You won’t want to admit it, you may not even realise it, but you may, actually, be terrible with your money. What may seem to you as normal expenses and financial situations are likely the opposite of smart money practices. We don’t all learn about the value of money and how personal finances work when we’re growing up, so it’s not entirely our fault that we find ourselves being terrible with our money.
When your finance philosophy is “just wing it: life, eyeliner, everything”, you should know you have a bit of a problem being responsible with your money. Other signs that may open your eyes to the fact that you are, indeed, terrible with money include constant debt, no budget and never having used a repayment calculator. All of these (and more) will now be discussed in the hopes that you realise the weight of your financial situation and make the necessary changes.
A “what” calculator?
If you’ve never heard of a repayment calculator, let alone used one, chances are you don’t think much further than just getting the financing you need. When it comes to financing a car, for example, the money-wise thing to do would be to use a car finance calculator to work out how much money you’ll be spending on your car every month and how much your car is going to cost you in total after months of interest.
These calculations are important for managing your finances and what you can afford every month to meet all your required payments. It influences what car you buy, the period over which you pay off your car and the difference your deposit is going to make.
But vehicle repayment calculators aren’t the only finance calculators out there. If you ever want to take out a personal loan, there’s a calculator for that as well. Finance calculators do all the hard mathematical work for you. All you need to do it put in the values and decide how to proceed after the results.
A budget is a guestimate, right?
Wrong. A budget is a carefully calculated document with all your income and expenses listed. This way, you can track exactly where all your money is coming from and where it’s going. Your budget is there to tell you that, no, you can’t afford to buy that new couch for your lounge right now or, yes, it’s time to cut your expenses and invest your money elsewhere.
You can’t have a budget that’s only in your head and recalculated every time you check the balance in your accounts. It’s not an “I make this much in a month so can spend that much in a month and be fine”. There are such things as emergencies that are designed to throw a weak budget out of whack. You need to be prepared and you need to draw up a legit budget.
Wait, you’re supposed to save 10%?
If you’re setting up your budget properly, you’re supposed to be saving about 10% of your salary every month. You know, for those emergencies we just spoke about? You could argue that 10% is a lot to “give up” when it could be spent on other things you “need”. But, in the grand scheme of things, it’s the right move to make.
New tyres, car services, plumbing repairs, replacement appliances and medical fees are more expensive than you think. And, should you find yourself free of all emergencies in a year, that money can go towards a credit-card-debt-free holiday.
Meeting the minimum payments is not a positive thing
You may think you’re good with your money because you meet the minimum payments on your credit cards. That doesn’t make you frugal, it makes you stingy. The sooner you pay off any debt, the better. And if you’re at all concerned about your credit score and rating (which you should be), you would rather want to give up those extra coffees and pay off your card sooner.
And there are other financial benefits to paying off your credit card quicker, other than being debt-free sooner and improving your credit score. You will save yourself from interest and finance charges (which easily add up to more than you can actually afford), and you’ll increase your available credit again because, well, that’s how it works.
“I live by retail therapy”
Shopping addictions are real and more common since online shopping became so easily available. Impulse buying is a problem that is damaging your financial health. You may not have run out of reasons to justify all your spending, but your budgets and bank accounts scream otherwise.
That’s why it’s so important to set out a strict budget and stick to it. In your budget, you are able to set an allowance for personal luxuries once all the important things have been deducted and paid off. And by setting this budget, you’ll motivate yourself to be smarter with your money in order to increase that allowance with what you save from cutting out other debt and unnecessary expenses. If you really need retail therapy in your life.
You can have almost everything you want if you’re truly responsible with your money. And only you can benefit or suffer from your spending habits.