Healthy Money Management Habits You Should Cultivate

Now that you understand the significance of financial literacy and money management, let us explore some helpful financial strategies and money management habits:

1. Build a Good Credit Score

A credit card is a handy tool for any modern citizen. They offer purchase protection, EMI facilities, various incentives, offers, and many other perks. So, knowing how to use a credit card responsibly will help you acquire better financial opportunities.

Building a good credit score is one of the most critical parts of using a credit card. A credit score helps reduce the interest rate you must pay for your credit and gives you better mortgage options. Sometimes, employers will check your credit score before offering you the job. Therefore, it is intrinsically tied to your financial prospects.

The best way to build a good credit score is to use it as little as possible. Use it only for buying necessities and paying bills. Use it as little as possible for shopping sprees and other financial endeavors. Paying bills on time and staying away from the credit limit will help you build a good credit score. But you must also keep using it to create a long credit history.

You can also benefit significantly from checking your credit reports for accuracy. This helps people keep track of their expenses to make better plans for the future.

2. Try Pay Cash

A credit card has its downsides too. While responsible usage rewards you greatly, irresponsibility makes you develop bad spending habits. Doing things on credit makes you spend money you do not have. Such a tendency quickly leads to overspending and compulsive spending habits, which you want to avoid.

If you already have self-control issues with spending, avoiding using a credit card will save you a lot of money. Cultivating a habit of spending cash helps you lower your expenditure. Cash is inconvenient to carry, and you only get to spend what you have on hand. If using cash seems too old-fashioned, opt for a debit card instead.

This will help you balance your earnings and spending because you can track your money better. Compulsive use of credit cards costs you more than you think you’re spending. Most people with poor spending habits accumulate more interest on their credit cards than the money they save through corresponding offers and incentives.

The bottom line is that you need to be very responsible while handling a credit card. If you don’t have enough self-control, try to use it only in emergencies.

3. Count Your Salary After Taxes

Income tax is the most dreaded thing young adults encounter once they get their first paycheck. Though in retrospect, people don’t notice the effect of income tax before doing taxes. Before starting any financial planning, you must account for all your funds after taxes.

Your salary or earnings after taxes is what you have to work with. Many people fail to see it that way and delusionally overestimate their funds. Such actions lead to potentially unwanted consequences. You could always try online tools to calculate your taxable income.

On the other hand, some folks postpone their promotions to avoid marginal tax increases. Marginal tax is the additional tax you must pay on your income once it crosses a certain threshold. The marginal tax increase is significant but does not apply to your entire salary.

For example, You have to pay 1,100 for 11,000, which is approximately 10% of the income. But if you earn 22,000, you’ll need to pay 12%. However, the 12% will only apply to whatever you earn above 11,000. So, the final increase is not that high. In most cases, you don’t need to delay your promotions to avoid higher income tax.

That was a purely hypothetical scenario. Tax rates vary in different regions. So you’ll need to do some dedicated research to determine what works for you. You should also build a habit of doing your taxes yourself. It will save you a lot of money in the long run and is not that hard.

4. Learn To Make A Budget

Almost any self-help, personal finance, or self-help book discusses the importance of budgets. Allocating resources is the most fundamental aspect of management, and everyone needs to learn it at some point. Learning it sooner will help you manage your finances infinitely better than someone who doesn’t pay too much attention.

In essence, budgeting is relatively easy. You must calculate how much you have and devise a spending plan within that amount. It will help you track how much money you are getting each session and how much you must spend to maintain an adequate lifestyle.

The problem is people’s inability to follow through with these budgets. Most people don’t seriously spend time allocating funds for every little thing. This usually leads to over expenditure that people are not even aware of. That’s why people who start seriously doing their budgets are shocked when they see how much they spend on meaningless things.

5. The 50/30/20 Plan

Regarding budgets, you can follow some tried and tested templates like the 50/30/20 rule. This is a fundamental budgeting strategy where you divide your total fund into three separate segments. Dividing this way makes it more convenient for you to make subsequent plans, and you won’t need to micromanage every small detail.

In the 50/30/20 spread, you’ll set aside 20% for savings. You won’t touch that portion of your salary or earning. The 30% is your fun fund; you can use it for entertainment, any hobbies you have, or other random things that might come up. The bulk of your earning, or 50%, will go to your essentials. This includes all the bills, rent, gas, and other necessities.

In some cases, the 50/30/20 spread is not feasible. Such situations often happen in large cities where you must spend most of your earnings on rent and necessities. In such cases, an 80/20 spread is more optimal.