It does not matter how little money you make, knowing how to manage it can make a huge difference between being financially secure and living from paycheck to paycheck. Money Management skills are an essential pillar to wealth building. It is one of the key ingredients to life’s success.
Do you know where all your money goes? Do you know how much money you spend on things like going out to eat, seeing a movie, buying beer, or purchasing clothes? Most people don’t.
Unfortunately, the schools systems we grew up in, did not teach us about any financial skills and how to handle money. Our habits are an influence of our own parent’s inclinations. Were they good spenders, savers or investors, this determines how you and I address our money challenges and goals. Just because you did not learn about money at school however does not mean you cannot start now. It is never too late.
Essentially, money management is simply how you handle all aspects of your finances- from making a budget for where each paycheck goes, to setting long-term goals to picking investments that will help you to reach those goals. I will be sharing some tips on how to get better at it.
How to better manage your Money
Being good with money is so much more than just making ends meet. It is the main source of your happiness. How so? It’s simple and it is not about you being good in maths. Basic additions and subtractions are enough believe you me. But, life is much easier when you have good financial skills. This is because how you spend your money impacts your credit score and the amount of debt you end up carrying, this ultimately affects your quality of life.
Are you struggling with managing your money? That is, do you find yourself living from paycheck to paycheck despite having what you consider enough, here are some tips to improve your financial habits.
How to Better Manage your Money-4 Practical Tips
- Make a budget, stick to it and track expenses:
Many people don’t budget just because they consider it a boring and considerably laborious exercise to list out expenses, add up
numbers, and make sure everything ties up. If you’re bad with money,
you definitely don’t have any room for excuses for not budgeting. It is a must do. Look at it from the point of view of what it will take to get your spending on track. It is just you and a few hours work each month. So why can’t you do it? Rather than looking at this as a process, focus on the value budgeting will bring into your life. That on its own will give you enough motivation to not only do it, but to be consistent until it is just one of those things you do with very little effort. Moreover, don’t just let it gather dust on the shelves, this renders your budget useless. You must refer to it often
throughout the month to guide your spending decisions, update it as
you pay your bills and spend on other monthly expenses. At any given time
during the month, you should have an idea of how much money you’re able
to spend, considering any expenses you have left to pay. Sounds easy isn’t it, that is because it is.
2. Limit Your Unbudgeted Spending:
A critical part of your budget is the net income or the amount of money
left after you subtract your expenses from your income.
For fun and entertainment-a key action to being happy and motivated to your goals, is to use the
money that you have left over, even then, within a certain set amount. Allocate only about 5-30% of the budget to some fun and entertainment activities. Always bearing in mind that, this would be the only money left to last the entire month. To make any big purchases, ensure that it doesn’t interfere with anything else you already have
3. Track Your Spending diligently: Does your money seem to just evaporate at one point or another? Effectively, it means you are “sleep walking through your Life” and you are not aware on what you spend your money on and why. Small purchases here and there add up pretty quickly, before you know it, you’ve overspent on your budget. Maintain a spending journal, write all your purchases, save receipts and categorize all your expenses. This will assist to not only track your spending habits but as well to identify areas where you find it hard to keep your spending in check. There are number of tools online to help you with tracking your expenses-make us of them. Always remember, ‘WHAT IS NOT MEASURED CANNOT BE MANAGED.”
4. Practice Financial Discipline and save: Most people naively believe that, the banks will not give them loans if they cannot afford them. Just because your income and credit qualify you for a loan,
does not mean take it. The bank only knows your income as you provided. The debt obligations only consider your credit report with no clue to the state of your other obligations, which by the way will render you to default on your payments. As such, do not commit to any new recurring monthly bills, unless it can be absorbed by your net income.
Initially, you may struggle to put off purchases until you can afford them, but planning ahead and delaying instant gratification will not only be good control for your money, it will be the best practice you can adopt for your finances both in the short and long term. Accordingly follow and develop these 2 simple habits:
- Deposit money into a savings account every month. Set up automatic money transfers from your checking account to your savings account. This way, you do not have to remember to make the transfers.
- Save Up for Big Purchases: Rather than
sacrifice more important essentials or get to the purchase on a
credit card, give yourself time to evaluate whether the purchase is
necessary and even more time to compare prices. If it is necessary, save up for it instead of using credit, to avoid paying interest on the purchase. Further, to, saving for it means you avoid skipping bills or obligations and you do not have to deal with the unpleasant consequences of missing bills. Being hood with money takes practice, allow yourself time ad make an effort to develop these habits and make them
part of your daily life, the easier it will be to manage your money, and the
better off your finances will be.
Money management skills is an essential part of life for your own peace, for building a good relationship with your spouse and for the good of your life in general. Warren Buffet forms part of the 6% of the world’s richest people. He was born into a normal family and he certainly did not accumulate his wealth from a leverage of a huge inheritance. He amassed and practiced good money management skills. If he can do it, why not you?