This is quite a long article, 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.
If you read nothing else on the site then please read this one and I would really welcome comments below:
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.
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 …..
7. Identify (and Action) The Biggest Areas You Can Save Money
The biggest way anybody can save money (assuming they do it regularly) is to cook all meals for themselves.
This means either stopping or reducing eating out and takeaways and getting organised enough to cook for yourselves (yes, it’s all about being organised again!)
Why not have the takeaway or a family meal as a “special” fortnightly or monthly event. That way it will be a little more special and the family will look forward to it..
And if you do go out restrict the number of drinks everybody has – they are the greatest money waster – maybe to one and then ask for tap water on the table
8. Save Something Every Week
Try and save something – anything – every week. It could be $5 or $10, or loose change in a jar.
Better still set yourself a target – something you really need – and start saving for it.
Keep all your loose change in a jar. It is amazing how quickly small change adds up, but also make a conscious effort to add to it on a weekly basis.
Make saving a priority. By doing this you will empower yourself to make more sensible decisions. For instance if you make saving a priority you are much more likely to think twice about popping out to the coffee shop to buy that second latte of the day. Put the money away instead
You could also consider opening a savings account and maybe transferring a fixed amount into each month on payday…
9. Throw Away The Cards And Use Cash Instead
I don’t necessarily mean completely throwing away the credit and debit cards, but there is nothing like only having a fixed amount of cash to fix your mind
Think about when you were child and you only had a dollar (or a pound, or a yen or Euro) to spend at the sweet shop. You had some pretty tough decisions to make based on only having that amount of cash available to you
I use cash on my supermarket shops these days and add it up with a calculator as I go along. It really gets you focused on what is important
Adopt the same principle for weekly housekeeping in general and operate under the principal of “when it’s gone, it’s gone”
10. Find Ways to Earn More Money
There are many ways you can set about making some money from what you know (and the internet has made it easier for you)… here are a few…
- If you make things (jewelry or candles or soap for example) consider setting up an online shop through eBay, or selling your wares locally a car boot sales or garage sales
- You could create an eBook sharing your knowledge and sell it online
- You could write a blog around your hobby (much like this one) and monetize it with advertising
- You could run classes around your hobby
- Or make speeches or presentations
If you have a hobby or interest that it is possible to monetize then give it some due consideration…and if you don’t then consider getting one(!)
11. Use Coupons (But Use Them Wisely)
Coupons are great. Many people actively seek out and use coupons online for all sorts of things ranging from groceries to theater tickets, web hosting to days out .
If your supermarket or store actively give out coupons then use them but do not fall into the trap of using coupons for things you would normally buy or use (unless they are free of course). If you do this you may actually be spending more money than you actually need to spend (even if you are getting a bargain)
And make good use of store loyalty cards if you can (not the credit card variety, the ones where you get points) which will also give you discounts off groceries and maybe other goods..
12. Develop a Positive Mindset
To achieve any kind of great success, you must first believe that you’re capable of achieving that success.
Great sports stars can suddenly begin having lousy performances if they suddenly feel they can’t perform well or live up to their coach’s high expectations.
Writers and musicians suddenly have their wellsprings of inspiration dry up if they no longer “feel it” or if they suddenly lose confidence in their creative abilities.
The same is true in our own lives.
You don’t have to be famous for your boss to have high expectations of you at work.
Our families also have certain expectations and if you cave under the pressure, your performance might suffer and your negative thoughts will infiltrate other areas of your life.
When it comes to building wealth, we have to believe that we can see ourselves becoming more and more wealthy.
It doesn’t matter how smart we might be, or how talented we are, or whether we’re sitting on top of the best business opportunity to come along in our lifetime, if we don’t believe in ourselves, we’ll have a hard time building wealth.
Wealth flows to those who believe they deserve it. It flows to those who envision it in their hands, their bank accounts, and their lives.
Even in your darkest hours when you’re trying to build wealth in your life, when times are tough and the seas of your world are troubled, you have to continue to see great wealth in your life.
If it all seems to be happening too slowly, have patience – those who “know” something good is coming their way can always afford to be patient and safe in their knowledge that what they’re yearning for is within their grasp
13. Shop For Groceries With a List (And Stick to It)
Shop with a list and stick to it. This way you will only buy what you need rather than what you think you want.
Plan out your meals for the week beforehand trying to take into account as much as you can of the families whereabouts and needs. Then make a list and go do your shopping,..
- And while we are at it one or two other bits of grocery shopping advice
- Use coupons and loyalty cards where you can
- Use internet shopping especially if you would have to drive to the shops but again stick to a strict list
- Avoid shopping when hungry
- If you can avoid shopping with the children
14. Become Frugal McDougall Rather Than Maverick Spendalot
Start to adopt a more frugal attitude in all aspects of your life.
Being frugal is not necessarily all about being “cheap”, but recognize that there are likely to be areas of your life where you can save money – turning the heating down a notch, walking to work, using supermarket “own brands” etc
15. Make Your Money Work For You
This is a huge branch of money management and basically involves using whatever spare money you have to it’s best advantage.
This could be simply paying into a savings account every month rather than leaving your money in a current account, right up to low risk investments in stocks and shares (or high risk if you prefer)
Go and make an appointment with an independent financial advisor who would be best able to give guidance related to the country or state or county you live in.
16. Deal With Paperwork Efficiently.. Learn How to be Organized
When managing your money it is really important to deal with paperwork as efficiently as possible so think about what system you will adopt to deal with paperwork
Would you reply to letters immediately or save them up to deal with in one go at the weekend?
How will you handle your filing system so you can easily locate any paperwork you need to deal with
How will you dispose of letters so your details are protected?(hint: get a shredder)
This is all about dealing with things in an efficient manner so you do not get stressed and you do not waste time looking for the letter which you knew you had this morning.
Basically, adopt a filing and letter management system which will work for you..
The key here is to learn how to be organized and efficient in dealing with all your money matters.
If you need money management software to get you organised then go out and do some research. Different money management software suits different people and most paid services offer a free trial.
17. Plan for the Unthinkable
We really don’t like to consider that the unthinkable might happen but you really need to plan for the “what if”… these are the things you need to consider as a minimum
- What level of health insurance do I and my family need
- Do I need to take critical illness cover
- House and contents insurance also need to be considered
- I need to consider what will happen to me in my old age
- I should really get my finances in order so that if I die it is clear what needs to be done
- I need to make a will
- I need to consider my pension options
- I need to consider my funeral costs..
Write all these down and at least give them due consideration – get financial advice if you need it..
18. Don’t Spend Money On What You Can Get for Free
There are lots of things you can actually do for free rather than pay for.
A great example is exercise – why pay expensive gym fees when you can go for a walk, or a run, or go swimming yourself, or work out at home?
And if you can’t get it for free then there is a very good chance that there will be someway you can get the same effect much cheaper.
Cook at home instead of going out. Go for a run instead of going to the gym. Go for a walk rather than going to a theme park…
19. Avoid Comfort Shopping
Avoid shopping when you are down or depressed … you will start to buy what you want rather than what you need
I know somebody that, when they are feeling down or just in need of a pick me up, will go out and buy a pair of shoes – this can get very expensive..
Or do you feel green with envy when your neighbour gets a new car?
Or when a family member goes on an exotic holiday?
Worse than that – do you try and keep up with them – just for show?
It’s really important to try and quell this thinking because you will end up spending on things you don’t really need (and in some cases you don’t really want)
Try and focus on the things you do have (count your own blessings) and then then write down a list of things that you actually need (not want) and add them to your 5 year financial plan
20. Share the Burden With Your Partner
Share the burden of sorting out finances with your partner and in particular how you are going to execute your financial plan
If this involves writing down everything then get them to do it too (otherwise you will struggle to keep track). Agree how you are going to manage things in the future and a process which is likely to work for you…. and if it is not working, adjust it
Involve your partner in all the financial decisions. You would expect them to if they were “running the show”
21. Encourage Your Kids to Manage Their Money
Isn’t it a crying shame that good money management is not taught to children in schools? At least it wasn’t in my day and I don’t think things have got much better
The good news is that you can do something about it by passing on some good habits to your children. This will instill an appreciation of money in your kids from a young age and help prevent them becoming a financial “drain” when they hit teenage years because they will be much more appreciative of money.
Get them money management software or a simple money management app for their phone and encourage them to use it.
Here are some examples:
- Teach them how to budget and explain good money management principles
- Encourage them to get a part time job when they are old enough to demonstrate it is necessary to work
- Be prepared to answer their questions and talk openly about money
- Walk the walk with your children – show them that you adopt good money management principles such as dealing with issues quickly and efficiently. They watch and learn from you …
22. Be Philanthropic
Give where it is appropriate to give.
And if you cannot give money then donate your time.
One thing you might want to consider is something called “Tithing”
Tithing is a principle that instructs a person to give away at least 10% of his money whether it’s weekly, monthly, quarterly, or annually to noble causes that have nothing to do with seeking profit.
These causes are supposed to be things such as charities and philanthropic projects.
Those who are financially successful say that what you give away returns to you in greater measure.
So when they do noble things with their money, they not only benefit others, but they benefit themselves, because that spiritual energy returns to them and brings them even more wealth than they give out.
It’s an endless and beneficial cycle.
So take a look around your neighborhood for non-profit causes to support. Local schools, libraries, places of worship, park and recreation departments, or children’s organizations are all deserving of your support.
24. Keep Healthy
Keeping healthy will actually reduce the likelihood of having to pay out in health insurance costs later on in life.
Keeping healthy will also reduce the likelihood of dying young and will mean that you are sharper, fitter, and more mentally able to deal with anything that life has to throw at you
So if you are not adopting a healthy lifestyle take some small steps to change the situation
- Go out for a run
- Walk to work tomorrow
- Cut out the takeaway
And this also includes making sure you look after yourself…
- if you can’t sleep learn some techniques to help you get to sleep
- take steps to increase your self confidence if that is an issue
- learn to think positively – use quotes or positive affirmations to help you through the day…
One of the most important aspects of mental health is stress management so I have given it a special position …
If things do start to become to be stressful either at work or more specifically because of your financial situation then you will need to be resilient and you will need to be able to handle the stress
The effect of “debt stress” can be almost as bad on the health of an individual than the actual debt itself
Again, learn some techniques to handle stress positively. Read a book or go on a course which will help you and I guarantee you will better equipped to face whatever financial challenges you have
25. Work Smarter, Not Harder
You may run your own business or perform a 9 to 5 office job. You may be a stay at home parent or unemployed.
Your time is valuable. Use it wisely, learn to be more efficient.
You will get more done and free up time to do other things (like perhaps making some extra pennies on the side)
Time is money they say – adopt the saying as one of your principals
There are techniques around time management, self management and general organisation skills which will help you in this area… go and seek out a book on time management to get you started …
There we have it. 25 Fundamentals of Money Management to live your life by.
Adopting some (or better still) all of these tips will really help your financial future and be it as a family or individually go someway towards short term happiness and long term security