Managing your money well can be very fruitful in the long run. But alas, many people, especially those facing insurmountable debts, have either never practiced money management, or have been unable to do it right.
Money Management involves setting up a budget, that not only helps in paying off the monthly bills, but also helps in saving for the rainy day. With effective budgeting, one can increase one’s chances of being debt-free, of being insured against unexpected costs, of having a better credit rating and of being granted a mortgage or a loan. Budgeting can also help in identifying areas where one can minimize expenses and repay debts, or save for a car or a long holiday in the future.
Here are some key tips for better money management:
- Track your spending – For a month, make a note of each and every item on which you spend your money. This will provide incredible insight into your current financial situation. You can use this information to create a budget for the next month to control your expenses. For example, if you have taken a gym membership which you do not use, you can then take the step towards cancelling it, or not subscribing to it again in the future unless you are determined to stay committed to it. Additionally, you can reduce expenses on your entertainment needs by fixing a special budget to it every month.
- Pool your money – If you are married, you can pool your and your spouse’s money into a joint fund. The two of you can set a budget together and then pay bills and settle debts from it. Such joint effort towards money management can be more effective than doing it alone, as one partner can keep the other in check from overspending.
- Make regular savings – Set a target to set aside a certain amount of money from your paycheck every time. These savings over months and years can serve as emergency funds. Don’t make the mistake of treating your superannuation as your emergency fund, as you need that for retirement. For starters, you just aim to save an amount, equivalent to 3 months of all your expenditure. This can act as a cover in case you lose your job, or need to pay for unforeseen medical expenses, that your insurance doesn’t cover. After you have saved enough for 3 months, you can then focus on saving more to spend on a holiday, or to buy yourself a car, or towards buying your dream house.
- Take your retirement seriously – For businessmen, voluntarily putting aside some amount of your money towards a retirement fund, is important, as naturally, one will not be physically capable of working lifelong. Also, as the income increases, one should consider increasing their contribution to the retirement fund, just in order to make the retirement more secure against future lifestyle inflation.