Managing your personal finances can be tricky, especially if you have personal assets to your name like a house or a car. However, many people are under the impression that as long as they are not living pay check to pay check, then they are looking after their money just fine.
While such a situation is undoubtedly a fortunate one to be in, it doesn’t necessarily mean that your finances will take care of themselves in the long run. Instead, several things might still come up that could throw your financial situation into disarray. Furthermore, a steady income and a comfortable living doesn’t automatically mean that you are going to be set up to be financially stable for the rest of your life.
Here are six reasons to look after your personal finances better.
1. Loss of Employment and your finances
There is no way for anyone, no matter how much money they have or how high their income is, to be prepared for every single eventuality that could occur. To say that anything can happen is an obvious statement that everyone knows. However, when it comes to your personal finances, there’s one thing that can happen to anyone that would cause some severe strain to your bank account if you aren’t prepared. This is losing your job.
One of the most worrying things that can happen to disrupt your financial situation is the loss of employment. Losing your job for one reason or another means an abrupt halt in your income. You need to have a nest egg built up so that you can cover your finances for at least three months in case you find yourself suddenly unemployed.
Reduce your spending
The best way to save up enough funds to cover your main expenses should you lose your job is to keep a better eye on your finances while your income is steady. Cutting corners with your spending now might just allow you to save up enough money to keep things going during a short period of unemployment. Reduce your extraneous and inessential spending so that you can put a bit of money away each month into a designated rainy-day fund.
It might not be possible to set aside enough money to cover a period of unemployment that lasts longer than a few months. If this is the case for you, you can always consider taking out a short-term or payday loan with a lender like Cash Lady to get you through. However, having some money saved up will make the amount you need to borrow much less, which will put you in a far better place financially when you are earning once again.
2. Reduce Stress
It is no secret that stress over money is one common cause of anxiety for many people. Thinking about losing money because of a failed venture or simply worrying about being unable to provide for yourself or your family can all result in a heightened level of anxiety. You might even be stressed about your financial situation without being fully aware that it is happening.
While your fears are natural and shared by many in similar situations, there are several steps you can take to help you get a handle on your stress before it develops into an actual mental health condition. Allowing stress over your finances to get the better of you can result in anxiety, panic attacks, and even depression.
Protect your health
Furthermore, it should be noted that your mental health isn’t the only thing at stake when you allow anxiety to take over. Your physical health is directly linked to your mental state. There are several physical side effects to anxiety that can range from uncomfortable to downright painful. Taking measures to protect your mental health can go a long way to preserving your physical wellbeing too.
First and foremost, you should acknowledge if the source of your anxiety is related to your personal finances. If it is, then start looking after your money better right away. Take a look at where each dollar you earn goes from month to month. Are you spending too much on evenings out when you could be saving more by eating at home more frequently? Do you tend to shop for non-essentials when you are feeling overwhelmed or stressed? All of these things and more can be managed and changed if you set your mind to it.
Once you get a handle on unnecessary spending, you can dedicate more money to a savings account. Having a buffer for your finances will go a long way to reducing your stress. You should also take measures to look after your mental health as well as going forward. Getting frequent exercise and even doing breathing exercises can all help you reduce your anxiety over your financial situation.
3. Build for the Future
Do you have plans for your future that would be easier to make into reality by being in a more stable financial situation? Perhaps you want to become a homeowner within the next year or two. Maybe you plan to start a family at some point in the future. No matter what your long-term plans might be, you won’t do yourself any favours down the line by neglecting your finances today.
Credit card debt
Consider your credit rating as it is today. If you wish to own a property one day, you will need to have a reasonable credit rating to qualify for a mortgage. The sooner you start building your credit, the better off you will be later on. Even if you don’t intend to take any concrete steps towards your future plans any time soon, you can very simply improve your financial situation today so that when the time comes, you are poised to make your dreams into reality. This all starts with looking after your finances better.
Begin by evaluating any debt you might have accumulated. If you have any credit card debt, for instance, making regular payments towards that debt can bring your credit rating up steadily over time. Furthermore, by relieving yourself of that debt in the present, you are doing your future self a huge favour by making it easier to achieve those financial goals.
4. Foster Stability in Your Life
Stability in life is one goal that most people hope to achieve. Even if you never earn enough money to retire at 40 or purchase a million-pound home, achieving stability in your finances can drastically help you achieve and foster stability in your life. The first step to reaching this goal is to start looking after your finances right now.
Failure to do so might actively contribute to instability in your life. In fact, an article published by CNBC indicates that money problems are a significant source of stress in relationships. Discussing finances with a spouse or significant other can be an uncomfortable topic for many people as differing views on best money management practices can cause clashes. By agreeing to look after joint finances better, though, you might very well help relieve some of the friction that arises in your relationship regarding money issues.
Your relationship with your better half might not be the only one that suffers from instability caused by financial issues, though. It is not uncommon to consider borrowing money from family or close friends when you are in financial distress. Such situations can end up being uncomfortable even when both parties are in agreement on terms and conditions. It is far better to avoid such situations in the first place by being more responsible with your personal funds and looking after your money better.
5. Obtain More Control
No one likes to feel as though they don’t have complete control over their life. Being at the mercy of debt collectors and credit card companies means that you don’t have control over your situation as you should. The control that you have over your finances can and will spill over into other areas of your life. By taking steps to look after your finances now, you are allowing yourself to take back the control over your life that you crave.
For instance, consider a scenario wherein you would like to change your living situation. Perhaps you are currently renting an apartment and are ready to purchase your own home. This won’t be possible unless you are in a financial situation to do so. If you have a poor credit rating or not enough money to cover a deposit on a house, then the control over your living situation no longer belongs to you. You won’t have the ability to move like you want to and could be stuck where you are for far longer than you would like.
Control your impulses
Take the time while you still have the opportunity to do so to take control of your spending. By controlling your impulses to spend money unnecessarily now, you are giving yourself more control over your future. This way, you can make decisions as you want without having to worry as much about the financial repercussions. A savings fund can cover you if you would like to take a different path in your career. An excellent credit rating will also allow you to purchase a new home down the line. All this starts by looking after your finances better today.
6. Increased Flexibility
In life, it is always better to be in a situation where you can be more flexible. Since plans change all the time, you need to be in a position to be able to change with them. This can mean being prepared for something as small as having to eat at a more expensive restaurant on a night out because the one you had planned on couldn’t accommodate your party. It might also mean something as big as having to pay more for a house because you were unable to sell yours for as much as you had hoped.
The Bottom Line
All of these situations and more can happen to anyone. Whether you need to be prepared for a slight inconvenience or a significant alteration. Taking better care of your finances can help give you the ability to be more flexible, should the occasion arise. This might mean making short-term sacrifices to build up your savings, but if the result is being more prepared to handle a change in plans down the line, then it is well worth it.
Properly allocating your funds to the essential areas of your monthly expenditures is a bit of a science. You can easily see things that need to be covered, like utilities and insurance payments, for example. However, there are always things that come up from month to month that need addressing. Look after your finances better so that you can be more flexible as things come up.
Read more about how to assess your money story. Click here.