Table of Contents Hide
- What is Money Management?
- Importance of Money Management
- Types of Money Management
- Money Management Skills: How can you manage your money?
- #1. Know your current financial situation
- #2. Set S.M.A.R.T financial goals
- #3. Draft a budget
- #4. Build and Maintain an emergency fund
- #5. Be intentional about spending
- #6. Diversify your income
- #7. Limit your credit card purchases
- #8. Save for your retirement
- #9. Create a debt payoff strategy
- #10. Being good with money takes practice
- What is the 50 30 20 rule for managing money?
- What are the 3 basic steps to better money management?
- What means money management?
- What’s the 30 day rule with money?
- What is the 25 and 4% rule?
- What is the 70/30 10 Rule money?
- What is the golden rule of money management?
- Money Management PDFs
- Bottom Line
- Related Articles
Want to know what the most important survival skill is? Money management. Of course every other skill you know is important but this – Money management, tops the chart.
Your ability to balance income and expenses, set financial goals, and save or manage your debt/loans is a skill that will literally save your life.
As a matter of fact, life becomes so much easier when you have good financial skills.
So, if you have money management issues, despite making enough money, then it’s time to improve your financial habits.
We’d go over money management in details, but for now, let’s start with the basics.
What is Money Management?
Money management is the process of thoroughly monitoring the expenses, budgeting, banking and investing of your money. It is otherwise known as generally overseeing the usage of money whether by an individual or a group.
Money management is a technique used to reduce the rate at which individuals, firms, and institutions spend on items that have no significant value, thereby making the money yield high interest.
Ideally, money management is a skill that you have to learn, if you want to attain financial freedom. This is why personal finance apps and financial advisors are the most common tools to use when it comes to money management.
Conversely, money management is used in the financial markets to explain investment management.
As investors increase their net worth, they often seek the services of financial advisors for professional money management. You can’t have all that money and not know how to manage it right?
So, this makes money management a very vital part of our lives. Whether for investment management or for personal finance management.
Importance of Money Management
The importance of money management cannot be overemphasized as it literally helps to save your life.
Below are the importance of money management
#1. You have better financial security
Money management is a skill that allows you to have a lot of savings. This gives you confidence, knowing that you can handle unexpected expenses whenever they come.
If you are very careful about your finances, you’d realize that after you have set your budget for the year, you still get to spend what you have not planned for.
Hence, its only a good money management skill that saves you on when the rainy day comes.
#2. You can maximize opportunities
Periodically, we come across several opportunities to make money but we let it go because we do not have enough money to carry out such investment.
However, those who properly manage their money successfully, are able to invest in such opportunities and generate returns, or even attend life changing experiences.
This means that there’s one thing to learn, whatever you do, ensure you have enough to “throw away.” That means, enough to invest when a good opportunity comes.
RELATED ARTICLE: What Is Strategic Financial Management?- Functions and Importance
#3. High credit score
A good credit score is a reflection of your money management skills. Normally, a high score means that you paid your bills on time and have kept your total debt level really low.
So, having good money management skills rewards you with a high credit score that in turn makes you enjoy lower interest rates.
#4. Less Stress
According to a recent 2017 study by the American Psychological Association, 62 percent of Americans are stressed about money. This can consequently lead lead to health problems like migraines, and insomnia.
Additionally, not being able to pay your bills or finding out that you are in need of cash can lead to significant amounts of stress.
Hence, learning how to manage your finances can help you enjoy life instead of being in constant need for cash.
#5. Earn More Money
As your income grows, you will not just be concerned about setting a budget and sticking to it so that you can cover all your expenses. You’d equally be concerned about how to invest the extra cash you have at the end of the day.
Hence, one of the things money management does for you is that it allows you to become knowledgeable about investment opportunities like stocks and mutual funds.
The great part is, while you’re at work, your money (investments) is working for you.
Types of Money Management
Generally, there are no different types of money management. However, there are different aspects of money management.
More so, to become skilled at it, you have to understand what is involved.
Below are the different aspects to money management;
- Banking and saving
- Paying taxes
- Managing debt
- Retirement planning, and
- Estate planning.
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Drafting a budget is one of the several ways to manage your money. Until you have a thorough understanding of what your income and expenses are, you can’t live within your means.
#2. Banking and Saving
Deciding where to keep your money shouldn’t be neglected, because not all banks are the same. Fees are very different.
Some banks may charge you for visiting a teller, speaking with a customer service representative by phone, paying bills online, overdrawing your account, or many other events.
Choose a bank that has the best of customer service and fees, considering the types of service you plan to use the most.
When deciding to save, choose an account that best suits your financial needs. Whether you want to operate a checking or savings account, it all depends on your needs.
Many checking accounts waive certain fees if your paycheck is directly deposited into your account. They also come with debit cards, which you can use to withdraw money from your account and to pay for items as you would with a credit card.
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If you want to operate savings accounts, ask about interest rates, minimum balances, and whether you’re allowed only a certain number of transactions per month. If so, you will generally be charged for each transaction over the limit.
Identity theft protection
Be sure to ask about the bank’s policies to protect you from fraud and identity theft if someone uses your ATM or debit card without your permission.
#3. Paying Taxes
Another way to manage your money is to file your taxes on time. If it’s not feasible at the moment, its better to get an extension.
However, an extension does not extend your time to pay any taxes you owe; you’ll have to pay these when you file for the extension.
Investing is another lucrative way to manage your money. So, when considering possible means of investment, try certificates of deposit (CDs), bonds, mutual funds, real estate, commodities, stocks, and business ventures.
Investments come with risks. The riskier an investment is, the more important it is that you have some expertise or get assistance from a competent agent.
#5. Managing debt
You can’t successfully manage your money, and attain financial freedom if you don’t carefully manage your debts.
Clear off all student loan, home mortgage or car mortgage debts. This is because they will always have a bite of your income and you may never save as much as you want to.
So, its best to settle all debts, to enjoy the peace of mind that comes with it.
Money Management Skills: How can you manage your money?
If you are looking for the best money management skills to use, here they are;
#1. Know your current financial situation
The first step to successfully managing your money lies in knowing exactly where you are at financially.
This means you have to take stock of what you own (assets) and what you owe (liabilities). Be brutally honest to yourself about what outstanding debts or high expenses you have to take on all the time.
When you subtract your expenses from your income, you’d get your net worth. If your expenses are more than your income then you are failing at money management.
But, there’s no need to worry, because with the right tips you’d become a pro in no time.
#2. Set S.M.A.R.T financial goals
After you have done a thorough analysis of your current financial state, its time to set feasible financial goals. What do you want to achieve with your money, and why?
The acronym S.M.A.R.T stands for;
Adhering to this acronym will help you set a realistic and feasible financial goal. For example, prior to the knowledge of this acronym you have set a financial goal like “Pay off student loan.” That’s good, but how do you intend to achieve the goal?
Are you adding more debt? What’s your payoff date? Do you have the income/expenses ratio you need to achieve this goal?
A better presentation of that goal will be “I will pay off my student loan debt by February 2023.” This sounds better, has a time, and is more realistic.
#3. Draft a budget
You have a financial goal now, congratulations! It’s time to set the path to achieving that goal. And the only path that has a proven record of being safe is drafting a budget.
Not everyone loves budgeting, but the results are splendid.
Budgeting involves making a list of your incomes, as well as your expenses. It helps you realize expenses that can be cut. In fact, budgeting helps you see clearly financially, and sets you on the right track to financial independence.
One way to make budgeting fun for you is to employ the 50/30/20 rule. Where 50% of your income goes to settling your needs, 30% goes on wants and 20% goes to paying off debt and savings.
Here are simple steps to draft a good budget
- Sum your income, expenses and savings
- Calculate the amount you spend on needs, wants, savings, and debt monthly. These can be estimates.
- Track your spending each week by checking your account activity
- Budget for the next month at the end of the previous month. You might need to update spending categories based on monthly events, variable expenses, upcoming life changes, etc.
Budgeting works, you just have to learn to stick to it.
#4. Build and Maintain an emergency fund
Emergencies happen all the time. It’s one of the perks of being human. The real challenge lies in the action to take when emergencies happen.
Experts recommend that you save enough to cover three to six months of your expenses. So,if your expenses are $3000 monthly, then you might want to set aside $9000 and $18,000. Keep in mind that it’s an emergency fund.
Conversely, if it sounds very overwhelming, you can consider starting slow, from $1000 then gradually build your emergency fund up. Take what you can from your paycheck every month.
#5. Be intentional about spending
Its so easy to spend money unconsciously. In fact, it feels so good to spend money anytime and anyhow you can.
But if you are going to be good at money management, then you have to be intentional about what you spend your money on. Because if you don’t, you’d just be taking money away from your future self.
Budgeting is a good way to check your spending. Be sure to spend on what only matters.
#6. Diversify your income
You wouldn’t have lots of assets in your name if you have just one source of income. Create multiple streams of income. Look around you, something else should be able to get you more money.
Don’t forget the internet, look for legit ways to make money online and be a part of it. See some Online Business to Earn Money in 2022 (+ How to Start Guide)
The whole idea is to find extra ways you can make a couple of extra bucks monthly. It helps you reach your goal faster.
#7. Limit your credit card purchases
Credit cards are dangerous to your money management goal. In fact, I think it’s a bad idea for anyone who wants to reach financial independence.
When you run out of cash, you simply turn to your credit cards without considering if you can afford to pay the balance. And this is a wrong way to go.
Resist the urge to use your credit card incessantly. It’d save you a lot of debts.
#8. Save for your retirement
The right time to save for your future, was yesterday. Don’t wait till you are 40 and your productivity is 60% before you start saving for retirement.
Start now. Start contributing to any employer-sponsored retirement plans. Take advantage of any matching funds offered by your employer and make deposits to your future.
You’d be glad you did.
#9. Create a debt payoff strategy
Debts?? try to avoid them as much as possible. But if you have any, the best thing to do is to create a payoff strategy.
Make the minimum payments on all of your debt to avoid defaulting and incurring late fees. Set up automatic payments to ensure that you never miss a payment.
Determine how much extra you can put toward debt each month. The minimum is a great start, but the more you pay off now, the less interest you’ll pay over time.
#10. Being good with money takes practice
You may not get a hang of it as you begin, but with consistency, you’d gradually become good at it.
What is the 50 30 20 rule for managing money?
The general rule of thumb is to allocate your monthly after-tax income into three areas for spending: needs (50%) wants (30%) and savings (20%).
What are the 3 basic steps to better money management?
There are three fundamental stages you can follow to maximize your finances, whether you’re planning for yourself or your entire family: First, make a budget. Create a savings plan, second. Third, pay off your debts.
What means money management?
Budgeting, investing, spending, and other methods of controlling how much money a person or organization uses are all considered parts of money management. The phrase can also be used more specifically to describe portfolio management and investment management.
What’s the 30 day rule with money?
Instead of acting on an impulsive thought, you decide to put off the possible purchase for 30 days and put the money into your savings account. After the 30-day window has passed, if you still want to purchase that item, go ahead. If not, it stays in your savings account.
What is the 25 and 4% rule?
The multiply-by-25 rule is a quick and easy technique to determine how much total savings you should aim for before retiring. If you withdraw 4% of the specified amount of savings on a yearly basis, your retirement savings might endure for 30 years.
What is the 70/30 10 Rule money?
You divide your take-home money into three categories depending on a particular percentage, adhering to the budgeting rule of 70/20/10. 70% of your income will be spent on regular expenses and bills, 20% will be saved and invested, and 10% will be used to pay off debt or make donations.
What is the golden rule of money management?
“Don’t save what is left after spending, spend what is left after saving” is among his best-known financial management proverbs. Or, put another way, pay yourself first by saving before you buy.
Money Management PDFs
Here are some money management books to guide you on this journey, as well as their Amazon link.
- The Total Money Makeover: A Proven Plan for Financial Fitness
- Transforming Your Relationship with Money
- Think and Grow Rich
- The Millionaire Next Door: The Surprising Secrets of America’s Wealthy
- Rich Dad Poor Dad
If you want to be a pro at money management, then consider employing these tips. It’d go a long way to help you. Good luck!
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