Good money management skills are the single most important factor in determining financial success or failure in adulthood. Whether you’re trying to pay off debt, save for retirement, or simply make it to the end of the month without depleting your checking account, managing your money well will help ensure you’re living comfortably in the future.
The following 10 tips can help you master money management skills and establish good financial habits that will last throughout your life.
1) What budgeting really means
What does budgeting really mean? Well, it can be as simple as just logging your spending or trying to save a certain amount of money each month.
Budgeting is all about self-discipline and being aware of your needs. Being able to track what you are spending will allow you to see where you need to cut back and spend in other areas. You’ll also see trends in your expenses and be able to plan ahead.
2) Budget for your wants, not your needs
Know your income. The first step to budgeting is knowing how much money you have coming in each month. It’s hard to stay on budget if you don’t know where your money is going each month, and also you need to understand the basics of a budget and know what can fit into each category.
3) Start tracking your income and expenses
Every month you should track your income and expenses. This will help you see where your money is going and what to improve on.
4) Always know where you stand financially
Many people often run into issues with their finances because they don’t know where they stand. Are you spending more than you make? Do you have an emergency fund set up in case of unforeseen circumstances? We all need to know where we are with our finances, especially the basics.
5) Create an emergency fund
It’s important to put money away for emergencies, but that’s not the only purpose your emergency fund should serve. Your emergency fund should be large enough to cover several months of living expenses, and it should be in a savings account that pays interest and has no penalties if you take money out before it’s needed.
6) Don’t have more credit than you need
Don’t use credit cards if you’re unsure of how to repay the balance. Using your credit card just because it’s there is one of the worst things you can do to your money management skills.
Letting that line of credit run out could damage your ability to pay for necessary living expenses. Keep your overall credit limit in mind, and only charge what you know you can repay at the end of the month.
7) Save a set amount every month
One of the best ways to save money is by using a ‘pay yourself first’ strategy. This means that you put money into your savings account before you do anything else (like paying your bills or making purchases).
The amount of money will depend on what you can afford, but the idea is to have some spare cash set aside so that it doesn’t get drained when life’s emergencies happen.
8) Avoid lifestyle inflation
Lifestyle inflation is the term that was coined to explain the psychological phenomenon that results in people wanting more and more as they earn more money. It’s the result of consuming at a faster rate when income rises, leading to increased living expenses and decreased savings. In order to avoid lifestyle inflation, you need to slow down on your spending and prioritize saving over acquiring.
9) Keep your savings safe from yourself!
The best way to protect your savings from yourself is by setting up a savings account. If you’re setting up an automatic deposit, set it up so that your deposit goes into the bank immediately when you get paid and with a checking account, have money taken out of your checking account on the same day that your paycheck comes in.
10) Make financial goals realistic and achievable.
You can master money management by developing a realistic budget and prioritizing your goals. It’s also important to establish an emergency fund so you don’t need to rely on credit cards or loans when things go wrong.
One strategy is to calculate how much you have saved every time you make a transaction, so you always know what percentage of your money has gone into savings.
Another idea is to use online tools or apps that’ll help automate the process and make it easy to save without thinking about it too much.
If you follow this ten money management tips, I promise that you will see changes in your financial life. Drop your comments if you have any questions.