Becoming Cash Smart

How can the young person of today become money wise? There really is no big secret to it. The key thing is for you to develop a good understanding of money and cultivate financial habits that can help you get ahead financially.

Plan your expenses:

The best to prevent money from slipping through your fingers is to have a spending plan — a budget. Drawing up a budget is much easier than you think. It's as simple and knowing how much money is coming in and what's going out through spending. Once you know this you can adjust what you spend to reach your goals.

While this may sound obvious your main goal should be to spend less than you earn. This surplus is what goes into your savings — for a rainy day, for controlling debt, or for investments. You need to set a target of how much you want to save each month. Most financial advisers recommend saving at least 10% of your income.

By making a detailed list of all income and actual expenses, you will find exactly how you spend your money and how much money is left over for savings. If you don't have as much money left over as you would like then go through your broken down list of expenses and look for places where you can make cut backs.

It will help to classify the expense items into essential items, which are basic, necessary expenses, and extra items, which are the stuff that can be trimmed down. By developing discipline in your spending pattern, you will be able to avoid incurring too much debt. It's good to have a credit card but you have to use it wisely.

Some ideas to help you reach your savings goals: - Pay to your savings first. Consider your target amount as an expense and pay the amount to a high interest savings account immediately. - Draw up a list of groceries to buy. Set limits on consumption and stick to that. - Bring food to work instead of buying lunch. - Limit mobile phone expenses. Use pre-paid options instead. - Restrict your credit card use to planned purchases; avoid impulse buying.

Plan your investment:

It is best to separate your monthly surplus from your transaction accounts. Shop around for a high interest savings account, preferably without any ATM access. This ensures that you cannot touch it unless absolutely necessary.

By leaving your money alone to grow in a high interest savings account, you harness the power of compound interest. This means you earn not only on your deposits but also on the interest earnings you have accumulated. The amount may seem inconsequential at first but it will become substantial over the long term.

When you receive cash windfalls, like a bonus or a pay rise, consider placing all or a large part in your high interest savings account. This can really help build it up. Once you have accumulated a sizable balance, consider putting some of the money in another type of investment.

Your investments could be spread as follows:

- Money for a rainy day, which should not be too inaccessible. A high interest savings account is perfect for this because you can cash it in quickly when needed.

- Money for building wealth, which typically is a longer-term investment. This usually consists of investments in property or a share portfolio. If you are wanting to buy your own home and a saving for a deposit then a high interest savings account can help you reach this goal faster.