Intermediate Level
A lot of personal finance advice tells you to save money and invest. However, this can be hard, especially if money is tight, or if you can barely cover everyday expenses. But don't let this discourage you - you can still take steps to improve your financial situation. Here's how.
The first step to improving your finances is figuring out where your money is going. Try tracking your income and spending for at least a month or two. Do it with a mobile app, spreadsheets or old-fashioned pen and paper. Divide them into categories such as "groceries", "housing", or "entertainment".
By the end of a whole month of tracking, you'll have a clearer picture of your spending patterns. Sometimes, it isn't obvious that you're spending too much money in a certain area until you track your money. For example, you may find that you've been spending a lot of money on subscription services that you don't use, or that you spend a lot more on food delivery than you thought you did.
Once you know where your money is going, you can create a spending plan to keep your budget in check. A popular budgeting system is the 50/30/20 method – this means spending 50% of your income on necessities, 30% on wants, and putting aside 20% towards savings.
If you're finding it tough to save 20% of your income, consider how you can reduce spending on necessities or wants. Generally, there are three ways to do this – you can cut out a certain expense completely, spend on it less frequently or find a low-cost alternative.
For instance, you could: limit food spending by cooking budget-friendly meals; look for a cheaper mobile phone plan; forgot your gym membership for home workouts; stop spending money on expensive habits like smoking (or spend less often).
As saving 20% of your income straightaway can be hard, you can try gradually working towards that goal. Save just 1% of your income in the first month, 2% in the second month, and so on, until you reach your desired savings rate.
As you channel more money into savings, remember to keep an emergency fund. This refers to a pool of savings that helps you cover unexpected costs. For example, perhaps your refrigerator breaks down and you need a replacement, or you have an unexpected medical expense that isn't covered by insurance. Your emergency fund can pay for these costs, so you won't have to take out any debt to cover them.
An emergency fund is typically six months' worth of living expenses – but you may need more if you are self-employed, or if you have family members who rely on you financially. Keep these savings somewhere you can access immediately, such as a savings or fixed deposit account.
Cutting expenses can be useful to give yourself some financial breathing space, but there's only so much you can cut. At some point, it could be more useful to find another source of income. Here are a few ideas you can explore.
Selling assets. Selling items you no longer need can help if you need money to pay for a one-time debt or expense.
Gig jobs. Flexible or short-term gigs like food delivery or driving for a ride-sharing service can be a good source of side income.
Got a skill you can sell? Whether it's programming, graphic design, writing or consulting, reach out to your network or advertise yourself on online freelancing platforms.
Side businesses. Sell a product or service – this could be homemade sambal, digital marketing services or whatever it is you're good at.
Extra income can help if you're having trouble covering everyday costs of living, or if you are struggling to reach your savings goal with just your regular income. It can also give you a financial buffer if you lose your main source of income.
Being in a tight financial spot is hard – but know that it's possible for you to improve your situation. Track your expenses, create a spending plan, save for an emergency fund, increase your income and seek help if you need it. Start slowly and celebrate small wins.
