Being good with money is more than just paying off your payday loan no credit check on time, even though this is still highly important. And it’s more than just simply saving. Of course, you do not have to be a math wizard; you just need to know the basics like addition and subtraction. Life becomes much easier if you know how to manage your finances. The way you spend money will impact your credit score and the amount of debt you carry. If you are having trouble with money management issues despite having a sufficient income, you can use some money management tips that we will discuss in this article.
When you face a spending decision, especially if it is a large purchase, do not simply assume that you can afford anything. Instead, you need to ensure that you can actually afford the purchase and have not dedicated the money to another expense.
It means that the balance in your savings and checking accounts will decide whether you can make a purchase or not. You need to remember that just because you have money does not imply that you need to make a purchase. You also need to consider all the expenses and bills that you will need to pay before your salary day.
Before diving into learning how to manage money, you first need to learn the money management definition. Money management is the process of planning and tracking the use of capital by an individual or group. In both personal and corporate finance, money management usually includes spending, budgeting, investing, and saving.
Some private financial advisors provide money management services to their customers, while commercial banking offers the same to corporate clients. In the case of financial markets, money management refers to investment management and portfolio management.
Here are some money management strategies that you can use to ensure that you do not overspend more than your allowance:
Before you start your budget allocation, it is crucial to determine the priorities. This is the most critical step if you want to create a financial plan. Your main focus is to align your money goals based on your income. For instance, if you have credit card debt, you need to pay that down first before getting into anything else.
Experts suggest that your money priorities need to align with your personal values. The most significant part of your spending pattern should reflect on things that matter to you, whether about taking care of your body or traveling. This way, you will be able to cut down on other expenses so that you can maximize your capacity for your true priorities.
Another vital way to manage your money is to understand how much you earn each month. If you are not too sure of the exact figures, you can start by determining your income after deducting the taxes. Doing this will be easier if you are a salaried individual with a regular paycheck. In the case of freelancers, you may have to estimate your monthly income.
After you get the numbers, you can add extra income money from your side projects. For instance, you may teach a weekly fitness class, have a blog, or babysit to earn additional revenue. Whatever you earn, add it to your monthly income.
This is where you start to get some work done. To get the whole picture, you will have to perform some financial forensics on your spending habits. If it seems overwhelming, you can take the help of any of the several money management apps available.
Start by pulling out electronic payment records (PayPal, etc.), bank statements and ATM withdrawals, utility and housing bills, and credit card statements. Total your expenses on a spreadsheet or paper. As you parse your spending, you will be able to group them according to different categories. For instance, you can label purchases as savings/debts, wants, and needs. You can also add other categories like transportation, travel, food costs, and entertainment.
As you keep compiling your expenses, you will understand which category has the most spends. You will be surprised by how much you spend on eating or traveling.
After you know your monthly income and expenses, you can now start to make a plan. The best financial plan is the one where your priorities align with your spending habits. For instance, let us consider that you are into fitness. After you total your expenses, you find that you spend money on athletic gear, yoga classes, and gym membership in an average month. These expenses are essential, which is why you will not cut them down.
However, let us assume there is an emergency – you will have to try to cut the expense elsewhere. This means that you will have to brown-bag your lunch instead of ordering take-outs or shop at a discount grocery store.
There are several money management tools that you can use to automatically deposit money into a special ’emergency fund.’ This way, you will deposit money even before it can be counted for spending.
No matter what your priorities are, it is always a safe bet to have some liquid funds. Maybe you are working to pay down your student loan, and you are not so concerned about building a hefty fund for emergencies. This is fine – you do not have to save for six months. However, you should at least save up for three months.
You may never know what problems you may come across. There are several unforeseen circumstances – you could lose your job, there could be a medical problem, etc. Having money to deal with such issues will help you feel more prepared and secure. You will have a financial cushion for a soft landing.
One of the most crucial money management skills is saving. The sooner you start saving, the better will be the interest. You do not even need to have an investment account to start earning. Most of the savings accounts generate interests that are FDIC insured. This means that you do not have to worry about losing your money.
This rule can also be applied to your retirement. The sooner you start saving money on your 401(k) or IRA, the more money you will have during your old age. Even if you are years away from retirement, doing this will ensure that you have a good future.
These are some of the many money management activities that will help you save and manage money. The sooner you learn why money management is important, the faster you will start learning personal money management skills. Don’t forget these simple fundamentals.
What’s your take on this? Would you add anything? Let us know in the comments!