Collaborative Post¦ Making smart financial decisions doesn’t come naturally to everyone. Managing money is a skill, and unfortunately, it isn’t taught to most people when they are young. However, there are some minor changes you can make that can have a massive impact on how you use your money. From creating a budget that works to prioritising outgoings, here are some suggestions.
Research Financial Products
There are tons of financial products people use throughout life. But they can be tricky to navigate. Researching financial products will help you avoid being misled. For example, banks can mis-sell insurance you don’t need, and there are multiple ways you can be misled when buying a car. If a company has mis-sold your car finance, you may be entitled to PCP refunds and further compensation. So be sure to check if you feel you have been financially misled.
Smart Financial Decisions with a Budget
A shocking survey by YouGov found that 40% of people in the UK are one paycheck away from being homeless. But often, a simple budget can be enough to provide a better overview:
- Add up income before taxes, such as salary, side-hustle income and investment returns.
- List fixed and variable outgoings such as rent, utilities (gas, water) and groceries.
- With the 50/30/20 rule, use 50% for needs, 30% for wants, and 20% for savings.
Track Your Spending and Use the Data
Tracking spending is a major benefit when trying to make better decisions with money. Most banking apps come with money trackers, and you can set up alerts when you reach your limits. However, it can all be a bit fiddly. A simple spreadsheet or even jotting it down can be enough to help you understand how you are spending. When you can see it, you can make better decisions. It can also help identify where most cash is going so you can make cuts.
Using Automation for Smart Financial Decisions
You don’t have to make smart financial decisions alone. Today, we live in an age where AI and automated processes can help with just about anything, including managing your money.
How can I automate personal finance?
Budget apps like Mint can help track spending. You can also use roundup apps such as Acorns to invest small amounts, and direct debits will pay important bills before you spend the money.
Should I automate my savings?
Automating savings has many benefits. For instance, you can save without even thinking about it. It also reduces the temptation to spend, and early savings will compound interest for more.
Are there any cons to automated savings?
Of course, there are cons to automating savings. Automation could act before you are paid, potentially going into overdraft. You can also become less engaged with your own finances.
Paying Into Savings and Pensions
When you have budgeted for food and allocated enough money for essentials, you may have some spare. One of the best uses for spare money is, of course, savings. Saving plans such as ISAs make your money work for you without losing value. Because of interest, your money gains value that beats inflation. In contrast, cash will lose value over time. You can also help yourself by thinking about private pensions that can top up state and work pensions.
Prioritising Smart Financial Decisions
Another UK survey found that 39% of Brits aren’t confident when managing money. However, having priorities is one of the first things you should consider when making money decisions:
- Think about goals such as paying debts, buying a car or saving for college.
- Pay essentials first, such as rent or mortgage, health insurance and utilities.
- Build an emergency fund that will cover at least six months’ worth of expenses.
Avoiding Impulse Buying
It can be pretty hard not to buy those last-minute items, and major supermarkets use sneaky tactics to entice you. One of the easiest things to do is make a list of what you need and stick to it. Don’t be tempted by multipack offers that actually cost more than you think. These small additions can add a lot to your weekly or monthly shopping bills. For online temptations, you could dry shop, where you browse the stuff you want without checking out at the end.
Summary
Researching any financial products you need will help you avoid being misled, which can cost you more money. Automation can also help track spending and save each month. Of course, you can reduce your bills by quite a lot by avoiding impulse buys that you never really need.
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