How good are you at managing your money?

On a scale of 1 to 10, where ten means you're excellent and one means you could use some help, where do you stand? Take a moment to think about it.

You might be surprised at how many people reach adulthood without fully understanding the basics of effective money management. It's more common than you might think, and it’s nothing to be ashamed of.

Let's explore this further with a few more questions. These aren’t meant to put you on the spot but to help you get a clearer picture of your financial health:

1. Do you know exactly how much money comes into and goes out of your account each month?

2. How much bad debt are you currently carrying?

3. Does managing your finances cause you stress?

4. Does the idea of investing make you uneasy?

There are no right or wrong answers here. The purpose of these questions is to highlight areas where you might need to focus your efforts to improve your financial wellbeing.

In my experience, the best approach to managing money is to keep things as simple as possible. Financial management doesn’t have to be complicated. Here are some basic principles to consider:

Know Your Cash Flow

The foundation of good money management is understanding your cash flow. This means tracking all your income and expenses. Create a budget that lists your sources of income and all your monthly expenditures. This exercise will help you identify where your money is going and where you might be able to cut back.

Reduce Bad Debt

Not all debt is created equal. While some debt, like a mortgage or student loans, can be considered good debt, high-interest debt such as credit card balances can be detrimental to your financial health. Make a plan to pay off high-interest debts as quickly as possible. This will save you money in the long run and reduce financial stress.

Simplify Your Investments

Investing can seem daunting, but it doesn’t have to be. Start with the basics and gradually build your knowledge. Consider starting with a simple, low-cost index fund or exchange-traded fund (ETF). These investments are diversified, meaning they spread your money across many different assets, which can reduce risk.

Emergency Fund

One of the cornerstones of financial security is having an emergency fund. Aim to save at least three to six months' worth of living expenses in a readily accessible account. This fund will be a safety net in case of unexpected expenses or loss of income.

Spend Less Than You Earn

This might sound obvious, but it’s a principle that’s easy to overlook. The simplest way to build wealth is to spend less than you earn and invest the difference. This doesn’t mean you have to live a life of austerity, but it does mean being mindful of your spending and prioritising your financial goals.

Regular Reviews

Your financial situation and goals will change over time, so it’s important to review your financial plan regularly. This could be monthly, quarterly, or annually. Regular reviews will help you stay on track and make necessary adjustments.

Seek Professional Advice

If you’re feeling overwhelmed or unsure about your financial situation, consider seeking professional advice. A financial advisor can provide tailored advice based on your unique circumstances and help you develop a plan to achieve your financial goals.

Managing money doesn’t have to be a complex or stressful task. By following these simple principles, you can take control of your finances and work towards a more secure financial future.

If you feel like you're not on top of everything, consider reaching out for professional advice. A financial advisor can help you get on the right track and provide the support you need to manage your finances effectively.