Money management is the best way to ensure that you know what you will have in the future. Setting goals, getting organized, tracking spending, building a budget and saving money are the steps to take to have financial security for yourself and your family’s future.
Tips on money management
Setting goals helps you get what you want in the future by clarifying exactly what your goal is for the short, middle, and long term. For the short and middle term goals, it is as simple as knowing what is needed and setting aside the right funds each month. Longer term goals can be more complex since you will have to estimate the interest you can earn on deposits and not forget to include inflation into those future goals. Using your best guess on cost and inflation along with being flexible and settling for similar goals will manage expectations.
Getting organized is essential to managing money efficiently. Setting up an area in your home and equipping it with office tools like a file cabinet for important documents, a shredder to protect against identity theft and a fireproof safe to protect important documents is a good step. Going paperless by requesting online statements and scanning important documents will give you a back up just in case anything gets lost or destroyed. Once you have everything gathered, you can create a personal financial directory that lists all of your important account information for you to easily manage your finances or hire a professional to do so.
Tracking your spending will help you identify wasteful spending by sorting out your “wants” from your “needs”. Writing everything down and checking it against your account activity and a record of any cash you use is essential. A budget software program can simplify the calculations for money management. After tracking your spending it will be time to build a budget with the information you have gathered. To build a budget you can list your monthly net income and then subtract your monthly current expenses to come up with any excess funds available.
Excess funds should be saved for those short, middle, and long-term goals. On average it is a good rule to be able to save around 10% of your monthly net income. It is always recommended to establish an emergency fund that is equal to six months worth of living expenses. Emergency, short, and middle term goal funds can be sitting in little to no risk saving accounts but long-term goal funds should be diversified and invested in higher return vehicles that generally have higher risk involved.
Money management is not hard it just takes some planning and discipline in staying with those plans to give you a secure financial future.