Learning effective money management not only enables you to live comfortably within your means, but also helps you to increase your wealth. Before you can sensibly apply money management tips, it’s helpful to be familiar with a few money management terms:
Use these money-management tips to stay in control of your money.
1. Know what you have: Before you can live within your means, you need to know what your means are. Start money management by taking stock of your money.
As well as the cash in your pocket or purse, include bank balances and piggy bank cash.
Go on a treasure hunt to find lost money. You might be pleasantly surprised to find cash or forgotten checks in clothing pockets, birthday cards, jewelry boxes, dresser drawers, furniture, your car, etc.
Consider property that holds some value and can be converted to cash, such as your vehicle, appliances, and other property. This kind of property generally depreciates (decreases in value) over time, but again, can generally be converted to cash.
Also consider long-term assets, like real estate, investments (stocks, bonds) and certain personal valuable property, such as collections, artworks, and antiques that appreciate (increase in value) over time and actually enable you to increase wealth.
2. Track your income: If you have at least a month’s worth of paycheck stubs, add them up and divide them by four weeks to see what your average weekly income is. Better yet, if you can add them for a quarter year and divide by 13 (number of weeks in a quarter) you’ll get a more accurate view of your earning power. If you haven’t saved paycheck stubs, estimate at least four weeks of earnings.
3. Track your spending:
Once you know what money you currently have and what income you expect to get, it’s time to figure out where your money goes. Take a month and track your spending down to the penny. Record everything!
In addition to tracking the cash you spend, record every bill payment, check, debit, and credit card expense. Include the amount you paid, who you paid or where you shopped, and the date you made the purchase.
Be sure to also factor in unpaid credit card balances and what it will take to pay them off. After a couple of weeks, you’ll find yourself reconsidering if you really need that daily mid-morning latte or new outfit.
This money-management exercise is designed to demonstrate how you usually spend your money, so it’s important during this month to spend as you typically do, so you can get an honest picture of your spending habits.
4. Set a money-management goal: Now that you have all of this information, compare your income to spending habits.
Take a truthful look at your income vs. spending habits. Based on this, set a financial goal towards better money management.
Make sure your goal is practical and that the “end” is in clear sight. Although your money management goal may be to pay off college loans or have a comfortable retirement, start small with objectives like paying off a credit card within X number of months or saving $X by the end of the year. With money management, like any goal-setting, there’s nothing like the satisfaction of success to keep you on track!
Knowing what you have and expect to earn, tracking your spending, and setting a realistic goal are the basics of money management that begin the process of taking charge of your money and making wise budgeting choices for the future.