How to Manage Your Money? – Money Management
There is nothing unusual about people failing to take control of their finances. However, a very common feature associated with such people is their inability to plan or budget their expenses. Unless you keep tracking your incoming and outgoing finances, you can’t manage your funds. Learning how to manage your money allows you to take charge of your money, invest your money wisely and plan for your retirement and get the most out of your credit cards. If you are really keen to know how to manage your money, you’ll find the following steps of great help in doing the needful:
Prepare Your Budget:
There are a lot of people who are keen to enhance their savings but the success rate of those who plan their expenses is very high. Preparing you budget is the first and foremost step if you want to manage your money. Of course, you’ll need to invest your time and efforts for doing the needful, but you’ll soon realize that it was worthwhile. Plan realistically and stick to your budget.
Assess your cash flow
First of all, you need to know your monthly income. It should include your salary, income from rented property, if any and other source of regular income. Next, you need to list your expenses to know exact outgo. List all your expenses, using receipts and bills that you should retain. It should include all your monthly expenses, whether through credit card or in cash. Remember, an honest and accurate budget only will help you achieving your goal.
You can list all your expenses in these three heads: fixed expenses, committed expenses and discretionary expenses.
Fixed expenses are those which remain unchanged over months. So, these should include taxes, housing, insurance and car payments. On dividing the total by 12, you get your monthly fixed expenses. Committed expenses include expenses towards utilities, food and transportation, mobile phone charges, school fees of children, credit card payment and pocket money for parents. Rest of your expenses fall under the heading of discretionary expenses and include medical bills, family entertainment, clothing and extra-curricular activities of children etc.
You’ll also need to account for your vacations and gifts for family and friends. Find out and estimate your total yearly expense and divide the figure by 12 to arrive at monthly expense in this regard. Having so listed all your expenses, you’ll realize where all your money is going.
SPEND LESS THAN YOU EARN
It is not difficult to understand how to save money. It simply means spending less than your earnings. That is the basic concept of learning how to manage your money.
Carefully examine all your expenses. If you find that outgoing money is more than incoming, you have to reduce your expenses. Usually, it helps starting with your discretionary expenses. Perhaps, you could go out to eat once a week rather than two times a week!
Next, come to your committed expenses. You can try cutting down on your water and electricity expenses by using more efficient devices that help preventing their wastage. Explore the possibility of using public transport instead of using your own car or taxis and opting for a more economical plan for your mobile phone.
When your fixed expenses exceed your monthly earnings, you‘ll need to take some drastic steps for saving money. These may include moving to a smaller house or getting rid of your car.
The amount that you should save or spend depends on a number of factors, including your marital status, number of kids you have, your age, whether you are offering support to your parents or living with them and such like. Experts recommend that your minimum saving must be 10-15 percent of earnings after tax. Regards expenses, generally housing takes the most, yet, it should not be more than a third of your net income.
Elizabeth Warren, a Harvard professor, suggests a 50-30-20 plan. This plan suggests that your committed and fixed expenses be fifty percent of your income after tax, discretionary expenses be limited to 30 percent, leaving twenty percent towards savings.
Yes, it may prove to be quite challenging to plan a realistic budget that allows you to start making saving but the most important point is to get started. Once you do that, rest will fall in line provided you remain determined. And now that you have been informed on how to manage your money, it’s time to take that step.