Money management is an art, and some people appear to be naturally good at it, while others have to learn it.
It is not as difficult as it seems, and with a few tricks and consistent practice, you can be as good as those you have always looked up to.
This article is crafted to stress the need for learning to manage money and help you get started. This will help you manage your money and end up saving some of it.
All that is required of you is consistent effort and dedication to pursue your goals. Many people fall short on this and blame an instinctive desire they were not born with for their failure.
If you’re not naturally good with finances, you will have to build financial discipline yourself. Consistency is the key to this, and like everything worth having, you need to put in the effort.
Therefore, start taking notes and keep them somewhere where you can always access them. This is crucial because every time you feel like going off-budget, your handwritten notes will serve as a reminder of the journey you are on.
Everybody needs a reminder every once in a while, and in your money management quest, this will be extremely important.
Unless you are one of those who have already taken a Wiley CFA review course, in that case, you probably know a lot of this already.
The key to developing clarity for your goal is to think of this as a diet plan. If you aim to lose weight and delicious dishes are presented to you, you need the clarity of mind to refuse them to stay within your calorie deficit.
Similarly, if you’re aiming to save money, you need to stay within an expenditure deficit, and you cannot do that unless you are always clear about your plan of action.
Following are several reasons for you to learn to manage your money. These reasons are accompanied by tips aimed at people who lack financial discipline in its entirely.
Therefore, we are approaching this with the assumption that you do not know anything about money management.
This makes us target a wider audience. So, even if you know most of these tricks and are struggling in other areas, you may still be able to make good use of the information given in this article.
1) It shows your priorities:
Many people do not realize that money management is primarily about being clear in your spending habits.
They readily attribute this to hidden factors when, in all actuality, it is merely about knowing how to spend. Your spending habits are a manifestation of your priorities.
This clarity stems from knowing how much money flows into your accounts compared to what is deducted from them.
This is the first step in developing a good strategy for managing your money, so you need to pay full attention to this. All the tips mentioned in this guide depend on this step.
2) It helps you avoid misperception:
If you have irregular income sources, you probably start believing that you have a good running income stream.
However, you need to realize that this perception is primarily based on how money is credited to your account inconsistently. In this case, you need to be more cautious, as false perceptions can easily convince you to spend more.
Ideally, you should reduce your income in your calculation to an average realistic figure that your account usually maintains. This will help you understand your income better.
3) Helps you see expenditure patterns:
While you are learning about money management, you have to compare your income and expenses, including patterns of your expenditures.
A good exercise is to pick up your bank statement and look at it with scrutinizing eyes. While looking at bank statements, check for any patterns you can spot within your past three months’ expenditures.
See where you spent your money and how frequently you spent large sums. This would help you see how much you are earning and how much you are regularly spending.
4) Helps you save money:
As mentioned above, a good money management plan is primarily about cutting your expenses. Your goal is to achieve a deficit in your expenses, so you can live within your means and save some money.
It is always wise to have savings in your account because you can never predict unfavorable circumstances.
The coronavirus pandemic has made this clearer. Given how quickly the unemployment rate went up due to the pandemic-induced lockdowns, you might want to save that extra dollar.
5) Aids in cutting other expenditures:
Since you have already analyzed your bank statement, you may have witnessed specific patterns within it.
These patterns can help you see how frequently a certain amount is credited from your account. The first thing you need to do here is knowing whether you could have spent less in those days.
Calculate how much money you could have saved if you had not overspent in those days. This would help you see whether you can live within your income stream and still save or whether you would be able to only live within your means.
6) Facilities distinguishing between needs and wants:
Moreover, you need to differentiate between your needs and wants. As mentioned above, you need to think of this as a diet plan.
If your goal is to lose weight, you are likely to refuse calorie-heavy foods if you are committed to your plan.
Similarly, if your goal is to live within your means or save money, you need to distinguish whether the thing you are purchasing is a need or a want.
For example, if you want that new iPhone but do not have enough money for it, see whether your old phone does all the work for you and whether you can spend a few more months without buying a new one.
Conclusion:
While there is more to money management, these reasons and the accompanying tips will help you get started.
One thing you need to do along the way is to keep a record of everything. Every time you make a purchase, look at the remaining balance and evaluate whether you would be able to get to the end of the month without borrowing any money.
Not only will this practice help you keep track of your expenses, but it will discourage you from spending excessively in you are already running short on money.
Note that money management is not a one-time thing, and you cannot get away by creating a budget at the beginning of the month.
Many people believe that budgeting alone is half the work done. While it is important, you need to be consistently active. Do this for the first couple of months, and things should flow smoothly from there.
