Money gives us a chance to live a comfortable life. It ensures we have the resources needed to survive and maintain a desired lifestyle. Some say it can buy happiness, and that may be true. However, what it really gives us is the freedom to live the life we want.
Hence, all of us work hard to earn a decent livelihood. But what if, unknowingly, we are squandering it all away? Therefore, it is so essential to learn the art of managing our salary effectively.
Money management is a gift we can give to our present and future self. It consists of multiple facets; financial planning, saving money, emergency funds and more. Let’s have a more detailed look at what it is all about.
Tips on Managing Your Salary Effectively
- Track Your Expenses
Take a look at your account statements regularly. It will show you how and where you are spending your money. Based on this, you can cut costs if you feel the need to do that. For instance, if eating out empties your pockets often, you could think of having more home-cooked meals.
If you have been spending too much on fuel, you could consider using public transport for a while to balance the expenses.
- Budget Rule
One of the foremost things is to plan what you will do with your money. Make a budget based on your net income and stick to it.
- Calculate how much you spend on basic living expenses (rent, food, electricity, internet, etc.).
- Save some money to spend on yourself, like going out with friends or shopping.
- Figure out what amount you are going to put away as savings.
- And the amount that you plan to invest.3. Set Financial Goals
If you are putting your money aside or investing without a purpose, that can make you feel directionless and stressed. So, make a solid framework about what you might do with the money. This can include long and short-term financial goals.
Long-term goals could be doing a new course, buying a house, etc. While buying new furniture or going on a vacation are short short-term goals. Determining and meeting your financial goal is a healthy habit to learn.
- Pay Off Debts
Debts and interest rates can compound over time. Hence, one life lesson that will save you from unnecessary hassle is always to pay off debts on time. Make it a rule. Credit card debts, mortgages, and EMIs are the first thing you should pay as soon as you get your salary.
- Emergency Fund
You never know when an unexpected situation can arise. Be it a health issue, a family crisis or a pandemic. You can’t avoid such occurrences. But what you can do is at least be financially prepared. And the best way to do it is by creating an emergency fund.
Set aside a small chunk of your salary to put into this fund every month. Some bank schemes can help you with that, for example, Recurring Deposit (RD). It will also earn you some interest from compounding. Make sure never to touch this amount unless it is an actual emergency.
- Invest Smartly
Investing while you are young can help you reap many benefits when you are older. There are several ways to go about it. You can start by buying health insurance. The premiums are cheaper when you are young as you are comparatively healthier.
Another simple and affordable option is the Systematic Investment Plan (SIP), a long-term mutual fund investment. Or you can learn to invest in the stock market to build wealth over time.
If you are wondering how to go about it, you can always invest via Koshex.
- Treat Yourself from Time to Time
If you are too hard on yourself money-wise, it can occasionally demotivate you. So to keep your motivation and energy up, it is best to give yourself small treats now and then. These treats can come in the form of a weekend trip or buying a gadget you had your eyes on for a while. Rewarding yourself helps you relax and drives you to stay on track.
- Separate Your Needs and Wants
In this age and time, there is a lot that we want but don’t necessarily need. We make many purchases on impulse rather than need, and these items often hibernate in our storage. Having a clear understanding of what we need versus what we want helps.
For example, buying formal clothes for the office is necessary, but spending on designer clothes for work could qualify as a want. We should regularly look at our expenses to check how much we are spending on needs and wants and how to manage avoidable indulgences.
- Save Whatever is Left
Once you are done with using your salary as needed, there will always be some amount left. The amount can vary, but whatever remains should be put away as savings. We recommend following the 50/20/30 budget rule. Spend 50% of your salary on basic needs, 30% on personal expenses and put the remaining 20% as savings.
Many experts believe that art is not about making money but about keeping it. Financial independence and financial planning should go hand in hand. When we start earning a decent amount of money, there is a continuous urge to spend a lot.
But, instead of drowning in indulgences or going with the flow, what we need is a budget plan that allows us to save, spend, and invest our money. How we manage our salary decides how secure our finances are and ensures profitable returns later in life.
A practical example is the recent global pandemic that must have taught many of us the importance of financial planning and managing our salary effectively. If you are looking for additional help to plan your expenses or manage your wealth, Koshex is the new-age one-stop solution to meet your financial goals.