Budgeting 101: Managing your money

Focus on reducing debt, increasing savings, and making smarter spending choices.
A representational image. — Pixabay
A representational image. — Pixabay

Being financially savvy doesn't require risky investments or a large bank account. Whatever the situation is, a person can improve their financial skills. Start by making a budget that aligns with the goals and helps to live within the means. Focus on reducing debt, increasing savings, and making smarter spending choices.

Ways to conduct your finances efficiently

1. Manage the budget

  1. Understand what people are working towards to shape their budget. For instance, saving 10% of the income or using the 80-20 rule.
  2. Calculate total monthly income, including work earnings and additional cash. If sharing expenses, consider combined income for a household budget.
  3. Prioritise essential monthly payments, such as rent, utilities, loans, groceries, and insurance. Set up autopay for bills, ensuring sufficient funds.

2. Pay off debts

  1. Understand the extent of what a person owes by adding up all debts, including credit cards, loans, and mortgages.
  2. Start paying off debts with the highest interest rates, making minimum payments on others. Allocate extra funds to top-priority debts.
  3. When clearing a debt, redirect the payment amount to the next debt in line. Aim to eliminate all recurring debts quickly.

3. Set up savings

  1. Define a specific objective, such as an emergency fund, down payment, or retirement fund.
  2. Use a savings account, possibly with a higher interest rate, to keep the savings separate from daily expenses. Consider automatic transfers from checking to savings.bu