If you are going to manage your money there are a few fundamentals that you need to understand if you are going to bring your finances under control
As you read this you may be in a position where your finances are out of control.
Or you may be reading as someone whose finances are under control
Or you may be just setting out on your financial life journey…
Whichever situation applies to you, consider these fundamentals of money management
And try to stick to them throughout your life (or at least from now onwards….)
If budgeting and preparing expense sheets sound to you like tasks only an accountant would do then I urge you to think again.
It is absolutely vital for your future financial well being to keep track of your personal finances
Even if you employ an accountant to do it for you.
Staying in control is all about your own personal accountability and your responsibilities to both you and your family
And as a bonus, understanding your situation will help you make sensible spending, saving and investment decisions.
So if you live by the following three fundamentals of money management you will go a long way towards creating a secure financial future for you and your family.
OK? Let’s go …
Fundamental 1 – Spend Less Than You Earn
Now if you were expecting anything earth-shattering or some pearl of wisdom that will change your life forever then you may be disappointed.
But just think again about this – spend less than you earn.
If you spend less than you earn then you will always have money at the end of the monthly cycle.
Although spending less than you earn sounds simple, you may sometimes find it daunting to actually put it into practice.
If you do find that you are spending more than you earn then it is worth taking a step back and re-evaluating your situation.
Here are a few tips as to how you might go about it:
- Take out a pen and a piece of paper and write down everything you spend. Do this over the course of a month (or two months if your spending varies) and compare to your income … simple!
- When you examine your list of spendings see whether there are any “quick wins” … items of spending you can eliminate or reduce easily (and you will be happy to)…. for instance, if you buy a newspaper every day then consider whether you really need one and whether you can get your fix of “news” elsewhere.
- Keep this up over the course of a few months. If necessary transfer to a spreadsheet .. patterns will soon emerge and you will be able to use this as the basis of your future spending.
- Record every bit of spending and encourage your family to do the same. You will be surprised how “little bits” of spending add up ..
Fundamental 2 – Make Your Money Work For You
If you do have spare money at the end of the month then one of the secrets of the well-off is to make the money that you have work for you
- This may be as simple as putting any spare money you have into a savings account rather than let it hang around in a current account
- Consider making stocks and shares investments but get good solid advice before you do
- Consider government savings schemes in the country or state you live in (in the UK these are called ISAs) as a way of making your money work for you
- Even paying off debt can fall into this category – especially if you pay off more than the minimum figure in any month. Paying a little more on your mortgage payments now can have a huge effect on what you pay back overall and how quickly you pay off your mortgage
Go and see an independent financial advisor.
He or she will be able to give unbiased advice on how best to get your money to work for you .
This can be as simple as taking advantage of the compound interest offered by most savings accounts.
Fundamental 3 – Protect Your Money
You need to be able to protect your investments so that if something unforeseen happens you protect both your assets and your earnings
- Look at low-risk investment strategies – the sort that will build up over time
- Take the time to research investment opportunities before you commit your money to them. This includes investments into business, pyramid schemes or network marketing opportunities – my advice would be to avoid these all together – there are plenty more legitimate ways to earn extra money (granted they may involve you doing some work)
- Home insurance (buildings and contents) is really important to protect your home if something unforeseen happens
- Consider earning insurance if you are self-employed or if the terms of your contract are such that you are not paid if you are ill.
- Consider insurance to guarantee your income in the event of you losing your job…
Choose your insurance options carefully .. you don’t want to be spending a fortune on insurance but you do want to give yourself adequate protection should problems occur
Knowing how to manage your money is a fundamental aspect of any successful long-term personal investment strategy.
So, in summary, the three fundamentals of money management are:
- Spend less than you earn
- Make your money work for you
- Protect your money
Live your financial life by these fundamentals
You can read about more money management tips here
Pass on these words of wisdom to your family and your financial future will be a long way towards being assured