About Managing Money
Perhaps you dream of owning a house or maybe you would like to take a summer vacation to Hawaii someday. Managing your money is a key step in making your dreams become a reality. Understanding how to manage your money also significantly reduces stress; as you practice the skills of managing money, you gain control of your finances, learning to live within your means and set aside money for emergency expenses and long-term financial goals. Money management seems daunting at first, but breaking it down into sections allows you to understand it and become a responsible money manager.
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Tracking Your Money
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Tracking your money helps you acquire an accurate view of your spending habits. Understanding your cash flow, the path your money takes once you cash your paycheck, is a key step in good money management. Keep a monthly log of your income and your expenses. Some expenses such as car payments and house payments are regular and easy to track; others like convenience store purchases may be random and harder to pinpoint, so be sure to save all your receipts. Tracking your money for a year gives you the most accurate picture of your cash flow.
Financial Planning
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Consider your goals and dreams for the future. Where do you see yourself in five years? If owning a house is in your plan, for instance, then you need to set aside enough money for a down payment. Make a list of your short-term and long-term financial goals. Sort your list in order of importance and then discuss it with your family. Be realistic. Don't set yourself up for failure by including too many goals; try to narrow your list down to five or six items in order to make it achievable. Remember to include in your financial plan an emergency fund that will cover all your expenses for three months.
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Budgeting
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Once you have a clear record of your cash flow and reasonable financial goals, you can begin to develop a written budget. A budget is simply a guideline for your spending that allows you to realize your financial goals. Estimate your monthly expenses, breaking them down into categories to help organize them. Compare monthly income to monthly expenses and adjust your budget accordingly. Regardless of your financial goals, your income needs to exceed your expenses or you will get into financial trouble. You might consider getting a part-time job to increase your income; other common techniques to keep a budget balanced include decreasing expenses and reducing monthly debt payments. Keeping your short-term and long-term financial goals in mind while constructing your budget is key to making your budget successful.
Credit
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Managing your credit allows you to achieve your financial goals more quickly. A higher credit score results in lower interest rates for loans; a low credit score can cost you thousands of dollars in higher interest rates. Monitor your credit report yearly, checking it closely for inaccuracies and errors to report to the three major credit bureaus; failure to do this may result in costly credit problems for you down the road, including identity theft. Build your credit by paying your monthly bills on time. Keep a credit card to help build your credit, but use it responsibly, always paying the complete balance off monthly to avoid costly interest charges. If you do have credit card debt, take charge of your debt by paying more than the minimum balance due each month.
Financial Records
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You need a record-keeping system to keep track of your financial records and to help plan for the future. Regardless of the system you choose, be sure it is easy for you to use, since you will access it daily. Your financial records should minimally include auto records, bank records, employment records, earnings, expenditures, receipts and paid bills, property tax records, debit and credit card information, housing records, investment information and income tax records. Cleaning out your files yearly allows you to streamline the records that you will need to keep permanently such as income tax records.
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