Money has always been hard for families to manage, especially when trying to cope on a low income for the household in question. So, if money was hard to manage prior to the recession, things are especially hard now. Any amount of money saved, no matter how small, is important for low-income households.
And in order to save money, it’s important to know how to manage the finances properly. Below are some ideas to help with managing the household’s finances.
1) Work out how much money is earned each month
Before the household’s money can be handled, it’s necessary to know how much income is coming in each month. So work out how many hours are being worked during the month. Next, multiply the amount of hours worked by the pay. After this, take into account any extra money that will be coming in for the month. This’ll give a good, if not exact, idea of how much money will be earned during the current (or approaching) month.
When this is worked out, it gives families the ability to manage the money sensibly, as things such as shopping, etc., can be budgeted.
2) Budget
After the amount of money that’s coming in for the relevant month has been worked out, it’s time to work out how to manage the finances. What needs to be decided first is how much needs to be spent during the relevant month in order to live. In other words, what’s needed for the bare essentials, and it’s probably best to work this out on a weekly basis, rather than monthly.
So when this is done, set aside the amount of money that’s needed to live for the week (i.e., money needed for food, bills, etc.). Next, don’t keep it in the bank account, so that it can be spent when needed. Leave the money that’s not needed in the bank. Also, this next part is voluntary, but it’s also possible to leave a bit of money on one side to purchase anything that’s not needed like the odd magazine. Basically, anything that gives enjoyment. Ideally, though, this’ll want to be avoided, especially if money is tight.
3) Open a savings account
Once the money earned during a month is worked out, alongside how much each is needed each month, it makes sense to leave the rest of the money in a savings account. By putting the money in a savings account, there is an incentive to leave it in to accrue interest. Even though the interest is never a lot unless finances are stable, it still means the household will have more money to spend than without a savings account.
Also, by doing step 2, it should also be possible to work out how much money will be earned in interest at the end of the year.
4) Avoid credit cards and loans
This one cannot be stated enough. This is one of, if not the main, reasons that people get into trouble financially. By using a credit card or a loan, money is borrowed that is currently not in the household’s bank account, and it needs to be paid back. In addition, the interest rates are high. It’s not ideal when trying to become financially secure.
If it is necessary to use a credit card, though, make sure the money that’s owed is paid off in full (or as close as possible) before the bill is due. Then, the interest will be less or there will be none at all.