One of the biggest challenges which many young people face when stepping out into the big wide world, is that they’ve had little coaching or experience when learning how to deal with and manage money. And believe me … it is a skill. Even if you did an accounting course – that means you know how to make a business’s books ‘balance’ – which still doesn’t quite equate to managing personal finances.
Most people, if they think about it, probably learned about how to manage money via their parents or home life. You could be very good at it, or completely rubbish… but either way – I’m here to tell you that it’s not your fault (entirely), and once you ‘realise’ you are deficient in this skill, its up to you to get better. Anyone can do it. It doesn’t matter where you start from – whether you are hiding from the bailiffs or pretty much getting by month-to-month… there is always room for improvement, and anyone can do it!
Step 1 – take responsibility.
If you are the type of person to leave this to your partner, or to avoid opening bank statements – change that today. Start taking an interest, start being proactive. This is your money, your future, your life.
Step 2 – Write it all down.
I find a spreadsheet is good for this purpose – but start listing all of your expenses and all of your income for the last calendar month. If it means going through your bank statement line by line – do this. Just get a grip on familiarising yourself with what is coming in, and what is going out. Do not be scared or intimidated by any of this. It is your starting point. And hopefully, what you’ll find is that you have a surplus… i.e. your income is more than your expenses.
Step 3 – Take action.
Once you know the situation – then you can take action. If you do find you have a surplus – this is good. You can then look at if your expenses are sensible, can anything be reduced, do you recognise all of the transactions? Can you start a savings plan? Do you have debt that you could be reducing? If you have savings, is this money working hard for you and making a good enough return? Do you have a pension plan in place – you can be future planning for savings and investments.
However, if you find you have a shortage – and your income isn’t covering your expenses, then its time to really take a look at where you can be cutting back, and whether you can increase your income and possibly coming to an arrangement with anyone that you owe money to. Sometimes, its the interest payments that are crippling, and not making the debt repayment itself.
The key thing, is that no matter how bad the financial situation may seem – everything can be improved… with time. The sooner you begin to manage and make the most of your money, and the younger you are, the easier and quicker it is to ‘bounce back’ from financial catastrophes. Even if you are bankrupt, or have entered into an IVA (Individual Voluntary Arrangement) – everything can be salvaged.