This is a bit of a chunky article, I admit.
But this article really forms the cornerstone of the site and also reflects what I have learnt over the last 20 years or so as a Dad.
In truth I have previously been a bit rubbish at money management - and I am not even talking about the stock market, investing type of money management.
I am just talking about the fundamentals of managing my own (and later my family's money) day to day.
Funnily enough I had budgets to manage at work and I was actually quite good at it - so it was "in there", but I eventually decided that I was more than a little bit lazy with my families finances, and sooner or later I had to take control
The below article is really what I have learnt.
You may choose to take all of it on board or just parts, but please understand that it was written with the best of intentions and I hope it will inspire you - whatever age you are - to get control of your personal and family finances....
Enough of the introduction... lets get into the meat.
Here are the "DadCash Big 25 Money Management Tips and Fundamentals" .... actually written in order (in my view) of importance (just in case I lose you before the end!)
1: Spend Less Than You Earn
This may seem an obvious statement to make but so many people and families spend more than they earn month on month - and sooner or later it will catch up with you ...
But if you take just one thing away and store it in the back of your mind, then let this be it.
"Live your life spending less than you earn"
If you do this you will always be in credit...
This is granted often easier said than done, but just register the principle of "always spend less than you earn" (or if you prefer "always be earning more than you spend" and let's move swiftly on...
If you do need to boost your finances (and most of us do), do not wait for the lottery win or the inheritance when Aunt Mary pops off.
There are only two surefire ways you can bring in more money that you can rely on.
- Earn more
- Spend less.
Of course there is a third way.
We will be talking about ways to do both later on in this article. In the meantime, let's look at the implications of spending more than you earn.
2: Appreciate That Small Changes Can Have Big Impacts
OK, this is not necessarily a fundamental of money management, but to me it is vital.
What it illustrates is the impact of small changes (positive and negative) if carried out consistently over time.
Have you ever heard the saying (in relation to food and dieting) "a second on the lips a lifetime on the hips"?
Well, the same is true of money
Below is a very simplified view of the effects of overspending just a small amount over an elongated period
It is illustrative, but it does demonstrate how even overspending by a few dollars or pounds a week can have a big effect.
Imagine if you will that you love coffee and are in the habit of having 3 lattes from your local coffee shop per day. Each latte costs around $5 (£3) (for illustrative purposes only!)
- Now imagine that it is the third latte that takes you over your spending threshold for that day. And you do the same thing every single working day, five days a week.
- Over a week you will have overspent by $25. Over a month about $100. Not too bad you may say
- But over a year this amounts to $1200 - and over 10 years we are suddenly talking $12000
- Now imagine you put this on a credit card and didn't pay it off month by month .. you could easily be talking £20K in debt just through one extra latte a day.
Now work it the other way round. If you didn't have the third latte (which means you are "evens"), but didn't have the second latte as well, which means you are saving money.
Imagine if you put that money away and made it work for you in a savings account. You could easily have $20K worth of savings ..... just by only having one latte a day
Can you see how small changes, done regularly, can make a huge difference over time?
So my second "money management mantra" is just that ....
"Small Changes Can Have a Big Impact Over Time" ...
3: Learn How to Budget
Learning how to budget is one of the most fundamental but effective money management things you can do.
Ah, the dreaded "B" word, the only surprise being that it is not number #1 on the list
If you don't budget your money today I bet the "B" word fills you with a sense of trepidation
But I promise you that once you have done it, and run a budget over a couple of months, you will feel much better about your finances
And it doesn't need to be complicated.
Budgeting is all about setting out what you intend to spend during a period of time (usually a month)
At the start of the month take out a pen and paper (or use a spreadsheet, but no need for fancy tools) and write down all your expected incomings for the month
Then in a second column write down your known fixed outgoings (if you know your mortgage payments, if you have fixed utility bills)
In a third column write down your variable spends such as shopping, travel etc.
The trick is then to make your outgoings less than your incomings.
To do this you are likely to have to make some adjustments to your variable costs by identifying cost savings you can make (we'll discuss cost savings later in this article) .
The above is a very simplified view but in a nutshell it is the art of short term financial planning for the period in question.
If you are into software applications to do this sort of thing there are plenty of smartphone applications. You may also want to have a look at a PC application called you need a budget which offers a free trial.
4: Track All Your Outgoings
Tracking your outgoings is basically all about recording what you spend against your budget for that spend.
So if you have a budget for shopping you will need to track spend against the shopping budget
To track your outgoings record everything you spend.
Every single little thing
Whether is a newspaper in the morning or "the big shop" at the weekend.
Again, no need for fancy tools or money management software (though many people do use money management software and find it very useful).
A pen and paper will do (or use your phone), just make sure you record everything.
And if there is somebody else spending against a particular budget (eg: your partner if you have a joint account) then make sure they are also recording spending too
Here are some items which if you are not careful you might miss
- The children's spending money
- Paying for parking in town
- Buying a newspaper
- Bus fare
- Lunch ...
It's really important (vital even) to capture everything .. that way you get a true picture of what you spend.
It's also a very good discipline and will make you think twice before spending even the smallest amount...
5: Work On Your Debt
If you do have debts of any significance (and most people do these days) then you need to be taking positive action to manage the debt.
Even if qualified to do so it would be a little difficult to give specific advice in an article such as this, so I would always advise going to see an independent financial advisor to talk about debt management. They will be able to tailor your situation.
Broadly speaking though, you should be looking to manage your debt so you are paying off the debt with the highest interest first. Secondly think about the total cost of the debt (ie: how long you will take to repay it) and then look at your options from there
The key is to actively manage your debt, don't let it manage you....
Here is an article which outlines some considerations as to when you should be thinking about paying off debt and when to save
6: Set Clear Financial Goals and Work Towards Them
Set yourself some financial goals in the form of "In 5 years time I want to ...." and write down 2 or 3 and use them as your "finishing point"
For instance ... "in 5 years time I will have paid off the mortgage" or "in 5 years time I will have saved $10000 to get married"
Setting targets and goals is important because it encourages you to "visualise the end game".
The most effective goals are set as a positive rather than as a negative; for example, just setting the goal ‘I need to get out of debt’ tends to encourage our subconscious minds to focus on our debt problem rather than actually solving it.
It is far better to phrase this as ‘By 30th April I will have paid off my credit card". This helps your subconscious to focus on the solution and the debt-free family you could become.
Goals need to be written down; once they are committed to paper they become real and accountable, rather than just vague thoughts and wishes in your head. The advantage of having your goals written down is that you can get them out and read them often, which will help to keep you motivated and focused.
We have an article on smart goal setting here .....