Simple and Practical Money Management Tips
There are many different money management tips to chose from. I have chosen to list below the most practical and coincidently they are the easiest to follow. I don't know if you have ever noticed but keeping things simple tends to give the greatest benefits. When you start 'employing' more complicated methodology the straight forward becomes complicated and usually more expensive with corresponding less effectiveness. So with that in mind here is a list of important money management tips which if followed will radically change your life for the better. When adhered to they will make your financial life easier, more efficient and ultimately help you feel more centered and happy.
1. Set Goals
The first of these is to set a goal or goals. It is practically impossible to get anywhere in life without goals and so this has to be the first of our money management tips. If you wanted to travel you would have to decide where you would like to go (the goal of getting to China for example) or you wouldn't get there. Notice too that the more specific you make the goal the easier it is to focus and therefore achieve. In our example the goal of getting to China could be further improved by setting Beijing in China as the place to get to by let's say Saturday 14th of a particular month. Once you make your goals more focused and narrow you will automatically attend to the job at hand and focus on your objective. Before you realise it the goal has been achieved.
Your goal can be as simple as wanting to pay off a credit card or a little more involved such as wanting to be a millionaire. The important point is you must have a series of steps(goals) to follow to achieve your larger objective.
For example: Let's say you want to pay off a credit card within 12 months(include the date!).
Notice I put a timeline in which will make you more focused and proactive. Trying to pay a credit card off at an unspecified time in the future will simply not happen as there is no motivation to do so. Secondly you must write down the steps you are going to take to make this possible. This could be something like directing more money towards the debt(or asking the bank to prove there is a debt in the first place), by giving up smoking, not going out so much, or not buying the latest music cds.
If you have chosen a larger goal, then you must at least write down a few ways of getting there. If you want to be a millionaire for example, just paying off your credit card early is hardly going to get you there. Starting a new business might though. Although goals are extremely important don't worry too much if you don't have a complete plan to achieve them, especially for the larger ones. Very few millionaires did.
The important thing is you make a start, you move forward, even if by doing so you are going down the wrong path. The reason you have to do this is because life is a process, it keeps on moving and if you don't you will stagnate. Furthermore because of this process even if you do the wrong thing everything has changed around you because you have moved forward and new opportunities will arrive.
2. Assets and LiabilitiesThe second of our money management tips that it is important to spend some time on, is to work out what your assets and liabilities are. By doing this you can resolve what your net worth is. I suggest doing this on an annual basis or when you are about to make large financial decisions. Assets are anything of value which you own or have control over. For our purpose we shall keep it as simple as possible and say that it is anything of value that can be converted to cash.
Examples of assets are property, gold, cash in the bank, stocks and shares, antiques, cars(depreciating asset) and so on.
Liabilities on the other hand are obligations to pay eg. a debt of some description, on a house, car, credit card.
Assets minus your liabilities give you your total net worth.
Your total net worth should increase from year to year. You should be increasing your assets(appreciating assets) and decreasing your liabilities in the longer term.
3. Income and Expenditure in REAL time
The third of our money management tips is to work out what your income and expenditure is. The simplest method is just to draw a line down the center of a page and write the headings 'income' on one side and 'expenditure' on the other. Now list everything you can possibly think of under these two headings. Your expenditure side will obviously be longer, but do make sure you have listed absolutely everything. Now that you have everything on paper you can see where you need to make savings and cut back. You may want to go to this frugal living page for some ideas on how to live more inexpensively.
Now you have done this and worked out where you are going to cut back or reduce expenditure I have an excellent money management tip that I used in the past. It was so effective that I actually loved using it. I used this method for a couple of years when I was struggling with money.
Find yourself a 5x3 piece of card or paper(index cards are good)
At the beginning of the month or on the date you get paid put the date at the top then your total income underneath. Subtract all fixed expenditure ie mortgage/rent, direct debits etc. This will leave you with a subtotal. Subtract from this figure an amount you want to save and make sure you save it....
If you are unable to save anything don't worry, you will be able to soon. Every time you spend money keep deducting it from the subtotal.
Make sure you carry your piece of card with you everywhere!
Because you are doing it in real time you know exactly where you are financially. You will find that you start to be very careful how much you spend and actually enjoy being frugal.
Stick with it, it works!
A budget has two benefits. The first is to forecast what our planned income and expenditure would be if a certain strategy or plan were implemented and the second is to actually compare what is happening with the strategy or plan.
The hardest thing about creating a budget is to actually sit down and work out your expenditure and income. I have already dealt with this above and also given you an idea how to do it in real time. Doing it in real time is far more effective and will keep you motivated, especially if you can save a little on a regular basis which you should be aiming for.
Here are a few more pointers to motivate you. Budgeting is a very useful money management tip and should be viewed as such. It is not there to 'imprison' you so keep it flexible....but not too flexible, you do need to be disciplined.
Keep it up to date. As your expenditure goes down and your income goes up you need to make the corresponding changes to your budget so you can save more.
5. Savings and Investment
While you have been working out your income and expenditure and budgeting you will of course have a good idea of how much you can now save. This should be one of your ultimate goals so that you can invest your savings and be financially free.
The difference between savings and investments is that savings are what is left over when you have done the income and expenditure exercise above. Savings should be held in a low risk deposit account and then invested. Unfortunately a low risk deposit account has a corresponding low interest rate which will quite possibly not cover the devaluation of your home currency at the moment. Therefore it is important to invest the money as quickly as possible. Perhaps when you have saved 1000 euros or so.
This is an easy strategy to follow. By repeating this one strategy you can become rich in time providing you invest your money in a decent high return investment.
The above money management tips will keep you focused and centered and make your life alot easier. The trick is to repeat the exercises until they become a lifetime habit.
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Money Management Tips
"What maintains one vice would bring up two children"
"Every problem has a gift for you in its hands."
"Money, if it does not bring you happiness, will at least help you be miserable in comfort."
Helen Gurley Brown
"Empty pockets never held anyone back. Only empty heads and empty hearts can do that."
Norman Vincent Peale