Money is what keeps people going and is like the pot of gold at the end of the rainbow at the end of the workday.
You work for it, and yet negotiating how to spend it, invest it, or save it can seem quite complicated. Proper money management shouldn’t be something you put off; instead, it can be something you start today.
With money management, little steps end up taking you pretty far. It is not something you have to do all at once, but instead, you can start planting today to reap the fruits of your labor tomorrow. To get started, here are five basic pillars of money management.
1. Take a personal inventory to design your unique financial plan.
Keep in mind that your financial situation is unique to you when taking stock of your finances, so resist the temptation to imitate other people’s investing or spending habits. A dollar to them may differ in value from a dollar to you.
When you assess your spending habits, you might be surprised at what you notice about how you spend money and where you could save it. This personal inventory is important, so be honest with yourself when asking questions like the following:
- Do you save any money per paycheck?
- Are there expenses you could eliminate from your monthly budget?
- Do you have a weekly budget?
- Are you consistently overspending?
- If you lost your job, how long would you be able to get by on your savings?
2. Build a blueprint intended for the long term.
Investing in your future isn’t about immediate returns or doubling your money overnight; it is about slowly and steadily growing your wealth. It’s not a sprint; it is a marathon. By taking a few steps, you will start to see the outline of your financial plan blueprint.
Building a Budget
There are many ways to go about forming your budget.
A place to start is the 50/30/20 rule for financial planning and budgeting. This is where you break down your income into the three categories of needs, wants, and savings, then allocate them accordingly.
The basic budget allocates 50% to needs, 30% to wants, and 20% to savings, but you can use different percentages if these don’t work for you. Even if you can only save 10%, 5%, or even just 1% of your income, it’s better than saving nothing.
Paying Off Debts
Paying off debt can be overwhelming, but if you tackle your biggest one first, you can chip away faster at your debt as a whole.
For example, start paying off your account with the highest interest rate first, while just making the minimum payments on any other debts. By working your way down from debts based on the highest to the lowest interest rates, you’ll not only pay debts off faster but also spend a bit less overall.
Keeping track of your expenses will show you where you spend too much or where you may have wiggle room to cut back.
For example, look at all your monthly subscriptions; you may not use some of them anymore or not enough to justify the expense. Consider canceling them entirely, but at least take them off autopay so you’re making a conscious decision to keep them and the money isn’t automatically taken from your account.
You can start saving in small ways, like setting aside a certain percentage of your paycheck each week, or even trying a challenge like the 52-week money challenge, where you save $1,378 in 52 weeks, or one year, by matching the amount of money you set aside with the corresponding number of each week.
For example, you would save $1 in week one, $2 in week two, and so on, which adds up by the end of the year. Maximize your savings by opening a high-yield savings account for better returns.
Bad habits can be hard to break, but creating good habits can build a better future. This is especially true when it comes to your credit habits.
Your credit can affect nearly every aspect of your financial life, so be sure to make payments on time to build a solid credit history and score and stay within your financial limits.
If your job or company doesn’t offer a 401(K), you can set up a retirement account personally. The compound interest accounts you build over time will help create financial stability and security for you in the future.
3. Set realistic goals and make the most of your savings.
By setting realistic goals, you can visualize yourself accomplishing them, which makes it more motivating to work towards them. There are no guarantees, but having attainable goals can help you better grow your savings. You don’t just have to squirrel away your money in a savings account; you can also begin investing it. Saving and investing is a process you should repeat over and over.
You should have savings for emergencies and the unexpected, but you should also have enough in your savings to live on for six months if something does happen that causes you to be without income. This may seem like a large amount, so start smaller by saving up enough money for one month, then increase from there.
4. Plan persistently and professionally.
Once you have developed your plan, budget, and path to get where you want to go, stick with it. Be determined to reach your financial goals by sticking to your budget, spending wisely, and adding to your savings on a regular basis.
Once you have these habits in place, you might want to think about getting help from a professional, like a financial advisor. Money management is a full-time gig, and having someone who specializes in it can only help you grow your personal wealth.
5. Diversify Your Investments
The adage about not putting all your eggs in one basket holds true with financial planning as well. There will always be risks and elements outside of your control when it comes to investing, so make sure you diversify what investment instruments you are using as well as where you are investing your money.
If you can cut back and live within or below your means now, your future self will greatly appreciate it. When you first start thinking about money management, try not to think of your entire financial plan as a whole, but instead break it down into small, achievable goals. You can create the future you want by starting now.