Did you know that becoming a better financial manager will help you out of your debt situation? People who are burdened with debt are oftentimes too focused on paying off their debts that they failed to realize the bigger picture. You need to know that apart from repairing the damage, you also have to determine what caused the problem in the first place.
Your debt is evidence of two things. You either lived beyond your means and relied on credit to pay for the things that cannot be covered by your cash payments. The other scenario is you practiced irresponsible handling of your finances. If your problem is the latter, that is where money management can help you out.
Most people do not realize that financial management is actually a part of any debt relief program. Regardless of the debt solution that you will use, may it be debt consolidation loans, debt settlement or debt management, you need to take time to find out what you did wrong.
3 financial management concepts you need to learn
Before we discuss the 7 ways that money management can help in your chosen debt solution, let us dwell on the 3 concepts that will help you understand what this is all about.
Implementing a budget.
The first concept that you need to know about is how to create and implement a budget plan. You need a budget to better manage your finances. This is when you look at your income and expenses and make sure that the latter is covered by the former. If your expenses are beyond your income, that means a portion of your spending was done on credit. You want to avoid that by making sure that your expenses are well defined in your budget plan. This plan is an important money management tool because it tells you if the way you manage your finances is really keeping you out of trouble.
Increasing your savings.
The next concept that you need to learn is how to increase your savings. If your budget will help you manage your income as present, your savings will help you secure your future. Nothing is for certain and you want to make sure that you have the money to finance any emergency that you will face in the future. May that be a sudden job loss or an illness, you want to be able to pay for it without resorting to debt.
Make smarter spending choices.
The last concept that you need to learn about money management is how to make smart spending decisions. This is not just about buying things that you can purchase in cash. It is also choosing not to spend because you believe that the money should be saved for a smarter expense in the future. You have to realize that smart spending is not just about choosing the cheaper products. It is finding ways to get the best value for your money. In fact, smart spending is linked to being wealthy. According to an infographic released by TADA.com, 40% of those earning $150,000 are more likely to look for coupons in search engines. The infographic even went as far as to mention that the wealthy are more coupon addicted than those who earn less.
Managing your money is simple but you will find that your attitude towards it will be your greatest hindrance. That is because financial management will correct the mistakes that got you in debt in the past. Being that we live in a consumerist society, we have been so used to spending in excess. That means you will have to change a lot about your spending impulses.
7 ways that a well managed finances can lead to debt freedom
As you make all these changes, you will realize that you are not only changing your habits, you are also improving your chances of getting out of debt. That being said, here are the 7 ways that money management can help you complete your debt relief program.
It provides you an overview of your financial capabilities.
First of all, financial management can provide you with a one-glance view of what your current finances are. That will be through your budget plan. With just one look, you will be able to see if you are spending more than what you are earning. More importantly, it will tell you how much you can afford to allot for your debt payments.
It guides you on the right debt relief program to pursue.
Since you are given an idea about the amount of money that you can use for your debt payments, you will easily figure out the right debt relief program that you will pursue. If your debt payment fund cannot cover your usual payments, you may need to reduce your balance through debt settlement. If you can cover it just fine but you want a less restricted monthly budget, you can use debt consolidation. If things are really bleak for your financially, then you can decide to use bankruptcy.
It allows you to set aside the money to fund your debt payments.
Whether you want to eliminate credit card debt or consolidate student loans, you will need to ensure that your debt payment fund will always be supplied with money. That is how money management can help. It will help you organize your money through a budget plan so you can secure the amount that will be sent to your creditors.
It helps you shift your expenses to make way for the spending priorities.
Another benefit of financial management is smart spending. This will teach you to cut back on expenses so you will have more money to add to your debt payments. You will learn how to choose where your money should be so you can finance the priority expenses.
It keeps you from incurring more debt.
All three concepts of money management will help in this. Your budget plan will help you decide if you can afford something or not. Smart spending will help you finalize if you need to actually make the purchase or just skip it. And your savings will guarantee that you will have the emergency fund to finance any unexpected expense that would have been beyond your cash payment capabilities. Some people got in debt because they were simply not prepared for the sudden expenses that were beyond their budget. They had to borrow money just to meet the urgent financial need. This will be avoided when you save up for an emergency fund.
It gives you the data you need to make smart financial decisions.
Again, through your budget, you will be able to make smart financial decisions. Since you can see the details of your finances, you can see how any additional expense or loan will affect your financial situation. It will help you make smarter choices about whether you will go through with an expense or investment. It will also help you decide if you can buy a home or a car. These are important money decisions that you have to make. An infographic published by Mint.com revealed that making the right decisions about your expenses will help you save money. For instance, choosing to dine in a restaurant for lunch can save you 25% of what you should have spent if you eat out for dinner. That saving can be added to your debt payments.
It tells you if you need to earn more money.
Lastly, money management will tell you if you need to earn more money to afford your debt payments. This is still through your budget. It will let you know if all your expenses plus your monthly debt contributions can be covered by your current income. If not, then you know that you need to add more monthly cash inflow.
Obviously, your budget plan will play a major role in getting you out of debt. But the fact that you still need to incorporate smart spending and your savings prove that you need money management in general.