The importance of money in our daily lives cannot be overemphasized. It is pervasive, yet very few people understand how to deal with the challenges arising from the use of it. If you want to live a good life you must learn how to manage your money better.
Your money is an important aspect of your life. The amount of money you have can determine what you do, where you go and how you live on a daily basis. Learning how to manage your money is therefore an important step towards taking control of your life. Unfortunately, the school system teaches us everything from mathematics to accounting but fails to teach us money habits in spite of the very important role money plays in our lives.
Developing healthy money habits therefore, is an essential element of personal finance that anyone who is desirous of fulfilling life must do. In this post, I shall discuss five sound steps to become a better money manager.
Before highlighting the steps, know these:
One, To manage your money properly, you must first understand the source of your money and how you spend it. Make sure that the way you manage your money falls in line with the things that matter most to you.
Two, to effectively manage your money, you have to cultivate some attitudes; the more you translate these attitudes to habits, the better you are with your money.
Fortunately, you do not need to be an accountant or have any financial knowledge to manage your money well. You can develop effective money management habits by taking the following simple steps.
#1. Set up a budget and most importantly, stick to it. The rule is to spend less than you earn. Having a budget helps you track your spending, i.e. you know what you spend money on, on a daily basis. You may be amazed that those little amounts you spend on certain routine adds up. One good way of tracking your spending is to open a bank account.
#2. Understand the flow of your income: Know what you earn from your job or your business. Know your true income. If you are a salary earner, your true income is your earning minus compulsory deductions such as tax, pensions and other statutory deductions required to be taken out at source by your employer. If you are a business man, place yourself on a salary and discipline yourself by living within the salary as though you are an employee by following the rules highlighted above. This is what accountants refer to as net income. Budget on your net income. You cannot manage your financial resources properly if you do not have a clear idea of what those resources are.
#3. Actively manage your bank account. Some people do not pay attention to what goes on with their bank accounts. Keep a record of all additions to your bank account and all that you have withdrawn from it either directly from the bank, checks or the electronic channels like ATM machine and POS terminals. At the end of the month, make sure that what you have in your account tallies with what you expect to have based on your calculation. Where you are not able to explain any differences in the number, contact your bank immediately for an explanation.
#4. Start saving right: You have a budget; you track your spending and you are probably spending less than you earn; now it is time to begin to save. But you just don't have to save, you must save right. Saving the right way will make all the difference in realizing your personal finance goals. You should have a savings account and once you received your monthly salary or earn income from your business, put away a portion of it in the savings account. An easy way to save is to give a standing order to your bank to transfer a certain amount of money to a named savings account once your salary account is credited. If you save as little as 10 percent of your earning every month and stick to it, you will be amazed at how your savings account will grow by the 12th month.
#5. Invest: By investing part of your savings, you are actually getting your money to work for you. Indeed, investing is the a smarter way to save. A purposeful money management programme is one which incorporates saving and investing as critical components. Set aside a portion of the money in your savings account for investment on a regular basis. There are many options available to you to start investing such as stocks, mutual funds,treasury bills and other money market instruments and FGN bonds, including the FGN savings bonds.
For a beginner, mutual funds are a safe and easy way to begin investing, especially in the stock market. Mutual funds are collective investment schemes under management of a professional fund management. The fund manager aggregates the funds for investment in approved financial instruments in accordance with the fund’s investment strategies. These instruments can either be stocks, bonds, treasury bills, bank certificate of deposits or a combination of instruments Income earned is distributed amongst subscribers to the fund as dividend.
#6. As much as possible avoid bad investment: Putting your hard earned savings in a bad investment is a one sure way to come to ground zero. There are many people out there ready to give you all kinds of investment advise such that if you are not careful you will lose the money along with your shirt. To avoid bandwagon effect, conduct your own research, as much as possible detach your emotions, avoid get rich quick programmes, ponzi schemes and the likes. If you must consult, go to professional advisers who understand the markets and are very importantly, with some experience of investing in your area of interest.
#7. Avoid bad borrowing. By bad borrowing I mean when you borrow money to fund consumption rather than acquire an income yielding assets. Borrowing to eat or fund your life style – buy luxury cars, upgrade fashion, upscale your status, etc - is usually the source of money crisis to so many people. The rule is as much as possible avoid borrowing to finance personal needs, if you must borrow, borrow to finance investment assets. This way you do not have to rely on your personal income to pay back the debt; income from the asset such as rent, if you purchased a rental property, for instance) can be applied to service and repay the debts without putting pressure on your primary source of income.
#8. Keep records of your finances. Keeping records will help you track your spending and appraise your budget. As a matter of fact your budget will be meaningless if you have no system of tracking, keeping records or knowing how money flows in and out of your pocket. Record keeping will also act as a check on impulsive spending because at any point in time you have an idea of how you are doing relative to your budget.
If you manage your money well by following these, you will have less cause to borrow money in order to meet your daily need. Managing your money effectively will help you take control of your life. If you manage your money properly, you become less anxious about your finances.