Money management is not an easy path to take at any point in your life because it requires a lot of self-discipline. It is not easy to gain momentum because there are a lot of speed bumps along the way. These challenges are mostly financially related but even your health and emotions can come into play. Managing your finances is not approached from just one side because it is made up of a lot of components.
Income and expense is an important part of your finances and your desire to manage your money well. This is because these are the two pillars which you need to constantly adjust to help you reach your goal. There will be times when your income might suffer and at times, you could have more than what you planned to get at the end of the month.
Your expenses could also go through a similar roller-coaster ride since a lot of factors come into play when you start spending money. Prices in the supermarket can go up and down and there is nothing you can do about it. Money management will be challenging when you consider all the factors you do not have control over.
That being said, it is best to focus on the areas you can control. It can be personal expenses, controlling your purchases of times you want, or even learning how to cook to lower down your dependency on take-out food. The New York Post shared that Americans spend about $70,000 on delivery and food takeout in a lifetime. In all these, you have to understand that managing your money should always lead to a goal in mind. That goal can drastically change the way how you approach managing your money.
Money management with a mortgage in mind
One of the many goals you could have while managing your finances is to be able to buy your own house. Homeownership remains to be one of the top goals of every American. The one thing that makes this out of reach for some people is that it is quite an expensive undertaking. Mortgage loans are normally six-figure loans and take decades to pay off.
When your goal is to buy that dream home, managing your finances can start by making sure you send out your payment on time all the time. This, in turn, will help you improve your credit score over a period of time. Once that happens, you increase your chances of not only being approved for a loan but getting a low interest on your loan.
One more thing you can do to help you afford your monthly mortgage payments is to save up for the downpayment of at least 20%. The reason for this is that in most cases of mortgage applications, a downpayment of less than 20% results to a Private Mortgage Insurance (PMI). This is meant to protect your lender in case you default on your payments, This is an additional item in your monthly payments.
Managing your finances for early retirement
If money management is meant to help you retire early, you need to make sure that you set aside a considerable amount of your income towards your retirement fund. It will also be a big help when you manage your finances in a way where you get to save for it early in your career. The sooner you start with it, the faster you can reach your goal.
One reason for this is that you get to work the benefits of compound interest. Over time, interest earned is added to your main fund and interest is then based on that amount. As your fund increases, the interest increases as well and you reap the benefits over time. This is the reason why it makes a lot of sense to start saving for retirement from the time you get your first paycheck.
If you choose to put your money in various investments, you can take on an aggressive stance where risk is big but so are the potential earnings. You have to manage your money in a way where you start investing money you can afford to lose. As the years go by and you near retirement, you can start putting some of your investments in safer options to protect the principal amount. It might help to know that most Americans expect to retire at the age of 66 according to Gallup.
You plan to put up your own business in the future
It is possible also that money management is driven by your desire to set up a business of your own in the future. If this is the case, you could be handling your finances in a way where you put money into learning the necessary skills to manage your business. You could be taking up post-graduate studies to help you learn more and increase your chances of successfully running your business in the future.
You could also be spending some money on conferences and seminars not only to learn but to network also in your chosen industry. The more people you know, the better your chances are of getting great pieces of advice about the industry and even develop friends along the way. If the time comes where you need to hire someone in your company, it helps who the people are in your industry so you can make a hiring decision.
As you go out and network, you might also be putting a little bit more into your clothing allowance because first impressions make a big difference when meeting people for the first time. Compared to people working at home, you might need to make a more regular purchase to help you make a good impression.
Planning a family in the future
Money management when your goal in the future is to start a family of your own can take an interesting turn. One thing you need to plan for is getting a house to settle down and raise the children. The size, neighborhood, and mortgage will depend on your career or even the number of children you want running around the house.
You and your partner could also start planning to live off on one income in the future. This is to ensure that there is someone who will look after the children full-time. This is why you have to prepare your expenses in such a way that one income can cover all your family’s needs while saving for your future needs.
Having children can also mean college costs and much like retirement planning, you can start saving for it as early as you can. You can aim to cover for your children’s full-ride or be able to cover a good portion of their college expenses. This way, they lower down their student loans they have to pay once they start working. On hindsight, this also protects your future funds because your children would not have to come asking for money in the future.
Money management needs to be closely connected to a goal you have in the future to make it work. If you have a clear understanding of what your goal is, you can manage your money according to what you want to happen in the future. This way, you can make changes as you go along but you are still guided by your long-term goals to make sure that you do not stray off too far while keeping your finances in check.