Many people feel 'rich' every time their salary is deposited at the beginning of the month. Consequently, the salary is quickly spent on indulgences without considering future burdens. However, as the month progresses towards the end, wallets become empty, and savings have to be made. Well, such an experience can happen if you don't know how to manage your finances properly and carefully.
Do you already know the meaning of financial management? Financial management is an activity that involves planning, budgeting, examining, controlling, searching, taking steps to save money, and protecting in order to achieve a secure financial condition. This applies not only to organizations or companies but also to personal financial situations.
When you don't know how to manage money well, it will certainly create discomfort in your daily life. Various thoughts and pressures will haunt you every day. Even the financial goals you planned will not be achieved.
So, the question is, why should you know how to manage finances? Certainly, to avoid the occurrence of financial deficits. This applies to personal financial management, family finances, and even business finances. Then what should be done to avoid such a deficit?
Here, we present 40 ways of financial management that you can apply and implement for a better future.
Create a Monthly Expense Budget
The occurrence of a financial deficit can happen due to a tendency for a lavish lifestyle. This happens when you use money for wants, not needs. The first way of financial management is to create a monthly expense budget. Calculate all your monthly income (from both your main job and any additional income). Additional income, such as bonuses and overtime pay that are irregular, does not need to be included. Later, this income will be used for fulfilling your desires, not needs.
The next step in the method of financial management by creating a monthly expense budget is as follows:
- Use writing tools or gadgets to calculate and adjust the budget, while checking checkbooks, receipts, and credit cards to ensure nothing is overlooked.
- Then, organize each category of monthly expenses. Divide it into two parts: income and expenses. If you have already calculated it beforehand, you just need to fill it in.
- Subtract the total expenses from the new income. This is done to see a positive difference and determine whether the budget is balanced (income equals expenses).
- If the difference shows a negative number, try making adjustments by eliminating less important expenses.
- Keep a copy of your monthly expense budget in a safe place for future reference.
Strive to ensure that your total monthly expenses do not exceed your total monthly income. This is to avoid falling into debt in the future.
Manage Income with the 50-20-30 Principle
In addition to creating a monthly expense budget, there are other ways to manage finances using a formula. So, what is the formula for proper and effective financial management? It is by managing income using the 50-20-30 principle. Divide your income into three parts, with each percentage being 50%, 20%, and 30%.
An example of managing finances using the 50-20-30 principle is as follows:
- Allocate 50% of your income to basic or essential needs. Basic needs receive a larger percentage because they cover daily living expenses.
- Allocate 20% of your income to savings. Having savings will make you better prepared for unexpected events in the future.
- Allocate 30% of your income for fulfilling desires. Allocating a portion for fulfilling desires is important to avoid disrupting other expenditure categories.
With this financial management formula, you will find it easier to practice careful financial management.
Get Rid of the Habit of Living Paycheck to Paycheck
Living paycheck to paycheck is an old-fashioned habit. When you know how to manage your money properly, you will no longer practice this habit. Managing a salary of 2 to 3 million will also become easy when you understand the principles.
Here are some financial management methods that you can apply to avoid the habit of living paycheck to paycheck.
- Create a monthly budget for your expenses. This budget can help you plan your expenses and utilize your income more optimally.
- Make sure you know where your expenses go every month. Keep a detailed record of each expenditure to make it easier for you to evaluate your monthly expenses.
- Cut back on unnecessary expenses, such as the habit of drinking coffee at cafes, shopping for clothes, or making interbank transfers. Although these expenses may seem small, they can accumulate and be saved.
- If possible, increase your income every month.
The most important aspect of financial management is changing your mindset about your salary or money so that you can easily manage your finances. Therefore, there is no excuse not to implement financial management methods, even if your salary is limited to 2 million.
Plan the Projection or Vision of Yourself in Old Age at 60 and Above
Have you ever thought about your future life in old age, whether it will be peaceful without any burdens or if it will be difficult? Of course, nobody wants to become a burden to their children and grandchildren in their old age. To prevent this from happening, you need to plan a vision or projection of yourself in old age.
There are two approaches you can take for your future old age: financial planning and entrepreneurship. Financial planning involves investing and preparing for retirement funds. Consider retirement fund sources, health backup plans, and inheritance plans such as asset distribution. With these methods, your retirement projection will be ready in the long run.
The second method is through effort or entrepreneurship. It is recommended to have your own business or invest in a relative's business at least 5 years before retirement. Managing a company's finances in this way is considered quite effective for the future.
Prepare Retirement Funds Early
Thinking about retirement funds should be done when you are still young as the best financial management step. This aims to avoid financial problems in your life when you retire. Therefore, there are several ways to manage personal finances to prepare for retirement, such as:
- Set aside a portion of your income each month to be designated as retirement savings.
- If possible, increase the amount of monthly retirement funds each year.
- Do not mix retirement funds with other funds to avoid depleting those retirement funds.
- Invest the retirement funds to make them grow.
- If necessary, participate in retirement fund programs offered by the government and banks.
One thing for sure, never delay in preparing retirement funds early.
Prepare an Emergency Fund for Urgent Needs
It's not just retirement funds that you need to prepare. An emergency fund should also be set aside for use in case of urgent needs. So, how do you manage your finances properly? To prepare an emergency fund, consider the following:
- Start saving or investing, whether in the form of deposits, jewelry, or precious metals.
- If possible, find additional sources of income, such as starting a business, freelancing, or other means.
- Try to reduce expenses related to lifestyle or temporary desires as much as possible.
- Consistently set aside around 50% of your income (or adjust according to your capability).
- For those who are married, it is advisable to use a cost-sharing method with your partner.
The key to managing finances for emergency fund preparation is to allocate funds wisely and reasonably, and to avoid debt as much as possible.
Have Insurance as Protection or Safety Net for Financial Conditions
Some of you may still not understand the functions and benefits of insurance. Insurance can be seen as a form of protection or safety net in terms of finances. What it means is that when there is a future or upcoming unfortunate event that requires you to incur a significant expense as compensation, you don't have to fully bear that cost if you have insurance. The insurance company will be the one to pay for the damages.
Certainly, insurance is crucial for your financial condition, especially when it comes to health, life, or vehicles. These three categories have the highest risks of unexpected events in the future.
Regularly Check Bills and Pay on Time
Another careful financial management method is to diligently check the bills that need to be paid. This is intended to prevent you from having a pile of bills that can lead to debt. Therefore, try to record all the bills you have along with their due dates. Paying bills on time also helps you avoid penalties for late payments.
Set Clear Savings Targets
Saving is also one of the precise financial management methods that anyone can easily do. This effective money management approach applies to all groups, including students, homemakers, and employees. It's not just about saving randomly; you need to set clear targets and goals for your savings. Whether it's for buying a house, going on a pilgrimage, or preparing for your child's education fund.
Allocate a Portion of Funds for Savings
Setting aside a portion of your funds for savings is also one of the correct ways to manage your finances. Having savings will greatly assist your financial situation in the future. Savings will provide you with a sense of security and comfort in life.
Use Planned or Term Savings with Auto-debit System If Saving is Difficult
There are many temptations that arise when you intend to save consistently. At any time, you may be tempted to use a portion of your savings for things that are not urgent. Well, for those of you who often experience this, use the Auto-debit system from your salary account to your term savings account, so that your savings continue to accumulate even if you don't specifically allocate them.
Create Daily, Weekly, and Even Monthly Financial Reports
Not only is it mandatory for company financial management systems to create financial reports, but you should also consider creating personal and family financial reports regularly as a form of financial management. Create monthly, weekly, and even daily financial reports to have a clearer and more measurable record of the money going in and out. With detailed reports, you cannot simply spend money without careful consideration.
Record Expenses as Small as Possible
Recording expenses, no matter how small, is crucial for meticulous financial management. This is to ensure that you know exactly what the funds are used for. Even if an expense is just 1 cent, it still affects the adjustment of expenditure budgets.
Use Financial Management Apps on Your Smartphone or Tablet
For those who are still unsure about how to properly manage monthly finances, worry not. In this advanced era, there are financial management apps available for download on smartphones and tablets. This method of financial management is undoubtedly helpful and makes things easier for you.
Have Two or More Bank Accounts
Make sure you have two or more bank accounts for separating various purposes. With clear budget separation, you won't withdraw money without knowing its intended use.
Be Wise When Using Credit Cards
Having a credit card can bring peace of mind as it can be used to fulfill immediate needs and desires. However, you must be wise in using your credit card as a form of meticulous financial management. Ensure that you can pay off your credit card debt without any outstanding balance each month.
Avoid Paying the Minimum Amount for Credit Card Bills
If you want to manage your finances well, avoid paying only the minimum amount for credit card bills. This is because the interest charged will be much higher. So make sure you don't pay just the minimum amount for your credit card bills.
Avoid Installments or Loans in Other Forms If Not Necessary
Currently, many applications offer online installments and loans without payslips, which may tempt you. However, are you aware that these offers come with very high interest rates? This can make it difficult for you to pay the bills later on. Furthermore, the availability of PayLater options may make you more consumptive and eventually lead to difficulties in paying the installments. So, before taking this step, make sure you are familiar with the most appropriate online loan methods so as not to burden yourself.
Negotiate the Interest Rate When Urgently Applying for a Loan
If you find yourself in a pressing situation that requires you to apply for a loan, look for loans with negotiable interest rates. This will make it easier for you to pay them off later.
Settle Existing Debts from the Past by Prioritizing High-Interest Debts
If you have unpaid debts, it is advisable to prioritize paying off the debts with high interest rates first. This is done to avoid bill inflation due to excessively high interest rates.
Save Small Change or Neglected Coins
Some people consider small change to be worthless. However, no matter how small the denomination, small change is valuable, especially when used for savings. In fact, small change can also become an investment in the future. So, don't underestimate it!
Gradually Acquire Investments and Understand "The Power of Investing"
It's not just about saving, you also need to invest. Saving alone will not make you wealthy, but investing will help your assets grow. For example, with investments in gold, stocks, mutual funds, real estate, or others, your assets will increase along with the rise in the prices of those assets. So, make sure you also invest for the future.
Discard the Belief That Saving is the Same as Investing
Saving and investing are different, even though they are both forms of financial management. Why are they different? Saving is the act of accumulating money in the short term for specific purposes such as Hajj, Umrah, or a down payment for a house. On the other hand, investing is the act of accumulating money in the long term with the goal of gaining additional profits.
Control Yourself and Suppress Shopping Desires
How to manage money well? The answer is by controlling yourself and restraining your urge to buy things that are not needed. Financial management like this is indeed difficult, but it must be done.
Save Money on Food Matters
Not only shopping desires, but you also need to save money on food matters. Occasionally, it's fine to enjoy a delicious meal that costs some money. However, don't make it a routine because it can drain your expenses.
Reduce Transportation Costs with Alternative Options
Another way to manage your finances is by reducing transportation costs for work, school, or other activities. To cut down on these expenses, you can consider alternative options such as walking or cycling if the destination is still within a reasonable distance.
Set Priorities When Shopping
When shopping, it is crucial to make a list. This way, you will know which items take priority when making purchases. You will be able to determine which items need to be bought and which ones are unnecessary. So make sure to always refer to your list when shopping, and avoid impulsive buying.
Distinguish Between Needs and Wants
Needs and wants may have a subtle difference. However, you must be able to differentiate between the two. Before buying something, ask yourself once again if the item is truly needed or just wanted.
Compare Prices Before Making a Purchase
It is also advisable to compare prices before making a purchase. This allows you to save money while still obtaining the necessary items.
Utilize Discounts and Promotions Only When Truly Needed
Another careful financial management approach is to take advantage of discounts and promotions only when necessary. If the item is genuinely needed, these discounts and promotions can be beneficial. However, if not, you will only be wasting your money on unnecessary expenses.
Trim Expenses Wisely
Trimming expenses is indeed one of the careful financial management methods that can be done. However, you must do it wisely. Don't cut expenses to the maximum extent that it actually makes you uncomfortable in living your life.
Choose Budget-Friendly Hobbies
Sometimes pursuing hobbies also requires spending money. Well, for that, you can look for alternatives to pursue hobbies that align with your financial budget. Don't force yourself to engage in hobbies that drain your wallet!
Reduce Hanging Out
Reducing hanging out at cafes and malls is another effective way of financial management. Hanging out while enjoying a cup of coffee may be enjoyable, but if done too often, it can deplete your funds. So make sure you only do it occasionally.
Change Consumptive and Impulsive Habits
Changing consumptive and impulsive habits is also the best way to manage finances. If a consumptive lifestyle is continuously maintained, you will constantly struggle to manage your finances.
Find Additional Income if Your Salary is Small
If you feel like you're still receiving a small salary, it's worth looking for additional income. It can be adjusted according to your hobbies or skills, so that the results are better.
Pay Taxes Properly to Avoid Future Late Payments and Penalties
Taxes are mandatory and must be paid. So make sure you don't miss them to avoid penalties. Even though the amounts may be small, tax penalties can disrupt your financial plans, you know.
Use the Services of a Financial Consultant or Financial Planner
If the above financial management methods still cannot help, you can use the services of a financial planner to get advice and input for achieving better financial conditions.
Equip Yourself with Knowledge about the Financial World and Financial Information
You also need to equip yourself with knowledge, especially in the financial world. Nowadays, there are many financial literacy resources on social media or websites, so there's no excuse not to learn about finances.
Have a Positive and Optimistic Mindset to Believe in Successfully Managing Finances
With the intention and determination to manage finances properly, you can achieve positive results. Starting with an optimistic mindset in managing finances will make you consistently committed to it.
Those are 40 careful financial management methods that you can do. With these methods, you can achieve the financial goals you aspire to.
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