Good money management is crucial, particularly when the financial climate is filled with uncertainties. And for families with bigger financial commitments, the ability to save, budget and manage debt effectively can have profound effects on the relationships between spouses and between parents and children.
Families struggling to make sense of savings, budgeting and debts can try the following approaches to manage money more efficiently.
There are so many savings products offered by banks, but their interest rates vary not only from bank to bank but within the same bank itself. Generally, there are two main types of savings accounts – those with higher interest rates but with limited access and those with lower interest rates but with higher access.
Families will benefit considerably if they get the access to interest rate balance right. Here’s what to do:
- Check and compare interest rates of different savings accounts within the same bank and between different banks.
- Consider having multiple savings accounts for different purposes – one for short-term goals, one for medium-term access and one for long-term purposes.
- Those who have no plans to use their savings any time soon should park their money in fixed term deposits with higher interest rates to maximize their savings.
Start and Maintain Budgets
Good household budgeting skills will certainly help improve financial confidence. And no, it’s not that daunting a task. Start by writing down household expenses over a fixed period of time. Categorize the expenses.
For instance, divide items into “essentials” and “extras”. Essentials are for utility bills (water, gas, electricity, telephone and Internet), housing (mortgage or rent), groceries (food, beverages, toothpaste, and shampoo) health (prescription medication, eye care and dental care), transport (car maintenance, petrol and bus fares) and education (school fees, uniforms, books and stationary). Extras are for entertainment, holidays and gifts.
Remember that a budget can change. What’s important is to keep it simple and easy to understand. These days, many free and user-friendly online budgeting tools are available to help people create and stick to their budgets. Check out bank websites or try the Understanding Money Budget Planner. They are extremely useful to help people start and maintain their budgets.
Manage and Consolidate Debts
Most families have multiple credit cards and loans. Each debt comes with an interest rate and various charges. By consolidating debts, families can save on interest. Do a credit card review to see if the annual fees, interest rates and other charges are too high. If they are, consolidate them into one single credit card. However, read the terms and conditions carefully and check validity of the balance transfer rates.
Another approach is to consolidate multiple debts into one personal loan. This way, only one repayment is required each month, eliminating the possibility of accidentally omitting a repayment if there are multiple debts. Also, there is only one set of interest rate and charges to worry about.
Smart household money management revolves around the ability to maximize savings, start and stick to budgets as well as manage and consolidate debts. It does take some research comparing savings products and interest rates; commitment in maintaining budgets and understanding fine prints but the efforts are worthwhile in the long run.