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Getting Started In Managing Your Money
Money management is usually not taught to anyone, but you can develop great personal
finance skills with a few simple steps.
Nothing Happens Until You Write it Down
It is surprising how many adults receive their paychecks, pay whatever bills have
come in since last payday, and then spend until the money is gone. Others spend
first and then use whatever is left over to pay what bills they can. The problem
here is there is no plan. People without financial plans find themselves in trouble
with no reserves and creditors on their backs.
The first step in true financial management is to spend one month faithfully writing
down every expenditure. This includes your bills, of course, but, as well, every
trip to the grocery store, the drug store, the fast-food drive in, gas, toiletries,
laundry soap, the morning lattes – EVERYTHING. This is the only method by which
you can actually see where your money goes.
Compare Your Income and Expenses
Total your monthly net income. If you are paid weekly, multiply the check by 52
and divide by 12. If you are paid bi-weekly, multiply the check by 26 and divide
by 12. Next, total up all of the expenses that you so diligently recorded the previous
month. Compare the two. If expenditures are greater than income, you are living
like your government – spending more than you are taking in. The government can
get by with it – you can’t! If this is your situation, chances are you are putting
purchases on credit cards – a bad idea if the purchase is not an emergency or absolute
necessity.
Cut Out the Non-Essentials and Pay Yourself First
As you look at your list of expenditures, cross through every one that is a luxury,
frivolous, or that you could certainly do without. Add up these expenditures, and
you will be surprised how much extra money you could have without these purchases.
That is money that could be used to pay down other debt (such as those credit cards!)
or, better, put away for the future.
A wise man once said that the one way to accumulate wealth is to pay yourself first.
No matter how small, you must, on each payday, put some amount in savings. You won’t
miss it! Saving is a habit that must be developed but develop it you must if you
truly want financial independence some day.
We Call It A Budget
You know what your income is, and you know what your regular monthly expenditures
are (these include housing, utilities, telephone, car payments, insurance payments,
credit card payments, an estimated amount for groceries and gas, and other household
items). Divide the total expenditures by the number of paychecks you receive each
month. This is the amount that you must set aside from each paycheck to meet your
obligations. The rest is surplus. Some of that surplus must go into savings. The
rest is yours to spend as you wish.
The lovely thing about setting up a method to manage your money is that you get
a good night’s sleep most of the time. Stress about finances creates anxiety, depression,
bad relationships with family members, and an overall sense of foreboding. Many
people go through their entire lives with this kind of stress – don’t let it happen
to you.
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