There are occasions when you look in the bank and wonder what happened to all of the money. Or perhaps you have enough and want to make the most of what you have (and maybe some more on top).
That is where money management comes into play.
Money management can revolutionise how you spend, how you save and how much you have left at the end of the month.
What is money management?
Money management is taking control of your finances consciously and smartly, looking at your past spending habits and gathering all of your financial information.
Money management will often include:
Budgeting and reduced spending
And sometimes, the most important thing will be looking at how you can increase your income.
What should be some of the outcomes for money management?
Talking about money honestly isn’t something that is easy for everyone; money can come with guilt, upset and embarrassment. However, most of the time, people aren’t taught how to manage money - but have access to credit and more.
Some of the outcomes of money management are:
Being able to save (slow and steady) for big items
Creating an emergency fund
Save up for children
Be confident in money
One of the best outcomes of money management is that you can relax.
What are the keystones of money management?
Before you start, knowing the key moments of money management is helpful.
Understanding how your money looks currently
Seeing where you overspend
Tackling debt head on
Saving for the future
It might be that you are only interested in the first two - and that’s great. Once you manage to give yourself some freedom, you can choose to save and invest in any way that meets your financial goals.
Understanding your finances
For most people looking at their finances can feel overwhelming and more than a little upsetting. Even those who feel like they are quite comfortable can be in for a shock when they realise how much they are spending, how much debt they are in and more.
While confronting, the goal of looking at your whole financial situation puts you in the best position to make plans.
You’ll need to grab your monthly income, look at your expenditure, what is going on, things you don’t need, and more.
It is also important to go back through the last few months of statements and income. Doing this will give you a better overview of what you have coming and going.
For many, it can be useful to create a spreadsheet that has everything you need and turn it into a budget.
Overspending might not feel like overspending when you do it. Especially when we have access to credit cards, Klarna and other options, that means we can get what we want and then put off the repayments.
One of the most important parts of taking control of your money is to see if you have a tendency to overspend.
Spending money and getting new things can be one of the ways that people get little bumps of happiness, and it can kill boredom too. Try to consider if your spending is on things you need or want, and consider if you need to change that.
There are major life situations that mean you need cash and quick, short term loans for bad credit are common at these times.
If you do buy things you don’t need often, you can put that cash into savings instead - which means you might just find you begin to stack up some cash much faster than you think.
Debt can feel like a dirty word, but it’s not just outstanding credit card bills - mortgages and some credit cards are often considered good debt.
If your debt has stacked up, and it is eating a significant amount of your income, it’s time to approach it in a different way.
Often it isn’t the debt itself you are paying - instead, you will be covering charges and interest. So big credit card bills might feel like they aren’t being touched at all.
Start writing down how much each of the debts is. It’s not the most enjoyable experience, but it can help you get a clear idea of how much you really need to pay off.
Debt management companies and people who advise on paying off debt recommend a couple of methods.
To do it using the Avalanche method, you will look at the debts that have the highest interest and put any spare cash towards paying that down. Pick one at a time, and make only minimum payments (or ask to freeze) the rest. By knocking down the ones with the biggest APR, you will clear the ones that are eating your income without seeing much of a paydown.
Rather than look at the APR, you can look at the full balance. List your debts from biggest to smallest, and focus on paying off the smallest debts first - making bigger payments where possible and only minimum on the rest. Once the smaller ones are paid off, use the freed-up cash to put towards the bigger ones.
Once your debts are taken care of, it’s time to turn your attention to saving - although if you can do both simultaneously, that’s even better.
Without having to pay a lot of debts, and with a reduction of overspending - it should mean that you have some extra cash that can be put into savings.
There are a few great reasons to save:
What would you do if your car stopped working right now, or one of the large white goods in the home, like the washing machine, broke? Unexpected expenses can be almost anything; for some, it’s not just the ‘big’ things that cause a problem. The rising cost of utilities and travel can be crippling. You should have an emergency fund of between 3-6 months of income; however long it takes to save is fine. Slow and steady, with just a few dollars a week or month.
Saving for retirement is a much bigger task, but having something that can help you relax as you get older - or quite work completely. A pension or IRA account, depending on your country, is a great idea, and if you have the savings to do so, it is a good idea to add to yours.
It’s not just retirement and emergencies that are a great thing to save for. Saving for things you want to do can be a great motivator. For example, the biggest holiday that you’ve ever been on. Dream vacations, a new (to you) car, redecoration, or maybe even taking some time off work for a while.
Saving can be tricky, but if you look at doing things in a smaller way, you can see your savings grow over time. Setting financial goals and then reaching them can be one of the most satisfying things. And the goals don't need to be big - it could be that you want to have the free cash to take a drive without worrying about the cost of fuel or having a take-away treat mid-week. It’s about what would benefit your family and/or you.
To help with your savings goal, automated saving tools can calculate what you can afford to save, even if it is a few cents or pence. This can take the manual factor out of saving and help you save little and often until you meet your goals.
Once you have tackled debt, and it feels more manageable or is gone completely, and some savings are happening, you might decide it is time to invest some money. Investments shouldn’t be something you do lightly, but it is one of the ways that your money can work harder for you.
Long-term investments are one of the ways that money can grow over time, even smaller amounts.
It is a good idea not to put all of your savings into investments, but a small amount here and there.
Investment can also be in yourself, in education, buying a house for your family.
Money management isn’t a skill that happens overnight; it takes time and effort to learn how to maximise what you have, minimise what you spend and come up with a balance of paying what you have to (bills), saving for what you want, and putting a little bit aside.
The most important thing when it comes to money management is knowing that even in a street where people all do roughly the same thing and earn the same wage, their needs will differ. What that means is when doing your own money management keep the focus very on the home and the lifestyle that you want.
Your children might be small now, but you might be thinking about their future and how you can help them achieve big life goals faster: 8 Ways You Can Help Your Child Buy a Home.