Money management is one of the more important aspects of daily living; yet also one of the more intimidating. People often feel that it requires extensive training and knowledge, so they simply go on day to day hoping their financial picture will just fall into place.
Are you one of those people? If the idea of setting up a financial management plan terrifies you, take heart. There are some simple, common sense tips you can use to create a solid framework regardless of your situation:
1. Track Your Money
Track all your money as it comes in and goes out. It doesn’t have to be a complicated system. Just keep a simple spreadsheet listing your income on one side and your expenses on the other. With your spending patterns set down in black and white, you may be surprised to find that purchases you thought were insignificant are actually adding up. Do you really need that $4 mocha every morning, or could that money be better spent elsewhere?
2. Set a Budget
Once you get a handle on your financial picture, take control by setting up a budget. Again, you don’t need to make it overly involved. Use this budget calculator to get started, adapting it to suit your individual needs. Include fixed expenses such as housing, food and utilities, then use information gained from your tracking to set amounts for discretionary spending.
3. Automate Your Savings
When it comes to building your savings, make it automatic. It frees you up by giving you one less thing to remember and also removes the temptation to spend the money elsewhere. If you have a job that offers a 401(k) plan, that makes it easier yet. Employers will often match a certain percent of your contributions, making your fund grow even more quickly. If you set up your own savings, have the money automatically deposited into your account. Aim to set aside at least ten percent of your pre-tax income.
4. Use Credit Cards Wisely
It’s difficult these days to operate entirely on cash, so establish sensible guidelines for your use of credit cards. Number one should be to pay them off in full whenever possible. If you do carry a balance, pay as much over the monthly minimum as you can. The same wonders of compounding interest that make your savings grow will also make a major dent in them if you take the full amount of time paying off your cards. Maintaining a good credit history gives you leverage to negotiate lower interest rates and waiving of annual fees.
5. Allow Intelligent Flexibility
Once you’ve established your own financial system, don’t consider it carved in stone. Like any good plan, it needs to be flexible enough to accommodate your changing circumstances. Accepting a promotion or new job, starting or adding to a family, or moving to a different area are just a few of the life changes that will profoundly affect your fiscal needs. Set a schedule to review your program annually, evaluating the results and making any necessary adjustments.
Good financial sense isn’t something you have to be born with. These tips will give you an easy, pain-free way to create a money management system you can use for life.