a few years. The small debts with the highest percentage fees are the debts that you will want to focus on the most, so you can cross them off of your list and get closer to living debt free.

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Look for debts that you could possibly consolidate to give you one lower monthly payment instead of several different debts to pay off.

Consolidating your bills to pay off multiple debts with a single monthly payment could help you lower your overall monthly bills and reach your savings goals more quickly.

I would highly recommend the debt snowball method, this is what I used. More info on this can be found below.

Related posts:

Would you like to learn more about advice on how to pay off debt, but don’t know where to start? Then see our posts below:

 

 

Have an emergency fund

Life is full of uncertainties and it’s on us to be prepared for anything that life might throw at us. Do you have a plan in place for the unforeseen circumstances that may arise in future?

How long can you feed your family if you suddenly happen to lose your job?

How much are you prepared if a shutdown were to occur in the company you’re working for?

Well, that’s not me being pessimistic. But everyone wants to have themselves and their family secured at any cost which is why having an emergency fund should be one of your topmost priorities.

Related post:

Would you like to know how to create a emergency fund, but don’t know where to start? Then see the post below:

 

 

Do a no-spend challenge

No spend challenges can be a great thing to do, no matter where you are in your finances.

A no-spend challenge can be done a few ways. You could choose to not spend in problem areas or impose a total shopping ban by not spending money on anything outside of necessities.

You can do them for a weekend, week, or one month. They’re challenging but effective to do. I’ve done them in the past, journaling in the process, and have always finished them with a new sense of how I spend money.

They can be a good way to get clear on your values and how you want to prioritise your spending.

Related post:

Would you like to know how to complete a no spend challenge? then see our post below:

 

 

Avoid new debt

Don’t get a new loan to pay off your current debt. In addition to paying loan-origination fees, it’s important to note that while your personal loan interest rate could be lower than your credit card rates, you will be locked into a set monthly payment for a specific amount of time, which could be higher than the minimum payments on your credit cards.

This means you could save money in interest, but your monthly payments may be higher, which could reduce your monthly cash flow.

Also, avoid signing up for low-interest credit cards that guarantee cashback. While you may get a little bit of cashback each month, you have to spend money in order to make money.

These cards aren’t worth it in the long run. Instead, pay with cash to avoid racking up credit card debt.

The best new debt to avoid is on a mortgage. Save as much money as you can for a down payment so when you take out a mortgage, the monthly payment will be lower.

Also, you will likely be able to qualify for a lower interest rate on a mortgage if you put down a larger sum of money upfront.

 

Have a positive money mindset

A money mindset is the attitude you have towards your financial situation.

If you have a negative mindset and continuously think this is the best you can do and it won’t get any better, then that’s where you’re going to be stuck.

If you always focus on what’s wrong, it’ll be impossible to stay motivated. By changing to a positive money mindset, you’ll start making better choices about your finances.

People who are never broke know that money always comes back to them. Just keep thinking to yourself or saying there’s more where that came from.

Related post:

Would like to learn more about how implementing a money mindset can help you achieve financial freedom and live a happier life? Then the post below:

 

 

Save save save

This might sound strange but it’s so important to save. If you truly want to achieve financial freedom, then saving must become normal to you.

For a long time, we didn’t save any money, partly because we felt that we weren’t in a financial position to be able to do so but also because we just weren’t used to it.

Saving actually felt like a punishment.

In order to save money, you have to have a positive attitude towards it.

habits-of-debt-free-people

You must habitually, purposefully do it otherwise you won’t do it at all. Believe me, I’ve been there.

In the past, the only time I have successfully managed to save was when there was something that I really wanted and my goal was to reach it.

Like the time we needed a bigger house or the time we needed a second car.

Set yourself saving goals, long term ones as well as short term goals. This will make it so much easier for you to save up your money.

 

 

Look to increase your income

There are a lot of ways you can increase your income these days.

Many people choose to take on second jobs on their own time, such as freelancing or working in direct sales. Or just a part-time side hustle.

personal-finance-hacks

You can also pick up a night job if you typically only work during the day. If your current place of employment could use some more help, talk to your boss about working overtime to get some more hours in.

Another way to increase your monthly cash flow is to consider getting a roommate, or getting on a family plan for your cell phone. You may even consider downsizing your living space if you are paying for a room that you don’t use.

Related posts:

Interested in earning some extra cash through a side hustle? Then see the posts below:

 

 

Check your credit card statements for accuracy

It’s worth looking over your credit card statements each month before you pay the bill. Your credit card company can send you a hard copy of your bill in the mail, or you can get immediate access to it online nowadays.

Check if your credit cards are being used fraudulently or you’re being charged extra fees. In the past, I’ve found mistakes such as being overcharged at a restaurant and being charged for a service I thought was cancelled.

 

Pay your bills on time

Pay your bills before they come due. You’ll avoid unnecessary late charges, which would give you more stress and more to pay.

Set reminders on your physical or electronic calendar so you know when bills are due. Then pay your bills online with a few clicks of the mouse or set up automatic payments so you don’t have to rely on a reminder at all.

Just ensure that you have enough funds in your account on your scheduled payment dates. You can also ask your credit card companies to change your due dates to align better with when you have funds in your accounts.

 

 

Improve your finances – Final thought

When you’re looking for ways to improve your finances, this is quite a list, but when you implement all or even some of these suggestions, you can’t help but see an improvement, not only in your finance, but also life in general.

What are some steps that you have taken to improve your finances?  Leave me a comment below and let me know what they are.

If you found this post useful, you might want to save THIS PIN below to your Pinterest Finance board for later!

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Bad Money Management – 10 Habits to Avoid!

Today I will be discussing bad money management.

Everyone has a complicated relationship with money, and our attitudes toward it have a major impact on our financial outlook. An unhealthy perspective, combined with poor spending and saving habits, make it difficult to move in the right direction.

Fortunately, you can start making changes simply by being more conscious of the way you view your money.

These are a few of the most common attitudes that cause people to struggle with their finances. Identifying these issues is the first step toward gaining more control over your money.

The key to mastering and gaining financial control is to start breaking your bad money management habits and start developing smart ones.

That’s why today, I have decided to gather 10 bad money management habits to break in order for you to build more wealth. Check them out!

 

 

Bad money management

You don’t track your spending

There is just no reason not to track your spending with all of the great technology available to us. I understand if you don’t want to sit in front of a spreadsheet noting every chocolate you buy, but no one has to do that anymore.

If you don’t track spending, you don’t know where your money is going and how much you might be wasting every month.

Spending $/£5 a day on coffee doesn’t seem like much if you never see it all added up, but it is hundreds of dollars/pounds a year which is a lot.

If you love buying coffee so much that it’s worthwhile to you, fair enough. Tracking spending doesn’t mean you can’t spend money on things you prioritize.

It just shows you what you’re spending overall which allows you to cut back on things you mindlessly spend on that are not priorities. So, you have more to spend on your priorities.

Related post:

Would you like advice on cutting down your monthly expenses, but don’t know where to start? Then see the post below:

 

 

You don’t want to budget

I’m going to go out on a limb here, and say that I believe most people understand basic budgeting principles. Money comes in (via income from a job or side hustle) and then money goes out (to pay for bills and miscellaneous expenses).

What I don’t understand, is why so many people don’t want to budget. Is it because they are afraid to put the numbers down on paper?

They don’t want to see the true, dire situation that they’ve put themselves in?

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If you’re digging in your heels and fighting your partner (or your partner is fighting you), it’s time to get over yourself and get serious.

The awesome thing about budgeting is that the numbers never lie. They always tell the truth about what is truly happening.

And with knowledge comes the power to do something about it.

The first few budgets are going to be difficult. There may be some money arguments, and you might feel a variety of emotions from anxiety to relief and everything in between.

Related post:

Would you like to know how to create a budget, but don’t know where to start? Then see the post below:

 

 

Being dependant on credit cards

Relying on a credit card is one of the most serious bad money habits that most people have. Using credit cards isn’t bad, but if not used wisely it can leave you in huge debts.

One of Dave Ramsey’s great money hack is to cut off the credit card and adopt the envelope cash systems. One missed payment will have you shelling out more and more.

Most people who rely on credit cards end up spending more than they earn, which of course leads to debts. They are addictive, which means you will continue spending more money than you earn creating an even bigger vicious cycle.

A credit card should be reserved only for emergencies or if you can use it wisely. If you have been using a credit card for your basic needs like food and rent is a habit you need to stop immediately.

You end up spending so much compared to using cash, because with a credit card you aren’t seeing the amount of money that you are spending, and using cash makes you think twice.

Related post:

Would you like to know how to tackle you credit card debt to get on the path to financial freedom? Then see the post below:

 

 

You aren’t setting goals

Would you embark on a cross country road trip without access to Google maps? My guess is no. Setting goals for your money is exactly the same!

Without a map or plan for your money, you won’t know where you’re headed. Setting financial goals helps you know what you’re working toward and if you are on track.

They allow you to turn dreams into reality. They give you a clear picture of what you want to achieve and give you a deadline.

When setting financial goals, be sure to set both short-term and long-term goals. Short term goals can range anywhere from a year to five years.

And for long term goals, think 10 years or more. You might also want to set small weekly and monthly goals.

I know that when I started setting monthly goals, I was able to focus more on my money than ever before! Make sure your monthly goals support your long-term goals.

Related post:

Would you like to know how to set SMART financial goals, but don’t know where to start? Then see the post below:

 

 

Sticking with minimum payments

I know that making minimum payments on credit cards are more doable than constantly paying the full balance. I’m definitely guilty of this. I was not comfortable spending half of my payday paying off the full balance.

Paying the minimum balance seems to be the best way to go especially if your budget is tight but constantly doing this will only cost you so much more money in the long run.

Try setting up an automatic transfer of the full balance from your checking account to your credit card – this will help avoid the temptations of going for the minimum payments.

Related post:

Would you like to know how to complete a no spend month to save money? Then see the post below:

 

 

You’re Impulsive

Oooooh, look! That looks nice, I’m going to buy it. No! You’re an adult, and one of the many crappy things about being an adult is that you have better impulse control than a five-year-old.

You can’t just buy whatever strikes your fancy.

Shop with a list. For everything, groceries, clothes, shoes, presents.

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I love food and cooking, and one big way I curbed impulsive grocery spending, was to limit my main shop to once a week and not every time I fancied it. This way I have saved a fortune.

You can still buy things not on your list when you buy things online but you have to search them out rather than being forced to walk by them on your way to the checkout.

Use another kind of list for bigger purchases. A thirty-day list. If you see something you really want, write it down and then wait. If at the end of thirty days you still want it, it’s more likely to be a genuine need than a momentary want.

 

You don’t shop around

I’m not talking about the little stuff. You don’t have to drive to three stores to save money on toilet paper. You would probably spend more in gas/petrol money than you save doing that anyway.

But if you are making a big purchase, a new computer or television for instance, don’t just buy the first thing you see.

Do some research. And not just on price if you are making a big purchase. Make sure that what you buy not only has the best price, but is reliable and has all of the features you want too.

There are lots of comparison sites out there that you can use to make sure you get the best deal. Make sure you are buying something at the best time of year too if it’s not an emergency purchase like a new refrigerator.

Certain things go on sale at certain times of the year and if you can wait a bit, you will get a better deal.

 

Unnecessary subscriptions

Do you have subscriptions that you are barely making use of? Maybe it’s that gym subscription you sign up for, but you haven’t stepped foot in the gym in the last two months?

Cancel the subscription or memberships that you hardly use!

Companies have a great marketing strategy where they entice you to sign up for a free 1-week trial period, but in most cases, you end forgetting to cancel the subscriptions.

That would be a great place to start, and that money can go towards your saving plan.

If you use the services that are adding value to your life then keep them. If you barely make use of them, then it’s time to cancel and save yourself some money.

 

Eating Out Frequently

Don’t mistake being a foodie with eating out frequently.

If you’re living a payday-to-payday lifestyle, being a foodie doesn’t work. You can love food but spending money you don’t have isn’t smart.

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Having that type of mindset will keep you broke forever.

If you enjoy food and love to try different dishes, do it at home. Cooking at home gives you more control over the food you put into your body.

And cooking is fun; especially if you love food.

 

Trying to keep up with the jones’

You have no idea how the Jones’ afford the lifestyle they have.

It could have taken them years and years of hard work to arrive where they are. Or what they have could all be from borrowing.

Either way you don’t see what the Jones’ go through to maintain what they have. It could be sleepless nights because they are working so hard or sleepless nights and ill health because of money worries.

You cannot base your spending on the Jones’, because you’ll never be on the same level or you’ll always be playing catch up.

You are living someone else’s dreams.

 

 

Bad money management – Final thought

If you’re guilty of any of these money habits, then it’s time to create better money habits!

Start by tackling one or two areas today. Whether you decide to track your expenses, or set money goals, just start.

You won’t regret doing the work to create better money habits so that you set yourself up for financial success!

What are bad money habits?

If you found this post useful, you might want to save THIS PIN below to your Pinterest Finance board for later!

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10 Bad Money Habits – Simple Guide!

The choices that we make every day can impact our financial goals big time. I mean, it’s just too easy to fall into bad habits that can derail our finances.

I had my fair share of these bad habits; I had always been an impulse buyer. If I really wanted something, there was no thinking twice. I loved eating out – all the time and I never really cared how those habits affected me. I just thought that they were small and insignificant.

But after having to quit my job and after taking a good look at where I was standing financially, that’s when it hit me.

I’ve realised that those small and insignificant habits have financially sabotaged me. I knew that if I ever wanted to reach financial independence, those habits have got to go.

The key to mastering and gaining financial control is to start breaking those bad habits and start developing smart habits.

That’s why today, I have decided to gather 10 bad money habits to break in order for you to build more wealth. Check them out!

 

 

Bad money habits

You don’t track your spending

There is just no reason not to track your spending with all of the great technology available to us. I understand if you don’t want to sit in front of a spreadsheet noting every chocolate you buy, but no one has to do that anymore.

If you don’t track spending, you don’t know where your money is going and how much you might be wasting every month.

Spending $/£5 a day on coffee doesn’t seem like much if you never see it all added up, but it is hundreds of dollars/pounds a year which is a lot.

If you love buying coffee so much that it’s worthwhile to you, fair enough. Tracking spending doesn’t mean you can’t spend money on things you prioritize.

It just shows you what you’re spending overall which allows you to cut back on things you mindlessly spend on that are not priorities. So, you have more to spend on your priorities.

Related post:

Would you like advice on cutting down your monthly expenses, but don’t know where to start? Then see the post below:

 

 

You don’t want to budget

I’m going to go out on a limb here, and say that I believe most people understand basic budgeting principles. Money comes in (via income from a job or side hustle) and then money goes out (to pay for bills and miscellaneous expenses).

What I don’t understand, is why so many people don’t want to budget. Is it because they are afraid to put the numbers down on paper?

They don’t want to see the true, dire situation that they’ve put themselves in?

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If you’re digging in your heels and fighting your partner (or your partner is fighting you), it’s time to get over yourself and get serious.

The awesome thing about budgeting is that the numbers never lie. They always tell the truth about what is truly happening.

And with knowledge comes the power to do something about it.

The first few budgets are going to be difficult. There may be some money arguments, and you might feel a variety of emotions from anxiety to relief and everything in between.

Related post:

Would you like to know how to create a budget, but don’t know where to start? Then see the post below:

 

 

Being dependant on credit cards

Relying on a credit card is one of the most serious bad money habits that most people have. Using credit cards isn’t bad, but if not used wisely it can leave you in huge debts.

One of Dave Ramsey’s great money hack is to cut off the credit card and adopt the envelope cash systems. One missed payment will have you shelling out more and more.

Most people who rely on credit cards end up spending more than they earn, which of course leads to debts. They are addictive, which means you will continue spending more money than you earn creating an even bigger vicious cycle.

A credit card should be reserved only for emergencies or if you can use it wisely. If you have been using a credit card for your basic needs like food and rent is a habit you need to stop immediately.

You end up spending so much compared to using cash, because with a credit card you aren’t seeing the amount of money that you are spending, and using cash makes you think twice.

Related post:

Would you like to know how to tackle you credit card debt to get on the path to financial freedom? Then see the post below:

 

 

You aren’t setting goals

Would you embark on a cross country road trip without access to Google maps? My guess is no. Setting goals for your money is exactly the same!

Without a map or plan for your money, you won’t know where you’re headed. Setting financial goals helps you know what you’re working toward and if you are on track.

They allow you to turn dreams into reality. They give you a clear picture of what you want to achieve and give you a deadline.

When setting financial goals, be sure to set both short-term and long-term goals. Short term goals can range anywhere from a year to five years.

And for long term goals, think 10 years or more. You might also want to set small weekly and monthly goals.

I know that when I started setting monthly goals, I was able to focus more on my money than ever before! Make sure your monthly goals support your long-term goals.

Related post:

Would you like to know how to set SMART financial goals, but don’t know where to start? Then see the post below:

 

 

Sticking with minimum payments

I know that making minimum payments on credit cards are more doable than constantly paying the full balance. I’m definitely guilty of this. I was not comfortable spending half of my payday paying off the full balance.

Paying the minimum balance seems to be the best way to go especially if your budget is tight but constantly doing this will only cost you so much more money in the long run.

Try setting up an automatic transfer of the full balance from your checking account to your credit card – this will help avoid the temptations of going for the minimum payments.

Related post:

Would you like to know how to complete a no spend month to save money? Then see the post below:

 

 

You’re Impulsive

Oooooh, look! That looks nice, I’m going to buy it. No! You’re an adult, and one of the many crappy things about being an adult is that you have better impulse control than a five-year-old.

You can’t just buy whatever strikes your fancy.

Shop with a list. For everything, groceries, clothes, shoes, presents.

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I love food and cooking, and one big way I curbed impulsive grocery spending, was to limit my main shop to once a week and not every time I fancied it. This way I have saved a fortune.

You can still buy things not on your list when you buy things online but you have to search them out rather than being forced to walk by them on your way to the checkout.

Use another kind of list for bigger purchases. A thirty-day list. If you see something you really want, write it down and then wait. If at the end of thirty days you still want it, it’s more likely to be a genuine need than a momentary want.

 

You don’t shop around

I’m not talking about the little stuff. You don’t have to drive to three stores to save money on toilet paper. You would probably spend more in gas/petrol money than you save doing that anyway.

But if you are making a big purchase, a new computer or television for instance, don’t just buy the first thing you see.

Do some research. And not just on price if you are making a big purchase. Make sure that what you buy not only has the best price, but is reliable and has all of the features you want too.

There are lots of comparison sites out there that you can use to make sure you get the best deal. Make sure you are buying something at the best time of year too if it’s not an emergency purchase like a new refrigerator.

Certain things go on sale at certain times of the year and if you can wait a bit, you will get a better deal.

 

Unnecessary subscriptions

Do you have subscriptions that you are barely making use of? Maybe it’s that gym subscription you sign up for, but you haven’t stepped foot in the gym in the last two months?

Cancel the subscription or memberships that you hardly use!

Companies have a great marketing strategy where they entice you to sign up for a free 1-week trial period, but in most cases, you end forgetting to cancel the subscriptions.

That would be a great place to start, and that money can go towards your saving plan.

If you use the services that are adding value to your life then keep them. If you barely make use of them, then it’s time to cancel and save yourself some money.

 

Eating Out Frequently

Don’t mistake being a foodie with eating out frequently.

If you’re living a payday-to-payday lifestyle, being a foodie doesn’t work. You can love food but spending money you don’t have isn’t smart.

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Having that type of mindset will keep you broke forever.

If you enjoy food and love to try different dishes, do it at home. Cooking at home gives you more control over the food you put into your body.

And cooking is fun; especially if you love food.

 

Trying to keep up with the jones’

You have no idea how the Jones’ afford the lifestyle they have.

It could have taken them years and years of hard work to arrive where they are. Or what they have could all be from borrowing.

Either way you don’t see what the Jones’ go through to maintain what they have. It could be sleepless nights because they are working so hard or sleepless nights and ill health because of money worries.

You cannot base your spending on the Jones’, because you’ll never be on the same level or you’ll always be playing catch up.

You are living someone else’s dreams.

 

 

Bad money habits – Final thought

If you’re guilty of any of these money habits, then it’s time to create better money habits!

Start by tackling one or two areas today. Whether you decide to track your expenses, or set money goals, just start.

You won’t regret doing the work to create better money habits so that you set yourself up for financial success!

What are bad money habits?

If you found this post useful, you might want to save THIS PIN below to your Pinterest Finance board for later!

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credit-card-debt-tips

Credit Card Debt Tips – Pay off multiple cards!

Today I will be discussing credit card debt tips.

Credit card debt is an absolute moral killer.

If you’ve ever run up the balance on your credit card, then you probably know the feeling. You may be paying more than the minimum payment, but with interest rates of 15-20% or higher, it feels like you’re stuck in a never-ending loop.

One payment forward, two interest fees back. Does the cycle ever end? It’s a depressing way to live.

No matter how daunting your credit card debt seems, there is a way out.

Follow these tips on how to pay off credit card debt, even if you’re broke, there is always a way out and a solution to your problems.

By implementing these habits and methods, I truly believe that you can eventually pay off your credit card debt, and work towards financial freedom.

 

 

Why should I care about paying my credit card debt?

You should care because you don’t want to be burden by those debts and the negative consequences that come along with them.

For example, when you have a high debt to income ratio, your credit score will take a hit, and you may not be able to qualify for much-needed loans like mortgage, auto loan, and the likes.

Besides, the more credit debt you have, the more interest you pay. This money could quickly go to savings if you pay off all your debt.

 

Paying off multiple credit cards

While there are other methods of addressing credit card debt, I focused on two:

  • Cards that had zero-interest balance transfer offers
  • The snowball and avalanche methods

Using the two of those, I was able to overcome my debt.

Other options for paying off multiple credit cards include consolidation loans and debt relief/forgiveness. Consolidation loans can be used in a similar way as to how I used zero-interest cards.

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However, I personally wouldn’t recommend debt forgiveness if at all possible. It can have a more prolonged, negative impact on your credit.

I also tend to believe that if you get yourself into a situation like that, you need to get yourself out by paying your debts.

With that, I’ll discuss zero-interest credit cards and the snowball/avalanche methods and then go into a bit more detail on how I used them.

 

Zero-interest credit cards

The ability to leverage zero or low-interest credit cards is going to depend on your credit score, your income, and the credit cards you currently have.

These zero-interest credit cards typically include:

  • A balance transfer fee (mine were in the range of 2-5%)
  • A promotional period (anywhere from 6-18 months) after which the card reverts to the regular interest rate

I had a decent (not great) credit score when I had accumulated my credit card debt. My credit score allowed me to still find credit cards with 0% introductory interest rates on balance transfers.

I think I opened at least 4 or 5 new cards to get a low introductory rate. But the great thing about a few of the cards was that I continued to receive balance transfer offers.

I was able to use those offers to move money around to save on interest rates while paying down my total balance.

Now, as I discussed earlier, those balance transfers included a balance transfer fee. However, the fee I paid was much less than what would be charged in interest if I didn’t move the balance.

Additionally, opening new cards will result in hard inquiries on your credit report. But those won’t be as impactful or long-lasting as missed payments or declaring bankruptcy.

 

Pick a debt payoff method for your credit cards 

Now you want to pick payoff method.

There are a few different methods that experts suggest when it comes to paying off debt. We will look at two debt pay off strategies: The Debt Snowball and the Debt Avalanche. 

When paying off multiple credit cards using these methods, you pay off the card(s) with the smallest balance (snowball method) or the highest interest rate (avalanche method) first.

You pay it off with the highest payment you can make each month.

 

The Debt Snowball Method

This strategy is called the snowball strategy because you start small and get bigger.

You focus on paying off the smallest debt first (while still paying the minimums on the others). When the smallest loan is paid off, you focus on the next largest.

Steps to Using the Debt Snowball Method

  • List your debts from smallest to largest.
  • Focus your overpayments on the smallest debt.
  • Continue to pay the minimum on your other debts.
  • Once the smallest is paid off, roll the amount you were paying on that one to the next largest (like a snowball).
  • Continue until all debts are paid off.

Benefits of the Debt Snowball method

The benefit of using the debt snowball as your debt payoff strategy is the concept of little wins. Paying off the smallest amount of debt first will give you a win sooner than other strategies.

This will give you a sense of accomplishment especially if you have many debts.

The snowball method also has the potential to impact your credit scores more quickly since you are paying off individual debts faster.

 

The Debt Avalanche 

The Debt Avalanche strategy focuses on paying the debt with the highest interest rate first (while still paying the minimum on the others).

After paying off the debt with the highest interest rate, move on to the next in line.

Steps to using the Debt Avalanche Method

  • Find the interest rates for each of your debts.
  • List the debts in order from largest interest rate to the smallest.
  • Focus your overpayments on the largest interest rate.
  • Continue to pay the minimum on your other debts.
  • Once the largest interest rate debt is paid off, roll the amount you were paying on that one to the next smallest.
  • Continue until all debts are paid off.

Benefits of the Debt Avalanche Method

Your debts with high interest rates will end up costing you the most. The idea of paying off the debts with the highest interest rates first is that you will save more money this way.

Crunch the numbers yourself to see how much you will pay in interest alone on each of your debts.

 

How to pick a debt payoff method

Each of the debt payoff strategies has its own benefits, so how do you pick between the two?

If you have multiple different debts ranging in size, the debt snowball might be a good strategy for you.

By paying off small debts first you will feel more accomplished when you pay off the last bit of each debt. If you need to feel like you are making a dent in your debt, this is a great strategy to take.

If you are looking to save the most money when it comes to debt payoff, the debt avalanche might be a good option for you.

It may feel like it is taking longer to get your debts paid off, but the math will show you the money wins you are making by choosing this strategy.

When it comes to picking the right debt pay off strategy for yourself you should consider how you mentally process wins.

If you need to see the evidence and truly feel like you are doing something, the debt snowball may be a better option.

However, if you are someone who likes to see the numbers and are ok with not reaching wins as quickly then the debt avalanche may be a good option.

 

 

Credit Card Debt Tips – Pay off multiple cards

Take action as soon as you know you’re in trouble

I was known to avoid conflict at all cost, I was the king of sweep-it-under-the-rug-and-pretend-it-doesn’t-exist.

But when it comes to your credit card debt, the last thing you want to do is shrug it off.

TAKE ACTION NOW!

If you aren’t able to make your minimum payments and do nothing about it, you will incur late fees. On top of that, your interest rate will go up because of those late fees, and your credit score will suffer.

Talk to your credit card company. More than likely, they will be able to work with you to figure out a solution. It’s their money, after all. They want to make sure they get it back.

Whatever you do — do something. Avoiding the situation will only hurt you in the end.

 

Cut up or freeze your cards

Get out those scissors and chop that plastic into little bits. Or grab a bowl, fill it with water, dunk your card, and put the whole thing in the freezer. Both can be good ways to stop using that card!

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Sometimes not having a card is the only way to break the habit of using it. This almost means you need to log into all those online accounts and delete the saved card information as well!

Eliminate all temptation or possibility of using the card so you get used to not having it as an option.

 

Create a budget

I know budgeting isn’t fun and it sounds cumbersome, but it’s totally worth it. I highly recommend creating a budget because you’ll have a rough idea of what your spending looks like month to month.

It took me a few months to get in tune with my budget, so don’t be hard on yourself if your budget and spending aren’t perfect at first.

Once you get in tune with your budget, your spending will match that and you won’t need to check in with your budget as much if you’d like.

Your budget will show you:

1) how much you spend each month on living expenses (living expenses are what you need to spend in order to live, ex. mortgage/rent, electricity, insurance, phone, internet, groceries, etc.)

2) how much leftover money you have after living expenses.

Now that you know how much money you have left over after living expenses, you have a specific number that you can use for fun spending, debt, and saving.

I personally do not recommend leaving out a fun category in your budget. When you don’t set aside any money for fun spending like restaurant outings, shopping, etc., you burn out.

Remember, we’re creating a debt pay off journey for the long haul that will actually work. Set aside $/£50+ for fun spending (or whatever feels right to you!).

Related post:

Would you like to know how to create a budget, but don’t know where to start? Then see the post below:

 

 

Check your habits and track your spending

Always track their spending and are always aware of their money routes. If you will not track your spending, your budgeting will not be as efficient as it should be. Before budgeting for your next month, when you track your last month’s spending, it becomes easy to create a budget and make any changes you need for your next month.

You might agree with me that every purchase we make seems to be very important to us. We are living in a materialistic culture, where much of the attention is given to owning things, even if we don’t need it. I think you will agree with me on this one that If you want to achieve financial freedom, you have to track your spending and figure out the unnecessary purchases.

It will be easy to figure out your budget when you know, exactly where your money is coming and where it is going. There are a lot of apps to track your expenses but you can do it old school way also. Take your pen and paper, and start writing down your expenses. This is the best habit you can develop to stay debt-free.

Related post:

Would you like advice on cutting down your monthly expenses, but don’t know where to start? Then see the post below:

 

 

Use the cash envelope system

At the beginning of each month, take out the amount of cash you have to spend for the month from the bank.

Using labelled envelopes, budget for all of your spending, including food, clothing, entertainment, and bills. Distribute your cash for the month among your envelopes, and stick to that budget. Once the cash is gone from an envelope, that is it for the month for that spending category.

Use Excel to create a spreadsheet to track your spending each month, and make adjustments as needed. If you find that you are running out of cash for food before the end of the month, consider which envelope you could take some money out of to put into the grocery fund.

This style of budgeting is known as the cash-envelope system and has been popularized by financial guru Dave Ramsey. This method goes back years and was most like used by your parents or grandparents!

Related posts:

If you would like to learn more about the cash envelope system in detail, then see our post below:

 

 

Create an emergency fund

A common use for credit cards, other than impulse purchases, is for emergencies. Things just come up that have to be covered if you don’t have the cash for them.

The solution to this problem is to save up an emergency fund.

An emergency fund is a certain amount of savings that you set aside and do not touch unless something urgent and unexpected happens.

Not buying a new couch or iPad, not going on vacation with the girls. Emergencies.

So, if your car gets a flat tire, or your dryer overheats, or your dog gets sick and has to go to the vet.

If you already have money set aside for unexpected events, you’ll be more prepared to deal with them without adding to your debt.

The amount you want in your emergency fund will depend on your situation. I generally like to have $/£1,000 at all times. That seems to cover most minor emergencies and isn’t a crazy difficult amount of money to save for most people.

Take a good look at your situation and figure out a good amount for you to work on saving.

Related post:

Would you like to know how to create a emergency fund, but don’t know where to start? Then see the post below:

 

 

Spend less than you earn

One of the most important steps to reach financial freedom is to live below your means. The biggest mistake people make is to inflate their lifestyle based on how much they earn.

Ignore your friends that spend all their money on a bigger house or a new car! By learning to live a more minimalist lifestyle and understand the things you need rather than the things you want, you will increase your chances of building your wealth.

This doesn’t mean you don’t need to enjoy life during your journey to financial freedom and deprive yourself of everything!

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If you deprive yourself too much, you risk creating a miserable life. Remember, reaching financial freedom is a long journey: depending on your savings rate, it could take you many years!

Focus on happiness and spending money that will bring joy into your life, instead of thinking about luxury.

You just need to find the right balance and think twice before spending on things you don’t need.

Related post:

Would you like to know how to complete a no spend month to save money? Then see the post below:

 

 

Financial goal-setting

Setting goals is one of the best life hacks you can learn, in my opinion. Setting financial goals will help you achieve what you want most out of life.

One popular goal-setting strategy is the SMART method. I would recommend using this method, your goals should be Specific, Measurable, Attainable, Realistic, and Timely.

You should also consider short-term and long-term goals, and always write down your goals. Finally, your financial goals should be in line with the vision you want for your life.

Related post:

Would you like to know how to set SMART financial goals, but don’t know where to start? Then see the post below:

 

 

Look to increase your income

There are a lot of ways you can increase your income these days.

Many people choose to take on second jobs on their own time, such as freelancing or working in direct sales. Or just a part-time side hustle.

You can also pick up a night job if you typically only work during the day. If your current place of employment could use some more help, talk to your boss about working overtime to get some more hours in.

Another way to increase your monthly cash flow is to consider getting a roommate, or getting on a family plan for your cell phone. You may even consider downsizing your living space if you are paying for a room that you don’t use.

Related posts:

Interested in earning some extra cash through a side hustle? Then see the posts below:

 

 

Credit card debt tips – Final thought

Getting out of credit card debt can seem impossible at times.

But with the right mindset, not only can you overcome your debt, but you can teach yourself to use credit cards in a way that is actually beneficial to you.

Have you struggled with credit card debt? Are there other strategies you used to overcome it?

Please share in the comments below. It may just be what someone needs to make a considerable improvement in their financial health.

If you found this post useful, you might want to save THIS PIN below to your Pinterest Debt board for later!

credit-card-debt-tips



tracking-of-expenses

Tracking of Expenses – Simple Guide!

Today I will be discussing the tracking of expenses.

Do you track your expenses? Creating a plan for your money and determining where it will go is a great first step, but it won’t help much if you don’t track your expenses.

When you think about it, creating a diet and exercise plan doesn’t automatically mean you’ll become healthier. You need to track your workouts and meals and develop healthy habits.

It’s the same thing with personal finance. While creating a budget is a great first step, you also need to track your expenses if you want to gain any traction.

Tracking your expenses can also be helpful early on if you need to identify certain spending patterns and triggers.

 

 

Why bother tracking your expenses?

Keeping track of each and every expense is key to creating your budget, also known as a spending plan if the word budget makes you cringe.

You need a starting point as to what you are spending on things in any given month so that you can decide whether this aligns with your goals, or if the money would be better spent somewhere else (or saved).

It also makes you acknowledge how many little things you spend money on and how they really can add up.

We’ve looked at why you need to track your spending, now let’s look at how to track it.

Related post:

Want to know more about why tracking your expenses is important? Then see our post below:

Would you like to know how to create a budget, but don’t know where to start? Then see the post below:

 

 

Tracking of Expenses

Look at your account statements

One of the easiest ways to get started is to look at your bank or credit card statements.

If you use a debit or credit card for most of your purchases, your statement will show you each transaction over a set period of time.

You might want to compare month-to-month which means you’ll need to save a few months’ worth or statements.

Another route you can take that may be quicker is to use a site like Mint.com to track your expenses from various different sources.

For example, if you have a debit card and tend to rotate between using 3 different credit cards as well, you can connect all your accounts to Mint and receive a view of your transactions all in one place.

 

Categorise your spending

As you go through all the transactions on your statement, you’ll likely start to notice some trends and patterns.

For example, you may notice that you have some subscriptions or tend to dine out each Wednesday and Friday night.

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It’s important to create spending categories based on your actual spending.

If you’re using a service like Mint, your spending may already be categorized somewhat and you’ll just need to go over the categories to ensure everything is accurate.

Once you create those categories, you can use that information to create your own realistic budget.

 

How can I track my expenses?

So, tracking your expenses is really simple. You just need to record every single time you pull out your credit or debit card, spend cash or write a cheque.

The key is that you need to track every single expense!

If you just track some of your expenses, it’s not going to get you anywhere.

To be most effective, you need to record the date of the expense, what the expense was and where you purchased it (for example, Groceries – Asda) and how much the expense cost.

The tool you use to track them totally depends on your personal preference.

Here some options below.

Related post:

Would you like advice on cutting down your monthly expenses, but don’t know where to start? Then see the post below:

 

 

Pen and paper

There are plenty options for expense trackers on Amazon, or you can just purchase a cheap notebook for the pound/dollar store and use that instead.

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I’d recommend that you pick up a small spiral bound one and stick a pen through the spiral. If you’re going to use a notebook, the best place you can keep it is in your bag or car (if you don’t carry a bag), so you always have it with you when you’re spending money.

 

On your phone

You could also track your expenses on your phone. You could do in a note app (I use the note app for so many things- I love it!) or an alternative note app.

There are also a TON of apps out there that you can use to track your expenses.

Most of them cost extra to use if you want to link them to your bank account or credit accounts (which you really don’t have to do if you’re just diligent about keeping track of things, by the way).

I think good old Mint.com is a safe bet if you’re looking for an app.

One word of warning about using any kind of tracker that’s linked with your accounts:

Make sure you manually track any purchase that you make with cash!

Back in the days when I wasn’t so great with money, I considered the purchases I made with cash to be free because they weren’t coming out of my account.

Unfortunately, it does not work that way. Track those cash purchases too!

 

Use a spreadsheet

I love a spreadsheet!

If you are going to use a spreadsheet to track your expenses, you have to be super careful to make sure you don’t miss any.

Personally, I use Excel.

Set aside a time every day or every few days to add new expenses to your spreadsheet.

And either use a paper and pencil or phone method in the meantime.  You could even text yourself about expenses that you don’t want to forget.

 

Be consistent and organised

Tracking your expenses is not something you should do once or twice. You should continue to do it if you want to see long-term results. Tracking your expenses can help you spend and save more intentionally and avoid getting into debt.

Yes, it does require a little time and effort to get into the habit of doing it but it always pays off in the end.

In order to keep up with it consistently, I recommend organising a spreadsheet where you can track both your income and expenses throughout the month.

Related post:

Would you like to learn some great personal finances hacks that you could implement into you financial life? Then see our post below:

 

 

Putting it all together

In the beginning, tracking monthly expenses is waiting game. Calculating every single item, you purchase can be tedious.

On the flip side, once you have your expenses calculated, your monthly budget, and sticking to it, becomes much easier.

You have a set amount in each category, and once that money has been spent, you wait for next month.

tracking-of-expenses

In the beginning, I had no clue how much I spend on household items but after a few months of tracking and analysing our budget, I know the exact number to put into my budget each month. Plus, once you have a good hand on your expenses you will know where you can cut things and really save some money.

Figuring out your expense amounts will take some time. You have to be patience and it isn’t easy.

Know it will take some adjusting. Budgeting and tracking expenses aren’t something that happens overnight.

You have to be in it for the long haul. But I promise you, six months from now you will be so glad you did and you will find budgeting gets much easier as you keep doing it.

 

 

Tracking of expenses – Final thought

Now it’s time to get started tracking your expenses!

Remember that it’s super important for you to record every single expense because just tracking some of them isn’t going to get you anywhere.

And record your purchases as you’re making them, because it isn’t easy to remember later. Decide on the tool that’s right for you and start tracking your expenses today!

What your method for tracking expenses? I would to hear them.

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Why Tracking Your Expenses Is Important – Simple Guide

If you want to achieve any financial goals, you need to know how much money you make, and how much money you spend. So, one of the most important personal financial habits you can develop, is tracking your money.

But if you’re just stepping into the world of personal finance, you might be wondering, what does it mean to track your money?

Tracking your money is the process of monitoring and keeping a record of your income and expenses. It enables you to identify bad spending habits, and make adjustments to improve your finances.

Many people track their money using a spreadsheet or budgeting app, while others prefer to use a hand-written expense tracker.

Though, regardless of which method you choose, the process is the same. So, if you feel like your financial life could benefit from tracking your money, here’s a step-by-step guide to get you started.

 

 

Why tracking your expenses is important

1. Start with your income

Tracking your expenses doesn’t make a whole lot of sense, unless you know how much money you have to work with. So, to start the money tracking process, you need to calculate your monthly income.

If you get paid on a salary, this will be easy. Just add up the amount of money you get paid each month, and set that number as your starting line. If you work hourly, are self employed, or on commission, this might be a little difficult. But since you still need to start somewhere, we recommend starting with 90% of your average your income over the last 3 months.

In other words, if your (take-home) income over the last three months is $/£5,000, then your starting point should be $/£4,500.

Now that you have your income nailed down, it’s time for step 2.

 

 2. Create a zero-based budget

Creating a zero-based budget is crucial when tracking your money. It eliminates any financial grey area, and makes tracking your expenses a breeze. But of all the steps, this is the one that requires the most work.

Though, once again, we should probably address an obvious question, what is a zero-based budget?

A zero-based budget is an expense tracking method wherein you give every dollar/pound of your income a specific purpose. Rather than assigning percentages of your income to broad budgeting groups, you allocate exact dollar/pound amounts to specific budgeting categories, and subtract them from your income until you’re left with zero.

(Hence the name, Zero-based budgeting)

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For instance, if you make $/£2,000 per month, you will subtract the amount you plan to give, the amount you plan to save, the amount you plan to spend on food, clothing, gas/petrol and any other expenses you plan to have throughout the month, until you don’t have any income left to budget.

This exact process will make tracking your money a worth-while cause, because it only takes a few seconds to know where you stand with your spending. Are you spending too much? Did you budget more than necessary for a specific category in your budget?

Questions like these are simple to answer with a zero-based budget.

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3. Log your expenses (daily)

Now that you have your zero-based budget, you need to get in the habit of logging your expenses on a daily basis. And when you log your expenses, you should subtract the amount you spent from the proper budget category.

If you set up your budget properly, this will be incredibly easy. And the more often you do this, the easier it gets.

In fact, I would go as far to say that logging your expenses as soon as possible after you spend money is a great idea. The more intentional you are about logging your expenses, the easier it will be to stay on track with your budget. And isn’t that the whole point?

So, if you use a spreadsheet, log your expenditures every time you come home. If you use an app, pull it up the moment you spend money, and log that expense. If you prefer to track your money by hand, keep your expense tracker on your person, and write them down at the time of purchase.

At the very least, you should log your expenses once a day.

I can tell you from experience that nothing bogs down the process of tracking your money like a back-log of expenses. Make this a habit.

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4. Keep track of any additional income

Whenever you make a little extra money, you should add it to your budget. Then, once you’ve accounted for that income, divide it into any budgeting categories you see fit.

It doesn’t matter if you put all of it into savings, add it to your fun money category of your budget, or give it all away. You need to include it in your budget.

The purpose of tracking your money is to know exactly how much you make, and exactly how much you spend. So, don’t forget to track your extra income.

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5. Find areas of improvement

If you’re going to track your money, you should do it with the purpose of improving your financial situation. Otherwise, what’s the point?

It doesn’t really do you much good to keep track of your income and expenses unless you use the habit to improve your finances.

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So, periodically, you should go through your expenses, and look for areas of improvement. For instance, you might discover that you didn’t budget enough for a particular category. Or perhaps you are spending too much on food. You might even realise how much debt you pay each month, and that getting out of it would be majorly beneficial to your financial health.

Track your money with purpose, and continually look for ways to improve your financial habits.

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Our recommended money tracking apps

There’s no doubt that apps can make your life a lot easier. And if you’re the kind of person that doesn’t want to log expenses into a spreadsheet, or a hand-written expense tracker, a budgeting app might be perfect for you. But are there any good budgeting apps out there? Yes, and we only recommend one.

EveryDollar is our #1 recommended budgeting tool. It makes zero-based budgeting and tracking your expenses incredibly simple. It was created by Ramsey Solutions, which is just an added bonus. (Dave Ramsey is my boy — even though I’ve never actually met him)

YNTB is another good app for the US.

The EveryDollar app makes budgeting easy when you’re out and about, and I will say that it makes marital budgeting about as simple as can be. My wife and I use it every day, and other than the occasional lack of WiFi, this app goes with us everywhere.

For the UK Yolt is great app, another good one is Emma.

 

How to make tracking your money easier

I’ve made plenty of mistakes when it comes to tracking my money. So, if you’re getting ready to start tracking yours, I have a few little gems of advice for you.

These tips would have saved me a bunch of struggles had I learned them earlier, and that’s exactly what I hope they’ll do for you.

 

Only use your debit card

This is, by far, my favourite budgeting tip. And though it might seem a little radical to most people, it changed my financial life forever!

For a long time, I spent money using whichever credit card gave me the most cash back at the time. I would pay them off right away, but it made my finances pretty messy. And messy finances do not make for easy tracking.

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After my partner and I read The Total Money Makeover, we decided to stop using credit cards, and pay for everything with our debit cards. We combined our bank accounts, so this would make it really easy to keep track of our finances. And man did it!

Now, when either one of us want to track expenses in our budget, all we have to do is log into our bank account. This makes it super easy, and carries the added bonus of never going into debt.

I told you, it sounds radical, but it is the most influential financial decision I (and we) have ever made. We now have minimal debt. No mess. Just clean and simple finances.

 

Get out of debt

I would like to amend my statement about credit cards making your expenses messy and instead say that all debt makes your expenses messy.

I mean think about it, if the easiest possible financial situation was one where you make money and keep all of it, then any payments you add into your financial life create complexity.

And when you’re tracking your money, simplicity is the name of the game. So, get out of debt. It will make tracking your money a much easier process. Oh, and you won’t owe anybody money, which is pretty much the best.

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Use remaining money to get ahead

The better you get at tracking your money, the less of it will slip through the cracks. So, when you have a little leftover money at the end of each budgeting cycle, do yourself a favour and use it to get ahead.

What do I mean? Well, you could use the extra money to pay off debt, build an emergency fund, add to your retirement, start saving for a car, or anything else that will improve your financial future.

 

 

Why tracking your expenses is important – Final thought

Do you track your money? Do you have any other tips you would like to see in this post? Be sure to leave a comment. We would love to hear your story as well as any other helpful tips for tracking your money.

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