Managing your money effectively is more than simply counting money in and money out. Successful money management can help you avoid wondering where all your money disappeared while ensuring a well-funded financial future. Keeping you informed and well insulated from many financial burdens that could occur. These four tips below combined together will help so that you’ll never be caught off
guard financially ever again.
Tip # 1: Always save a portion of what you make
Any money that you should receive, you should save a minimum of 15%, although 20% would be optimal. It may be tempting to spend all the money you receive. After all, you’ve earned it, right? Wrong! You should always save a portion of everything you make because life tends to come along with rain at some point. So, it’s best to have an umbrella-which is your savings. Rain often shows up unexpectedly and under the guile of situations such as an unexpected car repair bill, a home repair bill, a medical emergency, a job loss, or a last-minute trip, just to name a few. Having something saved is essential to head off any of these potential financial storms. If you doubt it, think about this. Name one time in your life where the weather didn’t change your plans. Always have an
Tip # 2: Live below your means-ALWAYS!
I say live below your means, you probably imagine a drabby little studio apartment. Each time you turn ninety degrees, you go from the bedroom to kitchen and kitchen to your bathroom. That’s is as far from the Earth to the Moon, by what I mean. What I mean is don’t spend everything that you make. Many people have this misconception that if they can make a payment on something (i.e., auto loan, credit card paid vacation), they can afford it. This is far from the reality of proper financial responsibility. Suppose you are maxed out on expenses (rent/mortgage, auto loan, and credit card payments). In that case, you have no extra money to save for emergencies, vacations, or other unforeseen expenditures. A good rule of thumb is to keep a gap of 15%-30% or possibly more if you can afford it, below all your monthly expenses to save. Be thoughtful of your future self; believe me, you will appreciate the financial courtesy.
Tip # 3: Resist Most Debt, and Smart about the rest
I’m not here to tell you that debt is evil; and that you should never get into debt. What I am saying, however, is to be smart about it. There is one debt that I will never be against, a mortgage. Very few people have hundreds of thousands of dollars to plunk down on a home to buy outright, so taking out an easily affordable mortgage is good. Also, it has a two-pronged benefit of providing a roof over your head, as well as building equity (in most cases). If you use credit cards, that’s perfectly alright. Just remember to pay off your balance every month to avoid exorbitant interest charges. Also, try not to utilize more than 30% of your credit card balance. For example, if you have a credit limit of $16,000.00, try not to carry a balance that is beyond $4,800.00/30% of your max card balance. This is important for keeping your credit score up. Having a good credit score is important for a multitude of reasons. Such as securing good interest rates on mortgages, credit cards, auto loans, and even securing an apartment or certain jobs. So be smart about how and when you choose to use that powerful piece of plastic, because it’s more than just the borrowed cash you think it is.
Tip # 4: Preplan your Splurges
Yes, I am aware it’s a bit of an oxymoron, but let me explain. Splurges are okay, everyone needs to treat themselves now and again, but they have to be within reason. Personally, the way I opt for splurges is to set up another checking account with its own debit card where I send a percentage of my income to. I recommend roughly 5-15%. I call that account “Purchases & Splurges.” Whenever I want to splurge on a new item, I use this account specifically to treat any whims or indulges that I may have. This way, whenever I get the feeling, I’ve already budgeted for this whim. With your budgeted account set up, you also have the added protection of not overspending. If there is any money left over, don’t see it as something you need to spend as if it’s going to expire. Simply roll it over into next month’s balance and build on top of it. Together these four tips can start you in the right direction of managing your money more efficiently. Try them for one to three months to see how different your financial picture looks. I hope these four tips give you some more financial clarity, use them, and guarantee you will have a better financial picture and future.