This article provides money management tips that enable you to take charge of your financial circumstances and hedge against the potential of spiraling into excessive credit card debt.
When you put yourself in the "driver's seat" and proactively manage your spending and saving, you can free yourself from a lot of stress and worry that come with mounting financial issues. Effective money management enables you to plan for the expected, as well as the unexpected. As a result, you can live each day with less concern over money and get more enjoyment out of life.
Money management involves thoughtful planning, realistic budgeting and ongoing monitoring of the money you make, spend, and save. Whether you are managing money for just yourself or for your family, the basics covering what you need to do are the same.
Step 1: Assess Your Financial Situation
This involves determining how much you make and how much you spend each month. Look at your net income, which is the amount you earn after taxes and deductions. Then, examine your monthly expenses to see how they match up to your income.
For your analysis, you can use a computer-based spreadsheet program, money management software or simply a pen, paper and calculator to do computations.
If you discover that you are consistently spending more than you are making, it's time to closely examine where you can cut spending and/or increase earnings. Otherwise, you'll find yourself accumulating debt, which gets increasingly harder to pay off.
Step 2: Determine Your Financial Goals
Write down what you want to achieve from a financial perspective. First, list short-term goals, which are the things you want accomplish in the next 12 months. Then, write down what you want to achieve in the mid-term (2-3 years) and long-term (up to five years or longer).
Your financial goals may include paying off a loan, saving a specified amount of money for retirement, making a major purchase (i.e. home or car), paying off credit card debt, starting a college savings plan, etc.
Involve family members in goal setting as appropriate. Once you know what you want to specifically accomplish and when, you are in a better position to implement money management tips and initiatives successfully.
Step 3: Create a Realistic Budget and then Stick to It
Your budget needs to reflect all of the expenses you expect to incur, as well as include monthly deposits to grow your savings and maintain an emergency fund for those unplanned, unexpected expenses.
As you develop your budget, consider your fixed expenses, which are those that require the same payments each month such as rent or mortgage and car payments. Then, factor in your variable expenses. These are monthly charges that fluctuate. Examples include groceries, gas, entertainment, and cell phone costs. As you look for ways to reduce spending, think about ways to cut these variable costs.
You also have periodic expenses that need to be accounted for in your budget. These may include bi-annual insurance bills, medical expenses, and car, and home maintenance costs.
If you have debt, your budget needs to reflect payments to reduce the debt you owe. Just as important, you need to ensure that you are not incurring additional debt with your current spending and lifestyle.
According to money management tips and guidelines provided by the Foundation for Credit Education, you should not spend more than 20 percent of your monthly net income to make payments on your loans and credit card purchases. If you are spending more, then you have too much debt so you need to adjust accordingly.
Then, if you add your rent or mortgage payment to the total you are paying for loans and credit cards each month, your target should be to stay under 40 percent of your monthly income.
For help developing a budget, click here: budgeting tips.
Once you have your budget in place, then you need to closely adhere to it by controlling and monitoring your spending each week.
To continue reading about money management tips, click here: personal money management.