Let’s face it: keeping track of where your hard-earned cash goes seems to be a lot of work. Money management involves more than just simply earning and spending; saving some amount of your income is just as important. While the general concept of savings is already common, there are financial hacks for better money management to maximize your savings without sacrificing too much on other spending. Here are some simple financial planning strategies you can follow so you can have better control over your money.
Track Your Spending
When it comes to spending, the most basic way to manage it is by tracking all types of expenses you need to pay. There are three ways to track spending the right way.
1 . Take Notes on Cash Payment
The simplest form of money management in spending is expense tracking. Tracking spending means taking note of all types of payment, especially cash ones. While cashless payment is automatically recorded by the e-wallet application, losing track of cash payment happens more often because you need to track it manually. There are plenty of mobile applications that accommodate this function, so there is no more excuse to blame the hassle of taking a paper note of your spending. Ideally, you need to do this right after you pay for something in cash, so you will not forget or miss tracking it with a mobile application.
2 . Collect Receipts
The major issue with cash payment is being reluctant to track it down right away, hence causing ‘leaks’ in your spending. To anticipate this, collect all receipts from cash payment whenever possible. Once you have the time, you can note down the amount written in the receipt in the tracking application. Only after you input it in the tracking application can you throw away the receipt. Another benefit of collecting receipts is that your wallet will get thicker the longer you keep your receipts untracked, thus forcing you to regularly track down expenses.
3 . Use Cashless Payment Wisely
Almost all tenants and stores provide an option for cashless payment with QR code nowadays, supporting various e-wallet applications. This way, you do not need to withdraw cash from the ATM to buy something. The ease of technology in cashless payment may seem practical, but it can actually be dangerous when you have no money management. You need to keep in mind that not visibly paying cash money does not mean you do not pay for things. The only way to increase awareness in using cashless payment starts from your mindset. If possible, keep a separate bank account from which your salary is transferred and an account used for spendings and doing top ups in e-wallet. This will prevent you from the illusion of having seemingly ‘unlimited’ money to use for cashless payment.
To ensure that your money is not spent on unimportant things, you may need to evaluate your spending on a regular basis, such as weekly and monthly. This strategy will help you see where your money goes, so you can set a standard for the following weeks and months. While it is not a bad thing to spend money on tertiary needs like snacks or nights out, you need to make sure that your spending does not exceed your income.
Read Also: Financial Education as Employee Benefit
Maintain Your Saving
Having savings does not only help you buy something that costs a fortune like a house or a car, but it also plays as a safety net in case you have some unforeseen expenses or emergencies.
1 . Plan in Advance
First thing first, have a goal. What do you expect to afford from your savings? What amount of money do you plan to have in your savings in a particular span of time? This money management will help you map your goal and help you understand how much you need to take from your income for savings. You can follow the easy rule of 50:30:20, in which 50% of your salary goes to your primary daily needs (housing, food, bills, etc), 30% goes to secondary needs, and 20% goes to savings.
2 . Allocate for Emergency Fund
Often neglected, emergency funds are a very crucial part of money management that fall under savings. This is a portion of savings that you can only use for an emergency situation, such as if you suddenly get laid off or someone in your family gets into an accident. The amount you need to allocate for an emergency fund varies; at the very least, it should be equal to 3-6 times of your monthly salary. Emergency funds can be really helpful during the worst scenarios.
3 . Diversify Savings Instruments
Another thing you may need to consider about savings is to diversify savings instruments according to your goal and risk tolerance. Conventional savings instruments are bank account, deposit, and government bonds. They possess the least risk, but have the lowest annual interest. If you aim for higher interest and can tolerate instruments with higher risks, you can also put portions of your savings in mutual funds, exchange-traded funds (ETF), corporate bonds, and stocks.
Becoming financially wise starts with good money management for both spending and savings. Tracking your spending will help you avoid reckless expenses that can lead to spending more than you can earn. In addition to this, it is also advised to allocate portions of your salary for savings, so you will have a safety net other than relying on your salary.