You stay healthy when you eat healthy food and you fall ill when you eat unhealthy food. Likewise, you will be financial strong if you develop good habits and your finances will be disturbed if you spend money recklessly. Meeting day-to-day operations along with setting aside money seems convoluted, but making constant efforts can prevent financial problems.
A healthy financial outlook says you should have emergency cushion so that you can finance unforeseen expenses. The rule of thumb says that your savings should be worth three-month cost of living. It may take a bit long time, but you will benefit from it in the long run. All your hard work pays off when you get unemployed. Though you can take out guaranteed loans for unemployed, you must have some money stashed away.
If your finances are in shambles, you should begin with following techniques:
Create a budget
Budgeting means spending money frugally. Your expenses should be less than your income. However, you must know how much you are spending every month. It is imperative to know your spending to take stock of your finances. Once you know it, you can create a plan how to save money. First off, you should add in total expenses. Make sure that you include even the tiniest expense.
Whether it exceeds your income or not, you must find out the areas where you can cut back. You will find several expanses such as magazine subscriptions, movie tickets, and restaurant bills that contribute nothing but pare down the size of your savings. Do not forget to examine where your money is going. Develop the habit of tracking your expenses weekly or monthly. Budgeting means you will have to live well by spending money frugally. You will be able to save money only when you manage to live below your means.
Build an emergency fund
Savings can help you meet your short-term goals. For instance, you have been saving money to buy a new cellphone, but solely savings cannot help you stay financially strong. Despite having savings, most of the people end up taking out payday loans as they do not have emergency cushion. You should make long-term targets. Your savings and emergency cushion should go up simultaneously. Try to transfer at least 10% of your monthly income to emergency cushion that you could dip into when an unexpected expense pops up. Having three-month worth living cost can be very demanding, but you should try with small goal. Set a target, for example, you will set aside £500 for emergency reasons. Once you achieve these goals, you will start saving more and more money.
Try to settle your debt accounts
Building up savings account is not enough to stay financially strong. You should also try to clear all your dues. If you have a debt and you do not pay it timely, you end up paying late payment fees and interest penalties. This will take a toll on your savings. It is better that you pay back your loan on time. If you have been already struggling to reimburse your debt or you feel that you will not be able to fulfil your commitment, you should talk to your lender to ask for alternative repayment plans.
If you are juggling with multiple debts, you should focus on the larger debt with high interest rates. Try to negotiate with your lender if they get ready to accept lower than the agreed amount. Consider opting for 0% balance transfer deal to get rid of credit card bills. This will allow you to pay off your credit card bills with no interest provided you clear the whole balance within interest free period. Otherwise, you will end up paying more money on interest. If there is no way to get out of debt, you can file for bankruptcy. However, before going for this option, you should know all terms and conditions.
Maintain your credit score
While you make efforts to create savings and get out of debt, you should also focus on improving your credit score. Your credit rating not only depends on debt clearance but also on payment of utility bills, total number of credits and credit length. If you have taken out several loans, you are likely to have a lower credit score and as a result, you will get a deal with high interest rates. Do not apply for multiple loans within a short period, or else a lender may interpret that you rely on debts only even for meeting day-to-day expenses.
If you have a good credit score, you will be able to borrow money at affordable interest rates. If you have no credit rating, you should build it by applying for a loan. Make sure that you borrow money based on your repayment capacity and the lender informs credit reference agencies of your payments.
Follow aforementioned tips to have your finances on track.