Taking control of your finances is the first step on your journey to economic liberation. Money controls so much of what we do: how many hours we have to work a week, how much time off we can take, where we live, what we wear, what we eat, where we socialize, where we vacation. The list goes on and on. When it comes down to it, our personal cash flow determines our lifestyle. So it’s absolutely essential that we understand our personal finances and know how to control them. There are a multitude ways to go about achieving this. Here are a few of our most recommended techniques.
Being Aware of Your Personal Finances
The first step towards controlling your finances is understanding your financial position. So many people sweep their bills and bank statements under the carpet, turning a blind eye to how much they are earning and spending. But you need to know how much you earn and how your outgoings compare to this. It’s time to create a budget. A budget ensures that you are spending less than you are earning, ensuring that you always maintain a positive bank balance. This allows you to plan your life out in the short term and long term. Setting up a budget is much easier than it may seem. All you need to do is open up a notebook or spreadsheet. Note down your major outgoings, such as rent or mortgage payments and bills. Then note down any extra expenses or purchases. At the end of the month, you can total all of this and remove it from your total monthly salary after tax. Your outgoings need to be less than your salary. If this doesn’t balance up, you need to start identifying places where you can make cuts.
Improving Your Credit Rating
We all tend to start out in the working world with good intentions. We only spend what we have, stick to standard current accounts and don’t allow ourselves the option of an overdraft. However, this behavior won’t get you all too far when it comes to increasing your credit score. You will need a good credit rating to be able to be accepted for a mortgage or take out other loans for significant purchases in the future. In order to be trusted with large quantities of cash, you need to prove to your lender that you can be trusted and are responsible with money. The best way to do this? Taking out small loans and direct debits and proving that you can make repayments on time and clear your debts in good time. So, if you’re starting from scratch, a good place to start taking out phone contracts. Phone contracts require monthly repayments, but generally cost little, meaning that phone networks are likely to give people without an existing credit record the chance to prove themselves. You can then start signing up other contracts, such as insurance policies, television packages and energy agreements (for gas, electricity, and water). Keeping to the terms and conditions of these contracts will improve your credit score and encourage lenders to offer you larger loans in the future when you may need them.
Lending Money Responsibly
Whatever people may say, lending isn’t necessarily a negative thing to do. It can help you to make large purchases that you require sooner rather than later and then make repayments as you go along. This could be a wedding, an investment in a car, a holiday or replacing broken home appliances. You can then chip away at the debt at a pace more suitable to your personal situation. The key to successful lending is being responsible. Never take out more than can you really afford to repay and keep in regular contact with your lender. If you are planning on taking out a loan, consider online unsecured loans. These loans are issued and supported solely on your creditworthiness and don’t require any kind of collateral. Collateral is something that is pledged as security for a lender. It will be forfeited in the event of a default. Obviously, it is best to avoid any loans that require collateral in order to avoid repossession.
If you understand your financial position, have a good credit rating and lend responsibly, you will have complete control over your personal finances. You will always know what you can afford and won’t find yourself swamped in debt, facing bankruptcy and other financial issues. This will afford you a stress-free lifestyle in which you can live by your means.