Money management is as universally important as good manners and – we have to learn how to work with it.
When you hear or read the phrases ‘financial management’ or ‘financial tips,’ I bet you can’t help but visualize some old relic from a recognized banking establishment droning on and on about ‘savings’ and ‘investments’ and other such unappealing and daunting long term commitments.
But the reality is, as it has always been, that money management is as universally important as good manners and – we have to learn how to work with it. This, in a world offering a myriad of delights that we can purchase online without even leaving the comforts of our home!
It goes without saying that the best teacher is experience – and when it comes to money most of us learn a little too late. That’s why it’s wise, not only educate yourself on financial matters but, to constantly evaluate, update and stick to a financial “plan”.
Most people think that a financial plan is a complex financial document that you keep locked away in a safe but it’s not really that complex and doesn’t have to be complied by a financial expert; you have to become your own financial expert. A sound financial plan is just as effective if stored in your mind as it would be if it were filed away next to your insurance policies – what matters is that you put it into practice.
If we develop good financial habits, our life journey becomes less wrought with overwhelming difficulties and more about realizing our dreams and recognizing the many opportunities that come our way.
This is not to say that it is ‘plane- sailing’ if our financial habits are healthy. That would be simplistic thinking.
However, managing our money carefully and thoughtfully allows us the freedom of choosing and pursuing what we want in life and more importantly, the means to cope with the unexpected ‘blows’ that life will ultimately throw at us.
Table of Contents
- Get to Know Yourself
- Get Money Smart
- Stop Spending Money on Things you Don’t Need
- Ditch the Plastic, Use Cash Instead
- Evaluate Your Income, Debt and Expenses
- Avoid Taking on More Debt
- Minimize and Manage Debt like a Pro
- Create a Budget
- Keep All Financial Records and Documents
- Invest and Save
- Above All, Keep it Real!
1. Get to Know Yourself
Your money is a huge part of your life as it determines what you can and cannot do and where you can and cannot go.
Learning how to manage your money the right way is an important step toward taking control of your life. Before you learn how to effectively manage your money you need to get to know yourself a little better.
Apart from evaluating your income and expenses with a fine toothcomb, you need to take a look at your habits and identify your strengths and weaknesses.
For example, you may be an impulsive spender who will never turn down a special offer that’s staring you in the face, even if you have no immediate use for the item on sale. This means that you have to try and rid yourself of any tempting advertising and/or opportunities to buy stuff – either by unsubscribing from all special offer newsletters that flood your inbox on a daily basis or, by completely avoiding the stores that usually trigger this impulsive spending.
If you tend to spend most of your monthly income before you’ve even opened up the stack of bills piled up on your kitchen counter – then you need to set up debit orders for your bills and, as far as possible, automate your financial plan so that you don’t allow bad habits to completely destroy your financial wellbeing.
Whatever the case may be, you need to take a realistic look at your habits, lifestyle and circumstances to enable yourself to create a sound financial plan that will become your friend rather than your enemy.
2. Get Money Smart
Your level of financial education is crucial in determining your financial wellbeing and success.
Would you trust yourself to fly an aircraft without the proper training and education? I doubt it.
So why do you trust your ability to manage your finances without having the proper education and training? You cannot control or manage something that you do not understand – and if you are able to do so to some extent, I guarantee you that the gaps in your knowledge and experience will hold you back from achieving the financial wellbeing and success you deserve.
Educate Yourself Financially
So, how do we get started on improving our financial education? One of the best ways is to use the internet to self-educate.
You can start by reading some general opinions on financial management, budgeting and saving and move on to the more complex and detailed expert content once you’ve gotten familiar with all the financial terminologies and major components of the subject.
You could sign up for a podcast, seminar or download some books on the subject – the options are endless!
Create Your Own Financial Plan
Another great way to start is by talking to people who have good financial plans or extensive experience in the matter because you’ll never be able to create a good financial plan if you’ve never even an example of one!
Even the most perfunctory glance at a good financial plan will immediately highlight the errors within our own financial planning, assuming that we even have a financial plan (we’ll get to that in a moment).
Use the Services of a Financial Expert
If all else fails – get some expert advice by consulting with a financial advisor, they will charge you for their services but, will probably save you from having to deal with serious financial difficulties in the future and probably set you up for life – which we can all agree is worth every cent!
3. Stop Spending Money on Things you Don’t Need
Most people that find themselves struggling financially are not lacking financial resources; they have simply developed awful spending habits that they can’t shake.
It’s as if every advert, sale sign and shopping mall is calling their name – begging them to just “take a look” and the more they let themselves succumb to the calls, the harder it becomes to ignore them.
The best way out is to decide that you’re not going to spend your money on things you don’t need and use your money, time and energy on more productive endeavors.
It is important that you “do something” to fill up the time that you’d normally spend paging through sales catalogues, browsing through special offers online and reading through reviews – and what better way to use your time than to earn rather than spend? Financial success is all about replacing bad habits with good ones.
We often need to do a lot of stumbling around before finding methods and systems that work best for the situation that we are in – search for these methods!
This goes hand-in-hand with getting to know yourself because once you’ve made an effort to do that, you’ll probably find that you spend a little more money than you should.
At the risk of upsetting the clothing aficionados amongst us, how many pair of jeans do you really need?
It may be hard to control your urges to splurge on the latest gadgets, extravagant dinners and exciting weekend getaways but a little bit of restraint will go a long way.
4. Ditch the Plastic – Use Cash Instead
Much has been written about the evils of credit cards and yet, outwardly suggesting to someone that they get rid of theirs is like trying to take candy away from a baby.
There are many times when a credit card is a blessing and even a necessity since many purchases cannot even be made nowadays without one.
However, you must understand the fact that with the ‘perk’ of a credit card come high interest rates, fees and penalties that, in one way or another, end up consuming a huge chunk of your annual income.
If you’re responsible enough to manage your spending and repayments efficiently then your credit card won’t do much damage however, for most, it’s the primary cause of financial instability and woes.
If you know that you don’t have the self-discipline needed to handle the responsibilities of having a credit card, you’re better off ditching the plastic for the paper.
I’m sure you’ve heard of the many studies that show using plastic leads to more spending then using paper – and it’s true. You’ll be more aware of what you’re buying and how much you’re spending if you have the cash in your hand and you have to count it out at the till – so if you’re looking for a way to curb your spending then this is certainly a worthy option.
5. Evaluate Your Income, Debt and Expenses
You might be wondering why I haven’t mentioned ‘goals’ yet? Well, it is very difficult to formulate a realizable goal when you don’t know the ‘story of your own financial spending’.
You must specify where your money is coming from (if you have multiple income streams), where it is going to, and how to make sure that the way you manage your money falls in line with the values that matter most to you.
This part involves jotting down your monthly income and expenses. This is the part we don’t like, but it pays off in the end and the fact that you’re reading this article means you’re ready to take on this beast.
It always comes as a bit of a shock when we see in writing before us just how disorganized we are when it comes to money management.
Analyzing how we spend our money allows us to see that perhaps we are spending too much money on ‘stuff’ and far too little on investments. Simply adding up the total that we spend within various categories such as food, clothing and techno-gadgets will give us a good place to start our financial ‘clean-up’. It’s a good idea to use 3 months worth of bank statements to analyze your average income and expenditures, particularly if you don’t follow a budget and have wild variation in either your income or expenses.
6. Avoid Taking on More Debt
No matter how badly you want that new gadget or how urgently you need that family vacation – avoid taking on new debt at all costs.
Effective money management is essentially effective debt management because if your debt gets out of control it means you’re not managing your money effectively.
If you cannot afford something outright then chances are you can live without it.
If you absolutely need to get finance try to go for an alternative – borrow it from your friends or family members instead or get a short term cash loan but, don’t make a habit of it. As you develop healthier habits in the handling of your money, you will find that you need to borrow less and less.
Create an Extra Income Stream
Humans are very creative and finding new and innovative ideas that earn you a bit of cash on the sideline can help avoid the dilemma of borrowing money.
I know of a lady who baked biscuits on the side line in order to supplement her income as a single mother. She was able to live off her earnings from her little cottage industry and managed to educate three children to university level.
All this, doing something that she enjoyed from the comfort of her own home!
Get creative, bake some cookies and forget debt!
7. Minimize & Manage Debt like a Pro
Avoiding paying bills or allowing them to mount up is like knowing that you have an illness that is in fact treatable and refusing to do anything about it.
If we could avoid having bills in the first place, that would be wonderful, however, the very essence of life as we know it determines the fact that we will all at some stage on our lives have some type of debt.
We all need a home to live in and a car to drive to work but that’s as far as “good” debt gets. If you have more than the aforementioned than chances are you are not only struggling to stay on top of your debt repayment but that you’re behind on some, if not all of your payments.
This is when it’s time to start working on a good debt management plan to get you out of debt as effectively and timorously as possible.
There are many ways that you can better manage your debt – from using 0% interest credit cards and applying for a balance transfer card to paying off the high interest debts before the rest.
If you’re having trouble making your minimum payments contact your lenders as soon as possible – they will almost always agree to alter the original loan terms to avoid having you default on you loan completely.
You always have options; you just have to choose to seek them out!
If you’re not in any serious trouble with debt you should still take the time to prioritize your debts and find a way to pay more than the minimum amount each month because the longer you take to pay off your debt, the more interest you’ll be charged.
8. Create a Budget
Even the best laid plans are not perfect, and probably never will be, but if they’re enough to keep manage your debt, expenses while also setting aside money for retirement and/or investments – it’s good enough.
You can use all the information that you gathered while evaluating your income, debt and expenses to put together a budget. This budget should indicate your total monthly income and your total monthly expenses which include your bills, debts and purchases.
Generally paying off high interest debt like that incurred by credit card and store card debt must be prioritized above savings and investments since it’s unlikely that you will gain a return that exceeds the interest you pay for the same amount of debt.
If you have sufficient income to cover all of your expenses, any surplus income should be allocated to one or a combination of the following: debt overpayments, investments, retirement or general/emergency savings.
Once you have a sound budget set up you must do everything possible to stick to it and possibly even do better than anticipated by spending less and saving or investing more. If you happen to run into some additional income or receive an increase or promotion at work – use it to pay down debts or invest rather than go on a shopping spree.
In addition, you should evaluate and update your budget at least one every 3 months to ensure that all items are a true and accurate reflection of your monthly income and expenses.
9. Keep All Financial Records and Documents
This is where good organizational skills come into play; you must keep all financial records and documents in one place.
Rushing around frantically to locate an important piece of paper wastes time and often results in you overlooking an important bill that needs to be paid.
Keep electronic copies of bills or file hard copies of them in a designated expense or creditor file.
You could also keep a record of all your expenses on a simple excel spreadsheet which you can print and file away at the end of each month. This will ensure that you keep abreast of your spending and can quickly refer to your files should any dispute, query or issue arise.
What about that moment that arises when you see something that you really want? Well, here’s some solid advice from my dad.
When I had just started working, he used to say to me. ‘If you see something you really want, wait three weeks, go back and look again, if you still want it, wait another three weeks’.
The idea being that if you still want it a few weeks later, then fair enough get it, but in my experience more often than not, one loses interest by that time.
And those larger purchases? Well, the old adage ‘if you want to eat an elephant, cut it into small pieces’ rings particularly true. If you don’t really need a bigger home or new car- rather let things be as they are.
As with all matters in life, common sense must prevail – if you don’t need don’t buy it.
10. Invest and Save
Often the greatest motivator to money management is to have a dream or a goal that requires you to manage your money carefully to achieve.
Something as simple as a lifelong desire to travel can spur you into saving your money. But often it is the unexpected ‘curveballs’ such as illness or the desire to be better qualified in order to get a better job that teach us better money management habits – the hard way.
It is easy to put off the task of saving until next month.
To avoid forever putting off starting that savings account or beginning your investment portfolio, commit yourself to setting aside a certain amount of money each month.
Decide upon a figure and arrange an automatic transfer of this amount to a separate savings or investment account. Remember the old adage, the elephant? A little saved each month adds up with time so start today.
If you don’t have an emergency fund, set one up and make sure you have at least 3 to 6 months worth of income saved up because unlike with taking on debt, I’ve never heard anyone say that they’ve regretted saving money!
Make Mindful Investments
Instead of saving your money in an account for a prolonged period, you can use it to invest, so that you get paid back with an extra amount.
If you find no improvement in your financial status even after implementing different management tips for a long time, then you can seek advice from financial wizards.
Above all, keep it real!
“It doesn’t happen all at once,” said the Skin Horse. “You become. It takes a long time. That’s why it doesn’t happen often to people who break easily, or have sharp edges, or who have to be carefully kept. Generally, by the time you are Real, most of your hair has been loved off, and your eyes drop out and you get loose in the joints and very shabby. But these things don’t matter at all, because once you are Real you can’t be ugly, except to people who don’t understand.”
