The Best Way To Manage Money – 5 Simple Steps to Managing Your Personal Finances

What's the best way to manage money ?

For almost all of us, taking care of our personal finances is definitely an arduous task. Easy accessibility to credit, high interest rates as well as lack of knowledge ensure that the bulk of families in North America are actually living deep in debt and way beyond their means.

Exactly what is money?

In order to adequately understand money and your spending habits, you have to first look past your personal preconceived biases. For lots of people money, and the pursuit of money, is really considered a negative – maybe even evil to some. For others money is a beneficial force for good.

In all truth, money is neither good nor evil – it is neutral. It is merely a tool which accomplishes exactly what WE ask of it! Keeping this in mind, what's the first thing you will need to do when presented with a strange, new tool?

You need to be taught how to use it effectively …

Why does it seem so tricky to deal with our personal finances? If we're not shown how to manage money at a young age then how do we learn? For the majority of us it's baptism by fire and, with nearly 60% of North Americans living paycheck to paycheck, it's clear that most of us are falling short. The reason many men and women are struggling with handling money is actually quite simple.

We do not understand how to do it !

In the very early years of working, when money is tight, we do not believe we're making enough in order to put anything aside or develop anything even remotely looking like a 'financial plan'. As our earnings scale up, we very quickly consume this additional cash and revel in our new-found freedoms.

The degree of debt which almost all of us carry is in direct proportion to our income since this is exactly where our comfort levels lie – not quite sufficient debt to keep you awake each and every night, yet just enough to enjoy life and your hobbies to the maximum of your income level.

Most of us are walking on a tightrope – and if you do not alter your course you're going to find yourself coming up short in retirement and forced to work well into your senior years, or live a life that is beneath your current vision of a worry-free retirement.

The Best Way To Manage Money | 5 Tips for Managing your Money and Personal Finances

1. Plan your Goals

Because a goal without a plan is really just a wish: To be successful with nearly anything you first will want to have an idea of ​​two things:

• Where you're going – your GOAL
• How you're going to get there – your PLAN

Working with your significant other or partner (if you have one), come up with a list of every one of your short, medium and long-term goals. Include anything and everything which will likely have a substantial financial commitment – retirement, holidays, large purchases, building an emergency fund, etc.

As soon as you have these in place figure out the time-frame and expenses for each objective. If they appear to be readily attainable then, working backwards, work out exactly how much you have to put aside on a yearly, monthly and, if necessary, weekly basis. These numbers will form the basis for your regular contributions towards reaching these goals.

2. Be sure that you have more money coming in than is going out

Your after-tax income MUST be greater than all of your expenses. If it's not, you truly only have two choices – either lower your expenses or increase your income.

The majority of us believe that there's no way we can decrease our expenses. Handling your cash flow properly should show places where money is bleeding out and you can minimize expenditures. This may require a temporary change in your way of living however, if you're working towards strong goals (as in step 1), this will be a small price to pay and will likely get you a great deal further ahead.

3. Use CASH for discretionary spending

There's something about looking at your very last $ 20 bill and recognizing that you still have 4 days left before you are 'paid' again! It genuinely can make you re-evaluate if you truly need to have that $ 5 cappucino or if a regular coffee will do the trick.

Having a strict amount of money to spend on discretionary purchases each week and spending cash to get them will go a long way to making certain your long-range goals are fulfilled. It's also much easier to track and to hold one another accountable.

4. Develop an emergency fund

There's an old saying which goes "The only two things guaranteed in life are death and taxes". I 'd like to include a third guarantee to this; if you own a home and also have a vehicle, there's a very good possibility that at some point in the next 6 to 8 months you are going to experience an unforeseen 'emergency' which will cost you substantially more than you are actually able to pay .

Build up an emergency fund equal to 3-6 months of earnings and you ought to have the ability to weather almost all of these uncontrolled events without the tension and anxiety usually experienced. When you think about it, if you recognize it's going to happen on a regular basis and you are financially prepared for it, can you really refer to it as an emergency or is it simply one more cost of living?

5. Monitor spending and tweak as required

Always keep consistent track of every single penny coming into the home together with every penny being spent. This should not call for prolonged hours of figuring out bank statements and data; take note of receipts, be liable to your own self along with your significant other and, above all, be prepared to change your spending habits as life unwinds.

Sit down weekly so as to go over the past week's spending and forecast the coming week's expenses. Identify any upcoming expenses that will be out of the ordinary – business meals, unexpected vehicle maintenance, doctor visits, etc – and absorb these into your spending budget plan.

Once you've figured out the best way to manage money for your circumstance, you'll realize that it does not have to be difficult. It takes a bit of time and willpower as well as holding yourself responsible for exactly what you are trying to achieve. In certain cases you'll be discouraged – at other times overwhelmed.

In any case, always bear in mind; Rome was not built in a day! Neither will your future be built in a month or even a year … and yet the transformation to your personal finances – and the possibilities for an abundant future – will definitely be well worth the sacrifice!

Share this post