The Basic Steps of Money Management
| 3 minutes read
One of the most effective ways to improve your financial situation is good money management. We all have a unique relationship with money. Some want to generate as much of it as possible, while others opt to live on minimal resources. A healthy financial future doesn’t focus on money generation but rather on money management and planning. These three basic steps of money management will help you improve your relationship with money.
Create a budget
Budgeting has a bad reputation and is often viewed as a way to strip all the fun from spending money. However, this isn’t really the purpose of budgeting. A budget helps you know how much money is coming in and how those funds are spent. It is a crucial tool in money management and helps you get the most out of your money.
There are various budgeting systems you can adopt. The systems all center on organization and attention.
- Notebook and pen
- Financial software
- Free online software
The institution you use to save money may also have a budgeting worksheet that can help you get started. The U.S. Financial Literacy and Education Commission also offer numerous resources and budgeting worksheets.
An effective breakdown of how to create a budget with the tools you have chosen is as follows:
Step 1: Set goals
You can set two types of financial goals; immediate and long-range. Immediate goals focus on what you want your money to do for you in the short term. These include current expenses such as rent, mortgage, car loans, food, utilities, and household supplies. Dining out, non-essential clothing, and subscriptions are categorized as secondary goals. Long-range goals refer to spending and saving goals for the future. These include retirement savings, charitable donations, and investments.
Step 2: Calculate your income and expenses
Note down all your monthly income, including your salary after taxes, regular bonuses, and alimony payments. Next, categorize your expenses as fixed, variable, and discretionary expenses.
Step 3: Review your spending
A budget helps ensure you aren’t spending more than you earn. If your expenses exceed your income, you need to make adjustments. Review your discretionary expenses, which are optional, and you can cut back on them.
Step 4: Revisit
After observing your income and expenditure for a few months, you will be able to make better adjustments. A periodic review will also help you work on any kinks. A budget is ever-evolving, and regular adjustments are the key to better money management.
Bills.com offers a great program known as Money Coach that helps you evaluate your financial health and develop a plan to help you achieve your financial goals.
Set savings goals
Saving is one of the basics of building a strong financial foundation. Creating a plan makes saving a priority and is more likely to develop habits that enable your money to work for you.
- Choose a specific savings goal: First, set a savings goal, whether it is a vacation, investment, or retirement. Decide what you are working toward and what you hope to accomplish.
- Set a deadline for saving: Setting a timeline helps you accomplish your goal. While short-term goals may be achieved quickly, long-term goals may take longer and require ongoing planning. Figure out a weekly or monthly contribution to reach your goals.
- Create different accounts for each goal: It is possible to save for more than one goal. Break down your goals into smaller bits and for each savings goal, create a unique account to help better divide resources. It is normal to prioritize some goals over others.
- Track your goals: Keep a close eye on your progress. Watching your progress will encourage you to keep working on your goals, energize you to work towards other goals, and even set more goals you can work towards.
- Automate your goals: Trying to remember all the goals you need to save for can be overwhelming. Consider setting up automated transfers and deductions. They can be weekly or monthly.
Tackle your debts
Handling debt may seem overwhelming at first glance. You probably don’t know where to start. These steps will help you get a foothold in tackling your debts:
- Know what you owe: Organize your debts to know precisely how much debt you are dealing with. Include the amount of the debt, monthly payment, interest date, and due dates.
- Identify a payoff strategy: It is ideal to have a debt reduction strategy to help you stay focused and avoid being overwhelmed. You may opt for debt relief or debt forgiveness, among others, with the help of experts such as Bills.com.
- Build up an emergency fund: You can easily get into debt in the absence of savings. Create an emergency fund as a buffer from debt to cover unplanned expenses.
- Recognize the signs that you need help: If paying off your debt is becoming tasking, you may need to seek help from a professional such as Bills.com.
Proper money management is the first step toward better finances. While some changes will be easier than others, your commitment to a better financial future is crucial. These basic steps of money management will help you throughout your life and ensure you have more money in your pocket.
Suprotik Sinha is the Content Writer with Synkrama Technologies. He writes about technologies and startups in the global enterprise space. An animal lover, Suprotik, is a postgraduate from Symbiosis Institute of Mass Communication (SIMC) Pune. He carries 6+ years of experience in Content Writing, and he also worked in mainstream broadcast media, where he worked as a Journalist with Ibn7 ( now known as News18 India) and Zee Media in Mumbai.