What is Money Management?
Money management is a skill and those who acquire it over the time stand out of the crowd for a good part of their life. It is something that not everybody is aware and knowing how to manage your finances can help you achieve more. Since the financial system these days is fairly-complicated, it is important for you to know how to go about it. With bills, invoices, tax returns and many other financial matters to deal with, financial literacy play a crucial role. Right decisions are to be made from time to time and you need to be able to make them when time comes. I know from experience that starting out can be daunting. You must keep track of making major purchases and investments and at the same time keep everything in check.
Since it is an important skill, it should be taught at school, but it’s not. Financial management requires a basic understanding of personal credit and expenses. This means that you need to keep paying your bills at the right time and make sure your finances don’t take you down. It is important to know that certain sacrifices are to be made to make sure you stay out of debt and live to fight another day.
The deal is that you state a fixed budget, save money and protect your savings. Also, you need to make sure that you spend wisely. And when it comes to making big purchases, you only target things that are worthwhile.
At the same time, keeping your good debt and bad debt in check is also important. Financial literacy mas that you teach yourself how you can stay happy without having to worry about the excess or lack of money.
How to Win at Money Management?
Financial literacy and money management go hand in hand. It is not possible to do both without the other. Handling money the right way needs to be your priority. It should be the bases of your daily spending and saving decisions.
Money That Sits in The Bank:
The first task that needs to be done to understand money management is to open a bank account. This helps you keep your money safe and keep depositing it paycheck by paycheck. Also, it saves your money from an interest that is deducted by cash advance companies.
Apart from the safety, having a bank account is a proof of your legitimacy. Checks and debit cards ask for proof of payment and a bank account lets you have it. It is important to know that FDIC will insure up to $250,000 in your savings account.
There are different types of bank accounts. Some people choose a combination of debit and savings account, while others choose between them. It must be noted that the combination of both these accounts enables you to make automatic monthly bill payments. Other than this, you must go through the monthly withdrawal and maintenance fee options that come with your account.
Holding a savings account is recommended by the experts. It is said so because it helps you in emergencies such as accidents, car expenses or a sudden increase in the tuition fee.
Moreover, keeping all your money in a checking or savings account helps you keep track of it. If you are to keep your money in a savings account, you must keep it for the long-term as interest is generated by them. Whereas, keeping all your money in a checking account will deprive you of the interest generated. You must choose a combination of both to keep spending your money wisely- and saving a portion of it for the long-term.
Once you have kept your money with a bank, it’s time to move onto the next step of financial management. The best way to keep growing financially is to start budgeting immediately
Budgeting:
Budgeting is considered as the basis of a successful personal finance plan. It can be easy to understand but its application in real life scenarios can be tricky. It involves putting your wants away and focusing on your needs.
Formulating a budget involves looking at your spending habits and changing them for your own good. It is about controlling money and not the other way around. Budgeting requires you to develop saving habits and avoiding spending on things that don’t matter in the long-term.
Contents of a Successful Budget Plan:
- Realizing your spending habits.
- Following a monthly spending plan.
- Finding ways to decrease your monthly expenses.
- Handling debt.
- Drawing a line between short, medium and long-term goals.
- Keeping your family needs in check.
Once it’s done, you need to change your focus on the important task of budgeting. The question that arises is how can one get started at budgeting? The answer to that is simple: you dive deep into it. Budgeting is about finding the loopholes in your finances and making the right decisions. Some important steps towards budgeting your personal finances are:
1. Tracking your monthly expenses:
Tracking one’s monthly expenses is no rocket science. All you need is a notebook or a mobile app to keep track of your spending’s. You must be diligent about this and consider it the foundation of your budget.
2. Draw a line between fixed and variable expenses:
Fixed expenses are the ones that have been sticking along for quite some time now. They include rent, mortgage, car payments, bills, and student loans. On the other hand, variable expenses are costs that don’t stay the same every month. These expenses comprise of groceries, haircuts, hangouts and pet supplies etc.
3. Adding all of them up helps:
It will do wonders for you if after every three months you add your expenses and income and calculate your average monthly spending. Also, find the category that is a major expense source.
4. Variable expenses matter:
Variable expenses are the cause of major spending. This is where most people overspend. Take a close look at your variable expenses and find out your weak points or loopholes that are draining your finance. Ask yourself whether these expenses are worthwhile or not. Start cutting costs and save as much as you can.
5. Savings are crucial:
Savings are the most important when it comes to personal financing. It is important that the moment your check arrives you dedicate a portion of it to savings. If you are able to make a habit out of it, you will never run in difficult financial circumstances for the rest of your life.
6. Set a budget”
Now that you have analyzed your financial situation, it is time for you to start stating a fixed budget for yourself. Decide how much you are going to save for each much and put a threshold to the spending.
Remember, the key to effective budgeting is your honesty with yourself. You know how your expenses are income look and what needs to be done about it. Also, make sure you don’t ruin important expenses for the sake of savings. For example, don’t think twice about the budget before buying a present for your loved one. The better you know yourself the better you will get at maintaining a budget.