How to Manage Money Better with These 6 Money Management Tips
By Debra Pangestu
For many people, knowing how to manage money better is one of the keys to achieving their financial goals. If you haven’t had a good track record with managing finances, don’t beat yourself up for it. No one is born with money management and financial planning skills. Just like driving a car or playing an instrument, it’s something that needs to be learned and honed over time.
If you want to get your finances under control, it’s never too late to start. What follows is a list of basic money management skills and some money management tips you can start incorporating into your everyday life so you can achieve financial freedom – whatever that looks like for you.
Set Clear Financial Goals
To know if you’re managing your money successfully, it’s important to create some financial goals both big and small for long term financial success. Making progress toward these goals will prove to you that you are being successful at managing your money, and knowing that you’re mastering your money will only give you confidence to do even better.
Establish financial goals that are important to you. Whether your goal is to create a $500 or $1,000 emergency fund in a savings account, pay off one credit card, get out of debt, or save a down payment for a home, setting clear financial goals will definitely help you with your money management. (In the future, a time may come when you have gained more financial assets. This is when you might want to focus on and speak with an investment advisor.)
Once you’ve written down your goals, determine their level of importance and think about how much money you’ll realistically need to set aside each month to reach them in the time frame you have in mind. Then sit down with your budget and see how you can allocate the right amount of money each month to make each one of your goals happen.
You may not be able to afford to pursue each goal right away. You may need to find a way of increasing your monthly income and/or decreasing your expenses, but if a goal is really important to you, you’ll eventually find a way to achieve it. Also bear in mind that accomplishing one goal – like paying off a debt – can free up money to pursue other goals.
Related: How to set SMART goals
Organize Your Finances
Getting your finances in order is an important, basic money management skill everyone should develop. If your bills, spending money, and financial statements aren’t organized and easily accessible, you’ll be much more likely to miss payment deadlines, damage your credit, overdraw your bank accounts (because you don’t know what your balances are or when all your payments are due), pay expensive NSF fees on bounced cheques and pre-authorized payments, and waste a lot of time searching for documents.
Designate a space in your home for your personal finances – even if it’s just one spot on a desk. Get yourself the right tools to help you get organized such as a filing cabinet, folders, boxes, a computer, extra hard drive, or whatever works for you. Some people even like to scan important documents and save a copy of them on their computer, so if the original gets lost or destroyed, they have a backup.
If you’re finding it hard to keep all your paperwork straight, you can also simplify your system by signing up for online statements. However, if you find you have to see bills and visualize when they need to be paid, get a separate calendar and mark it up with all your payment dates. You can also use an online calendar that sends you email or text message reminders.
Understand How to Budget Money
Having a budget and knowing how to budget money allows you to map out a financial plan to achieving your goals. Keep a record of all the money you have coming in (salary, bonuses, pension, etc.) in addition to all of the money going out (rent, insurance, living expenses, bill payments).
If you’re spending more each month than what you’re receiving in income, look closely at where your money is going and determine which areas you can cut back on. The smallest amounts – that daily latte, eating out at lunch, subscriptions that auto-renew – can make the biggest difference. Using a budget calculator spreadsheet can also help you learn how to budget money.
To ensure your budget is realistic, it’s a good idea to keep a spending diary so you can see what you spend your money on. Using an expense tracker, make a record of everything you spend money on for about a month, so you can get an accurate picture of your spending habits. Once you see where your money is going, you’ll be in a much better position to adjust your day-to-day spending habits so you can stick to your budget.
Learn How to Live Within Your Means
It’s important to only spend the money you have and not the money you expect to make, which is why having a budget is essential to good money management. Once you’ve created your budget, it’s essential that you stick to it and carefully manage your day-to-day spending and monthly expenses.
Basically, living on a budget is all about spending less than what you earn, earmarking part of each pay cheque for spending later, when that expense arises. If one of your goals is to gain more financial security, living according to your budget is one way to do that. By living within your means, you won’t find yourself in danger of committing to an unmanageable lifestyle and falling into debt.
While you’re sticking to your budget, it also won’t hurt to look for ways to save money. Brew your own coffee at home instead of buying a latte at the nearby coffee shop, clip coupons, buy groceries and plan your meals based on what’s on special at the grocery store. Adapting small money-saving habits like these will make it easier for you to live within your means, and within your budget. For a whole bunch of great money saving ideas, check out this, this, or this.
Pay Down Debt
Whether it’s the snowball or the avalanche method, what’s important is that you start chipping away at your debt. The sooner you pay off your debts, the sooner you’ll be able to unload the financial burden that’s preventing you from being financially free.
It’s common to feel overwhelmed if you’re struggling financially, and it’s tempting to ignore the bank statements and collection calls. But, ignoring the problem won’t make the bills go away. If you’re behind with your debt payments or if you’re having difficulties making even the minimum payment, the best thing you can do for yourself – and your finances – is to speak with an accredited non-profit credit counsellor. They’ll walk you through your finances, help you create a realistic budget, and provide you with all your available options to pay down your debts.
It took a long time to get yourself into debt, and it’ll take just as long to get yourself out. So be patient with yourself. What’s important is that you consistently keep up with your debt payments and learn how to use credit wisely so you can become debt-free for good.
Related: 12 Effective Ways to Pay Off Debt as Quickly as Possible
Save Money Regularly
If you’re having difficulties paying down your debts, saving money is probably the furthest thing from your mind. But even during this time, it’s important that you plan to save money for the unexpected. If there’s an unexpected illness, home repairs, or if you or your spouse gets laid off, emergency savings will prevent you from turning to credit, which will only dig you deeper into debt.
Setting aside some money in a savings bank account not only protects you from financial disaster, but it also helps you to meet your financial goals. Work with your budget to see if you can find room to contribute to an emergency savings account, even if it’s only $20 a month. How much you should save each month depends on your income level, family size, debt load, and financial goals, but it’s important to remember that every little bit helps.
Keep on saving until you have enough to tide you over for at least three months worth of expenses. Don’t worry if you can’t save this amount immediately. Do the best you can with what you have, but keep it as a target to aim for. You’ll be surprised at how quickly your savings can add up once you get started!
Proper money management is about getting the most from the money you have today, so you can achieve your financial goals in the future. By knowing how to manage your money, you’ll be able to pay your living expenses, keep debts to a manageable level or pay them off completely, and save for the extras that make life enjoyable.
If money anxieties are keeping you awake at night, make an appointment to speak with one of our accredited, non-profit credit counsellors and get some advice about your finances. They’ll give you guidance to help you bring your finances under control and get you well on your way to knowing how to manage money better for a better financial future.