Money management refers to the day to day financial activities necessary to manage current financial resources while working towards achieving your financial goals.
Taking control of your personal finances and establishing good money habits is the basis to a more successful financial future. It’s very difficult, if not impossible, to experience financial success if you can’t manage the money that you currently have.
So, money management is about developing good money habits that will lead to smart planning and use of your financial resources to achieve your desired financial goals.
Achieving a secure financial future is not necessarily about how much you earn. What really matters is how you manage your current available financial resources. We have a lot of stories of people who earned millions but are dead broke today. Why so? Their poor money management habits coupled by poor financial advice are the reasons that brought them down financially.
Therefore, no matter how much you earn, if you fail to manage your money wisely what you earn today, it will not last for very long.
Managing your money has three simple aspects:
1. Deciding what you want your money to do for you;
2. Creating a workable spending plan, and
3. Following that plan with determination.
The First Step: Making Choices
You are constantly making choices among various financial decisions. In making those choices, you must consider the time value of money. Every time you spend, save, invest, or borrow money, you should consider the time value of that money as an opportunity cost. For example, spending money from your savings account means lost interest earnings. However, what you buy with the money may have a higher priority than those earnings.
So, as you develop and implement various money management activities, you need to asses financial and personal costs and benefits associated with financial decisions.
You may also want to read this article: Best 10 Tips For Your Personal Finances
The Second Step: Creating a Workable Spending Plan
Creating a workable spending plan means translating your financial goals into subset financial plans. You need to plan how much will go for food, shelter, and other expenses each month. How much you will need to put into an emergency fund. How much will go into savings.
Learning effective ways of managing your money not only enables you to live comfortably within your means, but also helps you achieve your financial goals.
The Last Step: Following your Spending Plan
This last step seems obvious but important. You must follow your spending plan to avoid deviating from your overall financial plan. That’s doesn’t mean you become completely inflexible because unexpected money needs or changes in your overall financial plan may arise. But you should be consistent and reasonably faithful to your budget.