Are you good with money?
This is such a loaded question to ask, and a lot of people automatically answer that they are “okay.” The answer basically means that they are getting by. They have food on the table every day, and they can pay their mortgage and utility bills.
However, when you ask them if they have enough savings tucked away to cover emergency expenses, such as getting sick and hospitalized, or the car breaking down, the worrisome realization hits. They are not financially ready for those. Taking care of emergency expenses will wipe out their savings.
If you are what economists call “financially fragile,” there are steps you can take to stop being so. Listed below are five of them.
1. Create multiple bank accounts
You may have always found this a hassle but having multiple bank accounts can help you get a better idea of how much money you truly have to cover your life.
If you just have a single bank account and you see a high number, it can give you a false sense of security about the money you have put away. You may think you already have a lot, but it may actually not be enough for your retirement, emergency situations, and even life changes the future holds (such as having children).
These are the different bank accounts that you should allocate money for:
- General savings
- Emergency fund
- Retirement fund
- Education fund
- Mortgage and utility
- Investments fund
Apart from helping you manage your finances better, having multiple bank accounts can also alter your spending habits and encourage you to save even more money.
2. Check your credit score often
This is something financially savvy folks do on a regular basis.
They want to make sure that they are building or protecting their credit score because a good score gives them “financial flexibility.” It improves their chances of getting a personal loan or being approved for other financing programs more easily.
If you make it a habit to monitor your credit score, it can drive you to learn the different ways you can build it to serve your advantage.
3. Design a financial plan for your future
A lot of people prefer to do this with a financial consultant or expert but you can get started on one on your own.
Think about how you want to live when you are 30, 40, 50, 60 and so on. Follow that up by identifying ways for you to support the lifestyle you want to have for the different stages in your life.
If you can only come up with a few methods to financially prepare for your future, then set an appointment with a financial expert. You can get advice on how to manage your finances the smart way and increase your wealth.
4. Find ways to earn lazy money
Lazy money or passive income is the term used for income that you generate without having to do much.
For example, you can take advantage of a time deposit. Take out an amount of money out of your general savings and put it in a time deposit. Your money will earn a significant interest by being placed in that program. However, you will not be allowed to touch that money until a certain period of time is over.
There are also side hustles to consider that will not require you to do much such as answering paid surveys online or using phone apps that pay you for doing the things that you normally do.
Another way to earn lazy money is by using a cash back credit card. Essentially, you get “free money” for your credit card purchases and payments.
5. Create a “Do This Instead” plan to curb spending
Studies show that people naturally get a high from buying things even if it only usually lasts for three hours. You can avoid the desire to spend by having an established set of alternative things to do when you feel like shopping.
Some of the “do this instead” solutions people use to distract themselves from the joy to be had from spending are:
- Exercising at home
- Planning for the achievement of big dreams (such as buying a house or going on a vacation)
- Looking for easy ways to earn extra money online
- Decluttering their home and looking for items to sell for additional income
You need to be deliberate about becoming financially savvy, otherwise, it will take you a long time to get your “wealth” under control. Hopefully, these ideas will help you get started on becoming money-smart.