However, a good portion of Americans do not manage their money properly. According to some sources, Americans are quite bad when it comes to finances compared to other developed countries. Still, there is hope for you if you find yourself among this group.
There are good, proven strategies that will help you learn how to manage your money the right way. Having a solid financial management plan can be the light at the end of the tunnel for people who are trying to get their financial life in order. If you’re like me and have multiple bank accounts, credit cards, an IRA, etc., it can often seem daunting and difficult to pull yourself together and fully understand the state of your personal finances.
But if you don’t take the necessary steps to organize yourself and learn how to manage your finances better, you’ll feel like you’re swimming against the tide.
Managing your money – like anything – takes time to understand and improve. And mastering it also takes commitment and a solid understanding of your financial situation. These are the first steps in effective money management.
Anyone who has ever taken control of their finances has been there; and getting your financial life in order as soon as possible is of the utmost importance.
Here are 5 basic steps to help you manage your money the right way.
Create a budget
First, create a budget if you haven’t already. Is it necessary? Are wipers necessary in the rain? Believe me, you need it.
Creating and sticking to a budget might seem a bit difficult at first, but it pays off in the end (no pun intended). Budgeting helps us see our financial situation with clarity and full transparency and this is of the utmost importance for better management of your money.
It’s the first step in helping us pay off our debts and start saving for future expenses like a mortgage, a car and your retirement. This is what will balance your financial life and give you peace of mind.
To get started, you will need to understand your expenses and income in order to better manage your money. This is dealt with in the next 2 steps.
Understand your expenses
Ask anyone with their heads held high to tell you how much they spend per month on everything and they may not be able to. It’s not uncommon.
Many people don’t know the total amount of expenses they generate in any given month. This is a problem, but there is a simple solution. Here it is: for a month, keep track of all your expenses. Easy peasy. Take all your receipts (groceries, restaurant bills, utilities, etc.) and look at your bank statements and add up all your expenses. Remember to keep track of expenses paid in cash and by credit card.
The idea is to have all your expenses (variable and fixed) counted to get a total amount. This will allow you to see the big picture and know how to manage your expenses in the future. You’ll also want to compare your historical performance over time.
Understand your income
Ask anyone with their heads held high to tell you how much they make per month and while they probably won’t tell you, they know it internally. This is the difference between income and expenses, most people know their full monthly income, but have less knowledge about their full monthly expenses.
However, it is a matter of calculating your total expenses and subtracting them from your total income for the month in question. Here’s how the results should play out:
If you end up with a negative number, it means you spent more than what you earned. Actions to be taken? Reduce your expenses and expenses until the total reaches zero.
If you end up with a positive number, that’s fine (high five!) And means you spent less than you earned. Actions to be taken? You could increase your debt repayments or increase your savings.
Once you understand your expenses and income, and understand the money coming in and going out of your life, it’s time to take some extra steps to better manage your money.
Consolidate your debt
Debt, the dreaded word. No one likes debt. No one. And most people who need help managing their money actually need help getting out of debt. Seems familiar? If you are like the majority of Americans (~ 80%), you