How to build a healthy relationship with your finances
Developing a healthy relationship with your money is key to having financial freedom throughout your life. Of course, it requires being more conscious of your money and making sure your expenses are deliberate, rather than impulsive.
If you’ve previously struggled to manage your money effectively, you might be worried about how to take the right steps. We’ve put together this short guide to help you develop your financial understanding and build a healthy relationship with your finances.
Understanding your financial landscape
Before you can build an effective relationship with your finances, you need to understand your starting point. To do this effectively, you’ll need to thoroughly assess your financial landscape, which includes your income, expenses, savings, and debts.
Certain tools, like budget planners, can help you get a clear understanding of exactly where your money is going each month. Do you spend too much on takeaways and restaurant meals, or are there subscriptions you don’t use but still pay for? Even being aware of your main expenses can help you cut down on spending and give you a more stable financial platform.
Creating a sustainable budget
Now you know what you’re spending your money on, it’s time to make a sustainable budget. There are several different budgeting methods you can use to start growing your finances, but we’re going to focus on one of the most effective options.
50/30/20
This budgeting method involves splitting your pay packet into 3 lump sums (50%, 30%, and 20%). The 50% portion goes towards your needs, like bills, rent, and food. The 30% goes towards your wants, which can include lunchtime coffees, day trips, and extra little treats for yourself. Finally, the 20% portion should go straight to your savings.
With this method, it’s crucial to ‘pay yourself first’. In other words, put your money into a separate savings account and leave it there. Otherwise, you might find yourself digging into it accidentally.
Managing debt effectively
Addressing and managing your debts is crucial for your financial well-being. It should go without saying that debt repayments should be a priority when making your budget. Ideally, you want to pay as much as you can reasonably afford. Only paying the minimum amount can lead to high-interest payments and end up costing considerably more in the long run.
Building financial resilience
Life can often throw unexpected expenses your way, and without a safety net, you might not have the funds to deal with them. Ensuring you have a separate bank account purely to protect yourself in emergencies is a smart, calculated move.
One easy way to do this is through your savings account. If you’re already budgeting in your savings, you can use some of that money to build an emergency fund. Alternatively, you could take another look at your budget and see if there’s any wiggle room to further increase your savings.
