Most of us are severely malnourished when it comes to knowledge on how to manage finances. It’s not something we’re taught at school or even at home – for most of us – therefore you’re forced to navigate through life by teaching yourself. Money management skills are essential to all of us since we’re always handling money.
You need to know how to earn money, save, spend, invest, balance and track everything if you desire a healthy financial life. It’s one of those skills that you will use for a lifetime. Therefore, start practicing smart money management today.
That said, understand this is a process. You can and will fail in the first attempts of managing money, but with time it gets easier.
Smart Money Management Skills To Learn
1: Make a budget and stick to it.
Creating a budget is easy. The trick is to stay with it. Plan how much money you will save. How you save it. How much are you allocating to your retirement savings account? How much do you plan to spend on food each month? Or is it each week? How much do you save for an emergency fund?
Do you have the limit to how much you’re allocating on miscellaneous? You know, that unbudgeted money for fun after everything else. Create a detailed budget and stick to it. You can always adjust as your needs change, but the trick is to always use a budget.
2: Have financial goals and plan how to achieve them.
Most people only focus on short term goals only. Have a long term plan on the goals you want to achieve. Is your goal to purchase a home? How many years from now do you want to acquire one?
Or maybe it’s retiring early? What age do you plan to retire? What are the steps to take to achieve that?
A budget will help you achieve those long term goals but unless you’re faithful to your cause, it’ll only be wishful thinking.
3: Commit to saving money.
Save your money with a purpose. Spend your money wisely too. If you’re at crossroads and wondering if you should spend the money on purchasing something, ask yourself its value to you. Is it necessary to you at the moment? Does it add value to you?
Saving money is an art very few people have mastered correctly. You must be faithful to your plan. Forego any expenses that aren’t necessary for you. Any expense that you don’t immediately need can stay. Most people believe that they need something when in reality, they can live without it.
Any time you’re stranded, ask yourself. Is this a want or a need? Can I do without it? Yes? Then it’s definitely not a need.
4: Always get the best deal.
If you can manage to buy on sale or where it’s cheaper, do it. The amount can seem small but over time it adds up to huge amounts. As you’re shopping for the best deals on the dollar, remember there are seasonal expenses too.
Times such as Christmas and New Year the expenses can go high than other seasons. You must know the best time to get things at great deals and when it gets unbearably expensive.
Always carry a shopping list with you and the estimated amount for all things. This way, when you find something else you’re tempted to buy and don’t really need, you can direct your eyes to your list and remember your priorities.
5: Think like an investor.
No wealthy person got there just by saving money every month. Not $10,000. And definitely not $100. If your job is stable, you can manage to save $50-100K per year. Sometimes more.
But even if you’re saving for retirement, how many years will you live on your savings before they dry up? Start investing your money. Whether at 20 or 40 years. Investing will help you achieve your goals.
You can invest in stocks or government bonds, through retirement accounts such as 401K or IRA. Investing helps you to accrue more interest on your capital than you would by just saving.
That said, smart money management forces you to become a conscious consumer. You no longer purchase based on whims or anything that fancy you especially when money is tight.
You can set yourself an amount beyond which you’ll always spend more time before purchasing. For example, you could say – ‘Any purchase over $100 I’ll always sleep over it before purchasing’. That way, you reduce impulse buying and you’ll be sure what you’re purchasing is absolutely necessary.
Individual Skills you need to have
These skills are what you will need to cultivate to pull through smart money management.
1: Self Discipline.
It’ll be hard if you’ve been an impulse buyer to suddenly find yourself putting a leash on your impulses. Maybe you want to drive through the fast food and pick something for dinner. Then you suddenly remember you planned to be preparing home cooked foods to reduce the expenses.
Self-discipline is very important.
2: Critical thinking.
There will be a time when you’re confused about what to purchase. You think you really need something but you actually don’t. Or, you wonder what to forego so as to purchase something else. Critical thinking will help you figure what’s important and necessary to make decisions without regret.
You must believe in yourself. Have belief in your cause and be confident in your actions. Besides, there will be times when the decisions you take won’t be appreciated by those around you.
As long as you’re focusing on the bigger picture, you need to stay strong and confident in what you’re doing.
Money management skills are very important. You don’t have to wait till you’re financially stable or a certain age to take control over your finances. Track your savings and expenses and always live below your income.