How to Manage Finances Wisely

Managing finances may seem easy at first glance, but it can be difficult once you put it into practice. The proof is that there are shortcomings in terms of finances even though they have a large income. Therefore, it is very important to understand how to manage finances wisely to avoid financial problems.

The Importance of Managing Finances Wisely

Without the ability to manage finances, there will be a lot of overspending, wasted spending, living by relying solely on salaries, even to the point of cultivating the habit of digging holes and getting into debt. 

On the other hand, knowing how to manage your finances can help you better manage your income and expenses, and reap the following benefits:

 1. Trained to live frugally

Living frugally does not mean lacking or mediocre, but having sufficient and being more realistic in realizing what you want. By managing finances properly, you will be able to distinguish between needs and desires so that you can control unnecessary excess spending.

2. Life is more balanced and orderly

Being able to manage finances wisely will directly make your life more balanced and organized. This is because everything you want and need will be planned in detail and thoughtfully.

3. Prevent financial stress

Money is often a source of stress that triggers many illnesses and even death. Especially if the amount is less, so it is difficult to cover debts or pay loans. With the ability to manage money, you can allocate finances appropriately and prevent stressors.

4. Have a future plan

When finances are managed wisely, it is not difficult for you to start planning for the future. It’s different when you don’t even know your own financial condition. Most likely you are just planning without being able to make it happen.

5. More prepared and alert

Being able to manage your finances wisely will help you be better prepared and alert to any unexpected things that may happen in the future. That’s why there is something called an emergency fund or unexpected expenses.

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Causes of Difficulty Managing Finances

Understanding how to manage finances is actually an important skill that needs to be learned early on. Even so, many people actually ignore it and have difficulty implementing it due to the following reasons.

1. Impulsive and consumptive behavior

Sellers always have a way of enticing buyers to spend their money, even on unnecessary things. Naturally, shoppers also have more ways to avoid unnecessary purchases. Unfortunately, the average person has a tendency to be impulsive and consumptive, especially if they don’t develop good self-awareness or self-control.

2. Lifestyle demands

Keeping up with the times is not wrong. However, that does not mean that following trends should only be a lifestyle. In fact, many people adopt a certain lifestyle just to fulfill their prestige without measuring their abilities.

3. Do not hesitate to invest

Another cause of difficulty managing finances is doubt or apathy in investing. In fact, investing is one way to plan for the future better.

How to Manage Finance

After knowing the benefits of managing finances and knowing what are the causes of difficulty managing finances, let’s explore how to manage finances wisely. 

1. Create a financial budget

Before receiving a salary or income, you should first budget your finances. The financial budget generally contains fixed income and expenses that are routine every month, such as for daily basic needs, living expenses, monthly bills, to transportation costs. The financial budget serves to:

  • Financial calculation reference
  • Evaluating unnecessary budget
  • Determine the basic expenses per month
  • Improve discipline in shopping

2. Make financial records

In addition to making a budget, you also need to record all income and expenses into financial records. This note serves to detail and evaluate your financial flows so that you are trained in cutting unnecessary expenses in the future. 

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Record every day in detail. This is necessary because good records show how to manage finances well too.

3. Understand priorities

A good budget and financial record is one that over time can put financial details in order of priority. Slowly, learn to distinguish between needs and wants. 

Sufficient needs first before prioritizing desires. Even in need, you must understand which priorities are the most important and which are not. Do it slowly starting from daily needs to long-term in nature. 

4. Recheck the budget and financial records

At the end of every month and every 3 months, recheck all your budgets and financial records. This monthly recheck is needed so that you can get a bigger and clearer picture of your financial flow.

5. Learn to save

If you are able and routinely do the four points above, then this is the right time to start saving. Basically, saving is a long-term preparation for a better future. For example, to prepare an emergency fund or pension. 

It is important to remember, saving will require high discipline so you should prepare a clear saving goal to make it easier to run it. 

One effective saving method is to apply the 50/30/20 method every time you receive income, which is 50 percent for needs, 30 percent for wants, and 20 percent for savings.

6. Avoid debt

The existence of debt is often an obstacle in determining how to manage finances well. Therefore, as much as possible focus first on paying off all your debts and no longer adding new debt.

Repayment should start by paying off the highest debt so you can regain control of your finances. By not getting into debt, life will feel calmer and you will also have the opportunity to allocate your finances in other more useful things, such as saving and investing.

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7. Imagine life in the future

Imagining how life will be in the future will help you create a clear vision as well as motivate you to achieve a healthy financial condition. By imagining what kind of life you want in the future, you can also make better plans for managing finances.

8. Start investing

Investing should not be delayed alias done as soon as possible. This decision is very appropriate in order to prepare for a bright future. There are many investment instruments that you can try to use, ranging from gold, bonds, deposits, stocks, mutual funds, and much more.

You can invest according to your needs and level of risk. For beginners, the choice of investment instruments with a low level of risk is highly recommended. The earlier you invest, the greater the benefits you can get in the future.

Thus information about how to manage finances wisely that is important for you to know. Even though it’s difficult and hard at first, daring to try and apply the steps above will help you prepare better financially. Good luck!

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