Good financial management is a common need for everyone. Whether you are an entrepreneur, an employee or an individual, you need to have good control of your financial flows in order to be able to carry out your projects as quickly as possible. If financial management is essential to succeed in life, it is often considered a heavy burden and a difficult mission, especially for those who have no knowledge in this area. However, as is the case in any field of study, everyone can have the necessary basis to get by. Discover here some useful tips to achieve sound financial management.
Pay off your debts
Let it be said at the outset: indebtedness is an obstacle to financial autonomy. In most cases, it complicates financial management and reduces purchasing power. In general, no one likes to feel blocked by a lack of financial means and it is sometimes tempting to use credit to pay for certain expenses. However, in many cases, this solution proves to be perilous. Little by little, stress sets in and it becomes difficult, if not impossible, to focus on your life goals. An effective debt reduction plan must be developed quickly to avoid over-indebtedness.
To achieve sound financial management, it is important to make a list of all your debts (credit cards, loans, bills, etc.). Once this work is done, you will know the exact value of your debts. You will then be able to establish a plan to repay your debts as soon as possible. If the total amount of your debts exceeds your income, you’ll have a lot of work to do to get your heart in the right place. For example, you will have to save some smaller expenses (movies, shopping, etc.) to pay off your debts.
If you have several loans to pay off, it may be a good idea to start by paying the maximum for the smallest loan and the minimum for the largest. This allows you to quickly eliminate low-value credit. In addition, you will find the motivation to pay off the remaining debts. If you still can’t, you may want to think about how you can file for personal bankruptcy to pay off most of your debts by forgiving some of your assets. In this way, you avoid :
• the seizure of your salary;
• various cuts;
• legal proceedings;
Take stock of your assets
Once you finish paying off your debts, you need to take stock of your financial situation. While this task often seems daunting, it is possible to get through it with a few tips. In fact, there are predefined models that make it easy to know your “net worth” at a given time.
As an individual, you can choose any date to take stock of your assets. It is generally a matter of noting :
• the market value of your personal assets (jewelry, furniture, etc.);
• the market value of your vehicles;
• the value of your cash and the balance of your bank account;
• the market value of your home;
• investments (stocks, real estate, mutual funds, etc.);
• all amounts owed to you;
For sound financial management, you can choose to take this balance sheet once or twice a year. Note that the more regularly you take stock of your assets, the better chance you have of keeping track of your personal assets.
Draw up a provisional budget
To control your expenses, it is essential to draw up a provisional budget. it is a matter of relying on actual figures to make projections over a given period of time. Thus, it becomes easy to develop personal development hypotheses with a certain degree of accuracy to ensure the viability of your projects. Keep in mind, however, that the data may vary from one period to the next, since this is only a forecast. In any case, it is up to you to do everything in your power to balance things out.
To establish a good budget forecast, it is recommended that you consult your monthly account statements and the invoices you keep. Then calculate your income and expenses using, for example, this form. If the result is negative, you must identify the expenses that you can limit in order to reach a balanced budget. If the result is positive, you may consider saving or investing, or both at the same time to increase the value of your assets.
Take out a savings plan
While the budget forecast helps balance income and expenses, it also helps set realistic savings goals to face the future with peace of mind. Indeed, savings are a shock absorber to financial stability and it is important to make the right choices to get the most out of them. Before you get started, you should know that it doesn’t matter how much you save. What matters is the savings rate. In practice, an employee who receives 1,200 (Usd) a month and saves 150 (Usd) has a savings rate of 12.5%. This figure is much more interesting than someone who earns 6,000 (Usd) a month but only saves 300 (Usd), or 5% of his or her salary.
Saving is important for sound financial management. However, you need to know how to do it so that you don’t fall back into the debt trap. If your budget allows it, you can store at least three months of income to build up your available savings. This is a part of your resources that is not immediately consumed. This type of savings generally helps to cover the risks inherent in life (drop in income, disasters, etc.) and to ensure long-term financial independence. In addition, your available savings can be used to cover expenses that are limited (condominium fees, taxes, etc.). Note that these savings can sometimes be used to finance your medium-term projects (professional reconversion, real estate projects, etc.).
Avoid unforeseen expenses as much as possible
In a context where advertising is increasingly aggressive, it is often tempting to give in to promotions to the detriment of one’s cash flow. The temptation becomes stronger when you realize that you could save a little money by buying a product in large quantities than by buying it individually. In this case, it becomes easy to make unexpected expenses and thus create financial problems. By giving too much priority to good plans, you risk exceeding your budget, which could plunge you into debt. To avoid this situation, it is better to stick to your budget and do things as much as possible.
For sound financial management, it is recommended that you consume only what you have planned for the current month. If you get into the habit of buying things on credit because you want to take advantage of a “good plan” at all costs, be aware that you may be sinking into a financial hole. You don’t realize it at first.
Take control of the situation before it’s too late!
Control your fixed costs
Whether you are an employee or an independent professional, it is important to have a perfect knowledge of your fixed monthly expenses for a sound financial management. But very often, we tend to minimize them. And, when we dare to add them up, we sometimes find ourselves with fixed expense ratios well above 70% of the forecasts. In this case, it is quite normal to feel frustrated with your financial management.
In order to correct the situation, an effective strategy must be put in place to reduce expenses. Start by making a list of unavoidable expenses (meals, rent, transportation costs, electricity, etc.). Then add secondary expenses such as magazines, snacks, restaurants, outings with friends and tutti quanti. Finally, add up all these expenses and write down the result somewhere.
Monthlyize your expenses
When managing several expenses at the same time, there is often a temptation to push back certain deadlines in order to solve urgent financial problems. Sometimes this procrastination is linked to the pretext of not wanting to advance money to certain suppliers or the government. However, this way of managing finances does not always allow projects to be carried out. Depending on the case, you may use what is planned for things that are nowhere in your budget. And when the time comes to pay for things you couldn’t meet, stress sets in.
By monthlyizing your expenses, you give yourself every chance to respect your forecasts to the letter. While it is important to make sure that your expenses are well provisioned in your bank books, you must be rigorous in order to honor your commitments. On the one hand, this choice helps you make provisions at a given frequency to cover all anticipated expenses. On the other hand, you find a way to resist the temptation to use this money for other things.
Monitor and systematize your financial flows
o achieve sound financial management, it is essential to monitor receipts and disbursements on a day-to-day basis. There are several solutions for this purpose. Depending on your habits, you can choose either to keep a management table of your financial flows yourself on a classic spreadsheet, or to use an online cash management software or to delegate the work to an online manager.
Apart from regular monitoring, it is recommended to systematize your flows. This choice will allow you to limit errors when drawing up your budget or evaluating it. Today, computer tools are almost indispensable for an efficient management of financial flows. Even as a private individual, you can easily find a reliable solution to better manage your cash flow. Indeed, there are software packages that can help you simplify your banking operations and quickly make relevant choices in various situations. However, keep in mind that these innovative solutions come at a cost.
Limit or eliminate the use of deferred debit cards and credit cards.
Deferred debit cards are often praised for their convenience. However, they do not always promote sound financial management. They are a debt owed to your bank, which can distort your view of your spending. According to the bank and the bank statements it issues, it will be difficult for you to make a good reading of your account balance before receiving your new salary. In this financial limbo, you risk going further into debt. If you have to use these cards, it is advisable to reserve them only for the professional expenses that you will have to advance while waiting for your employer to reimburse you.
Like deferred debit cards, credit cards also offer a number of advantages. However, they should be used with caution. They are generally issued after a credit contract is signed, and it is recommended that you read the information sheet and the terms and conditions of the contract before signing it. If you must use them, take the time to analyze your credit needs by considering your creditworthiness more than your desires. To avoid adding to your expenses, it is advisable to pay off the balance of your accounts in full before the due date. As much as possible, minimize the number of credit cards to reduce your debts.
Build a healthy relationship with your banker.
Even if you follow all of the above advice, it will be difficult, if not impossible, to carry out your projects without the help of a banker. As a specialist in the field, your bank advisor will help you make the right choices to better manage your financial flow. Instead of seeing your banker as an enemy of your progress, you must learn to see him as a true partner with whom you can maintain a healthy relationship to make your dreams come true quickly, without getting into debt. The more comfortable your bank advisor feels with you, the more likely he or she will be inclined to make financing proposals that perfectly meet your needs. However, you can seek the help of a budget coach if you are unable to have a good relationship with your banker despite your best efforts.
Achieving sound financial management is the wish of many people. But to achieve this ideal, certain actions are necessary. By following the recommendations and advice in this article, you can better manage your financial flows in order to achieve your projects as quickly as possible.