A Complete Guide on Money Management You Should Master
Do you live paycheque to paycheque despite making a good income every month? Managing your finances well is key to wealth creation. This blog guides you on what money management entails and the importance of managing your finances. You will also learn the best tips for managing your income, including creating a budget, implementing it, and limiting unbudgeted expenditures. Other steps to manage your money better comprise saving on big purchases, limiting credit purchases, and saving on your daily spending.
Here's an important question: How much do you earn?
You can create a lot of wealth from what you earn. However, you need good money management skills to make it happen.
But first, you need to know your income, determine your expenditure, and save and invest to begin your financial freedom journey. This blog outlines everything you need to know about managing your finances. Let's begin.
What is Money Management?
Does your money come from employment, or do you run a business? Or, are you among the influential actors or musicians in the country? How do you handle the money you get?
Money management involves handling your finances, starting from budgeting, investing, saving and setting financial growth goals. How you spend your finances affects the quality of life you live and the number of debts you accumulate.
You don't need financial expertise to manage your financials well. Ensure you learn the basics of financial management, and you will stop living from paycheck to paycheck.
In addition, it's not a must to be in a high-paying job to improve your finances. You can begin with some money management tips like reducing your expenditures and enhancing your ability to invest, save and achieve your financial goals.
Next, we've covered reasons why you should manage your finances well.
Why is Money Management Important?
It helps You Plan Better for the Future
Do you desire to drive big cars, live in a posh home and travel to various world destinations , live a better retirement life? You need to learn how to manage money to achieve such dreams in the future, especially if you earn an average salary or income.
If that's the case, you'll find it hard to achieve bigger dreams without managing your income in the best ways possible.
Make sure you have a clear picture of your finances. Then, figure out your expenditures and what you can invest or save to manage your future financial needs. Living a good life in the future depends on your effectiveness in managing what you earn today.
Better Money Management Brings a Sense of Security
Will you enjoy a sense of security living paycheck to paycheck? Certainly not.
The amount you earn doesn't matter. You can track your finances, save and invest, which gives you security. You probably get stressed when you spend all your income and have no savings.
What if you need emergency cash? That puts you in a difficult situation. You can avoid such insecurities by adopting effective ways to manage money.
Money Management Motivates You to Earn and Save More
Financial management awakens your desire to earn more. You could take up a new job, change your career or start a business to earn more.
The desire to keep your earnings higher than your expenditure grows when you manage your finances better. In addition, you'll discover ways to create more than waiting for your paycheck.
Managing Your Finances Well Helps Establish Clear Financial Goals
Are you on a mission to become financially independent? If yes, your priority should be setting a financial goal.
This also helps develop money management skills and enables you to determine whether your goals are realistic. You'll be able to devise the best strategy to attain your financials by knowing your income, saving and investing.
7 Best Effective Tips to Manage Your Money Better
Do you struggle to manage your finances every month or year? Or do you earn good money but can't tell where your money has gone? Here are some money management tips to help you out.
Create a Realistic Budget
A budget helps you know your sources of income and where you're spending your money. Budgeting is thus the best way to manage all your income well.
You will know what you have, how to spend it and the reasons to do it. You avoid financial wastage when you develop a budget.
Are you wondering where to begin and create a realistic budget? Follow the steps below:
- Find out your net income
- Track your expenditures
- Develop realistic financial goals
- Make a plan
- Adjust your expenses to stay on budget
- Review your budget regularly
Implement Your Budget
Your next step to better money management is implementing the budget.
A budget outlines where you should spend your money on. Pay your bills and other living expenses and keep records. Ensure you refer to your budget before spending any money.
Avoid or Minimize Expenses Not Budgeted For
Do you have money set aside for unexpected expenses? Stick to this practice and use it only when needed.
However, oftentimes, you might incur unbudgeted expenses. Avoid such expenses whenever possible. If you can't avoid them, ensure you spend the least amount possible.
Don't Commit to New Recurring Expenses
Maintain your financial health by avoiding new recurring expenses. Let's say you qualify for higher credit or a loan, but you can do without it; don't apply for the loan you don't need since it comes with a cost.
If you get credit or a loan with no ability to repay it, that damages your credit score and denies you a chance to get funding in the future.
Save up on Big Purchases
Do you really need to make big purchases? If not, you can avoid putting them on your credit card, saving on your credit card bills. You can avoid luxury purchases and save a lot, which helps you create wealth and enjoy it in the future when you're more stable.
Limit Credit Card Purchases
Are you someone who uses a credit card every time you run out of cash?
Think about this then: Can you do without the purchase you want to make? Then, don't use your credit card. Using a credit card for purchases increases the cost of your expenses.
Ensure You Save Daily
You can accumulate wealth by adopting saving as a routine. When making daily purchases, compare prices. Buy from stores offering discounts or selling what you want cheaper than others. Saving is among the best ways to manage money.
Take advantage of the above tips on money management and begin building your wealth. As mentioned earlier, better financial management doesn't require higher levels of education or financial expertise. You just need to know your income, manage expenditures, save, and invest to achieve greater financial goals.
What are the 5 principles of money management?
- Be wise with debt
- Spend lesser than you earn
- Plan for financial margins
- Set both long-term and short-term financial goals
- Invest more
What's the 50-30-20 budget rule?
The 50-30-20 budget rule refers to a budgeting technique where you divide your income into 3 categories in terms of percentages. It offers a simple way to track your expenditure. 50% goes to essential needs, 30% to personal needs, and 20% to saving and investing.
What are the ABCs of money management?
ABC stands for activity-based costing, assigning overhead and indirect costs like salary and utilities to products and services.
How much savings should I have at 40?
If you earn an average salary, you should have about 7 million Naira by the time you're 40, depending on your income.