A lot of people today are afraid to take a look at their spending habits and how those habits affect their finances. Moreover, many people live from one paycheck to the next, regardless of their lifestyle, simply because they are afraid what their finances might tell them about their own selves.

Managing your own finances is both important and scary

Ask anyone you know: how do you manage your finances? And most people would answer: I don’t. They might have hired a bookkeeper, or, if they’re business owners, a BAS Agent Brisbane, but they have yet to analyze and take a look at their own finances. Because they don’t want to see what their finances tell them.

Money management is rarely taught in high school. In fact, it’s not taught at all. In the meantime, money management is one of the most useful skills you can have. Best of all is to start managing your money while you’re young. Later on, when you have a family, when your expenses will increase, you will be able to go from one paycheck to another without a headache. In fact, with smart money management, you will be able to save money that you can use to achieve your goals and dreams.

So, how do you begin?

Step one: Analysis of your current spending habits

Take a look at your expenses: when, why, and how do you spend your money?

Do you tend to spend more on vacations and traveling, or on material things? Was that expensive car really worth the down payment and the ongoing expense?

Before you analyze your income and expenses fully, you need to get a better look at your habits. You will get an insight of what type of spending plan you need in order to be able to create the right budget plan for yourself (and your family as well).

Many people think that to analyze their expenses is to discover everything they shouldn’t spend money on. Many people think that those things you enjoy on a daily, weekly, or monthly basis are things you shouldn’t spend money on. But, that’s very far from the truth. Creating a budget plan for your income and expenses means finding smart ways to spend your money, not cutting back on everything you enjoy.

Step two: Analysis of your income and expenses

Once you’ve taken a look at your spending habits, it’s time to analyze how much they cost, and how those expenses impact your income.

Here, you will have to take a look at the things you need, and the things you want. The things you need include bills: electricity, TV, internet, mobile internet, bank payments, rent, bank loans – everything that you cannot exclude from your monthly expenses, including groceries and food.

The things you want: dining out, clubbing, that new phone that’s only marginally better than your previous phone, shopping sprees, splurging on food that will go bad in the fridge by the time you eat it because you dine out so often, and other expenses which were unnecessary. That trip to the spa, which was supposed to be a monthly thing but it became a twice a week affair, and so on.

And think objectively: can you afford all those things?

Step three: Set your goals

Everyone has different financing goals. Some people plan their monthly budgets in a way that allows them to splurge on an exotic vacation during the summer or winter. That trip to Australia you always wanted to take can be true within a year with smart spending.

So, decide on your goals. Decide how much money you need to achieve those goals. Then, decide which expenses will be discarded from now on in order to save for those goals. However, this doesn’t mean that you need cut on everything.

Step four: Planning your budget

Planning your budget is very easy to do: that’s a myth.

You need to plan your budget at the beginning of the year: another myth.

Planning your budget is only easy when you decide to cut back on everything. You will just stop doing all the things you enjoy: new clothes every other week, a weekend trip, dining out and clubbing over the weekend. Planning your budget in a way that allows you to enjoy life and save money is a bit trickier, but it can be done. In addition, you don’t need to wait for January 1st to plan a budget. You can do it anytime of the year. All you need to do is be ready to make a change.

In your monthly budget, after your necessary expenses, look at how much money you can save if you cut back on everything. And then allocate the rest to the things you enjoy. Allocate a monthly budget for dining out and other miscellaneous things. Then, allow a sum for the unexpected: visits to the doctor due to accidents, pills and other things if you get sick, though of course, it doesn’t mean that this will happen.

Step five: Putting a plan in action

Now that you have your plan, it’s time to implement it. Keep a tab of everything you spend. You can find an app for it, or you can carry a small notepad with you where you will input each expense in its own category.

That way, whenever you’re close to overdoing it, you can cut back. In addition, don’t forget to allow yourself some flexibility. A 10% margin is always a good thing, however, do keep in mind to make up for those expenses next month.

Why? Because you don’t want to tap into your savings. Your savings should remain as untouched as possible for your future.

Step six: Planning your future

One of the best habits you can get into is to analyze your income and expenses at the end of each week. That way, you will discover two things:

  • Whether your monthly budget plan was a good one;
  • Whether you are keeping to your new plan.

Both are important. You might be keeping to the plan, but you still might not be saving enough money for your future and your goals. Weekly analysis will give insight into your plan, and you can make changes if they are needed.

Remember, your goals might be far into the future, but each time you save, you’re one step closer to them. And managing your money will allow you to achieve those goals much more quickly.