Money management is one of the many tools consumers can use to help strengthen their finances and get them closer to their goals. These goals could be a number of things such as paying off student loans, paying down a big credit card debt or even closing a mortgage loan with just a few year’s of payment. All these are ideal targets to aspire for and being able to manage your finances will play a crucial role in determining how you progress towards those goals.
As Investopedia.com puts it, money management is simply the process of juggling a number of factors such as budgeting the money on a regular basis, making sure you are saving as specific amount and even investing the same for future use. This can be a tall order to manage for some people but it is a necessary one to ensure that the finances are in order.
Personal finance does not have to be rocket science but it might feel that way from some people because it is their first time doing it or they just do not like the idea ot being restricted with their financial movement. This is a mindset that needs to change because managing your money should not be interpreted as a prohibitive action but rather, it should be thought of as a liberating one for the people who are practicing sound financial management.
As you go through life, you would need to manage your finances at present to help you have more in the future. But in everything, you need balance and the same goes with money management. You cannot live off on noodles for years just so you can save money. You might end up sacrificing your health and all those savings would just go to hospital and medical needs.
Money management tips
This does not have to be a herculean task for you because the harder you make it on yourself, the higher the chances that you will just burn out and drop the whole thing entirely. Here are a few things you can do to help make the task as easy as possible.
- Consider automating your finances. Technology has been a great tool people have been taking advantage of for the past few years and automation is one of them. This process allows consumers to automatically make payments or transfer money from one account to another without going through a repetitive process every time. This is actually one way of increasing the financial confidence of a person but this does not come without a downside. As much as it is convenient for money management, you need to ensure that the account linked to the automatic payments will not run low on funds it needs to actually cover all payments.
- Streamlining your financial accounts. It is understandably hard to monitor multiple accounts all at the same time because of the sheer amount of time you need to manage them. Think of having multiple email accounts and monitoring each and every one of them for any important emails that may come in or what you have used for specific accounts and remembering log in details with them. The same with your financial accounts, the more accounts you have to monitor, the bigger the probability that you might overlook some important details. It can be payments, rolling over funds, transferring some to a checking account for a payment you issued months before and more. It would be a good idea to streamline your accounts to make it easier for you to monitor them and not miss any important financial details as you go along.
- Work with your family. It will be an unnecessary uphill battle if you try to take on money management on your own if you already have a family of your own. Of course this is something you need to face on your own if you are still a single person but as soon as you get married and have kids, you need to include them in the process. You need to sit down with your wife or husband to go over the household budget so you can both give your inputs on how to manage your finances. The children’s activities will also revolve with how you agree on your budget so it is critical that you involve your family in the process.
- Look into debt consolidation. Debt will always be part of life and there are actually types of debt that can help you in life. It can be student loans where it gets you the education you need to gain an advantage when it comes to your career. It can also be a mortgage loan to help you buy and pay for that dream house on installment basis. Even a car loan can be handy especially when you need one for a business. WIth all these loan possibilities and more, it might be a little challenging to monitor all of them at the same time. Nerdwallet.com shares that an average household debt can reach about $130,000 and that is not an amount for the faint of heart.
How to quickly get into trouble
Now that you have an idea on some of the things that can help you with money management, it would also be useful to know some of the most common pitfalls in managing your finances. The earlier you know about some of these, the better you are prepared in avoiding them.
- Not working towards a goal. When you go to the gym without a goal, you end up sore at the end of the day for no reason. You need to have a goal whether it is to lose weight or gain mass. This goal will drive your actions while you are inside the gym. The same goes for your finances because the absence of a financial goal could stretch you out too thinly trying to accomplish several things at the same time. You need to have direction with where you want to go to help you map out what you do at present.
- Using your budget as a suggestion. Your budget is not a suggestion that you follow only when you feel like it. This is one of the most successful ways to sabotage your budget and end up paying more for things that you do not actually need.
- Credit card use. Creditcards.com shared that consumers are dealing with and average APR or annual percentage rate of 12.1%. That is a big amount of money the higher your balance is. Not to mention when you start missing payments and you have to deal with penalties and other charges. Be vigilant with your card use and understand how to use it to your own advantage.
- Deliberately missing payments. It is one thing to miss a payment and it is another to be deliberate about it. You might have a dispute with the service provider or you just don’t feel like sending out that cheque. Apart from penalty payments, your credit score will take a hit. It might not bother you now but when you find the need to approach a lender for a loan either for your house or a car, you will feel the pinch of a low score.
Money management does not have to be rocket science but you need to be dedicated and willing to commit to it so you can enjoy the benefits in the future.