Whether you are looking to build on your current finances or you’re wanting to build a better relationship with money, this year is the perfect time to start. More often than not, people tend to leave it far too late to be smart with their money and end up making all the wrong choices as a teen or in their twenties. These mistakes might lead to high debt, a poor credit score and bad spending habits.
With this being said, there are ways to combat these issues in 2021 and it all begins by doing some research. So, you’ve definitely come to the right place as we have researched for you and compiled some of the best ways you can be smart with your money this year. Stick around to find out some more.
Work out your goals
One of the first ways you can be smart with your money in 2021 is to work out your goals and aims. Are you looking to purchase a mortgage in five years or renovate the kitchen at the end of 2021? Either way, it is impossible to achieve these goals within your needed time frame if you don’t budget and have realistic goals and expectations. We recommend that you write down your goals and articulate them well enough that you can stick to a strict regimen of achieving them.
Being smart with your money is about so much more than having long-term goals. These should also be developed daily and weekly as this will allow you to have a better understanding of your spending habits and you’ll learn how to control them. Being specific about how much you spend each day, week and month will promote transparency in your relationship with your finances and allow you to reach your long-term goals quicker. If you do this now, you can set larger life goals and put money where it truly matters.
Invest your spare cash
Do you often end up with spare cash at the end of each month? Not everybody has the luxury of this, but if you are one of the lucky ones, then we recommend investing your spare cash in securities in stocks such as exchange-traded funds (ETFs). An ETF is a method of investment whereby you can purchase a large number of stocks and bonds in one go. It can be difficult to understand at first, but by reading this quick ETF guide, you’ll be on the way to grasping it in no time. Some of the sectors available for ETF investment are communication services, energy, health care, industrials, real estate and information technology. What each of these sectors has in common is that they are publicly traded and in the Global Industry Classification Standard (GICS).
People tend to invest in stocks and bonds rather than having their spare cash lying around in a bank or their home where they are making very little or no interest. If you do end up doing this, you are watching your money dwindle in value day by day, and you are therefore not maximising your potential returns on your money. Being smart with your money is about a lot more than simply setting a budget for lunch each day, although this does mount up over time. Ideally, you should be investing your money in ways that’ll allow you to reap the benefits over a longer time period such as securities. Keep this point in mind for the duration of 2021, you may even reap the benefits by the end of the year or this time next year.
Set a spending limit
Many people think that being smart with their money is about entirely curtailing all spending on specific things such as leisure activities and entertainment. However, this is often not the case when it comes to our happiness and enjoyment. There are many ways you can stay frugal and still enjoy heading out with your friends and family and keeping your Netflix subscription going. To do this, we simply recommend setting a limit on these things rather than completely restricting yourself from them. For instance, you can set a specific amount of money you’ll allow yourself for each weekend to spend on an activity.
If you limit your spending this way, you will see the benefits of this building up over time and you’ll have more money to invest or to save for your future endeavours. Just remember, being smart with your money isn’t as important as taking care of your mental health, so it is important that you do the things you enjoy.
Build a credit score
Another way you can be smart with your money is by building up a decent credit score. Your credit score essentially works as a financial CV that will make you attractive to banks and in other financial matters. For example, if you have a higher credit score, you’ll be more likely to get approved for the mortgage you want or get that loan you’re desperately seeking. Doing this won’t bring you any immediate benefits, but you just have to trust the process.
To develop your credit score or build on your credit history, experts recommend using a credit card, paying off existing loans, and keeping up with direct debit payments. Credit cards are known as one of the easiest and best ways to build credit as they can be used in everyday life. With this, you can intentionally build up some debt on your credit card and then pay off the bill quickly and effectively will show that you are capable of paying off debt responsibly.
Shop for cheaper alternatives
Being smart with your money also comes down to your day to day purchasing decisions. You can make all the wrong decisions when it comes to money. For example, you could spend too much money at the shops on food, and then buy lunch when you’re at the office and then throw expired food away at home when you’re opting in for your favourite take away at night-time. Many people go through this cycle every single week or month and if you want to be smart with your money, it is best to avoid this very dangerous cycle.
If you do enjoy heading out for lunch and visiting your favourite restaurant for dinner a few times per week, there are ways you can curtail your spending elsewhere. For instance, when you head to the supermarket, you can purchase cheaper alternatives like store-own food rather than bigger named brands. With this, you can save money in the long run and more often than not, the cheaper brands are the same quality as the more popular brands. The money saved here might allow you to afford heading out for lunch when you want.
With that being said, it is important to remember that eating elsewhere rather than in your house is not financially viable in the long run. Being smart with your money is all about making smart financial decisions and ordering takeout to your home four nights per week is not going to cut it. These activities are great in moderation, so this is worth considering.
Organise your finances
At the beginning of this article, we recommended that you write down your financial goals and desires in order to work towards achieving them. To build on this, you should also organise your finances in such a way that allows you to understand your financial situation in depth. For example, you can keep a folder of all of your financial documents and other information which makes everything a lot more accessible when you need it. Additionally, having a tangible system like a filing cabinet or unit will allow you to come to terms with your finances more easily.
If you share finances with a partner, it is useful to organise your finances together. This will avoid confusion and will also make things a lot easier to access when need be. One of the most important things to remember in circumstances like this is to communicate with your partner about your finances to be transparent when it comes to spending habits.
Overall, this article has discussed some helpful tips that will allow you to manage your money smarter and more effectively. Being smart with your money is about making the right financial decisions now and preparing yourself for the future. Doing this in 2021 will allow you to get on top of your finances and become rest assured that you’re doing everything you can to set yourself up well for the future.
To be smarter with your money this year and beyond, we have recommended for you to set clear financial goals, invest your money, set spending limits, continuously build your credit score and credit report, be mindful with your spending habits and organise your finances. Are there any other ways you can be smarter with your money in 2021?