Money is an inescapable part of our everyday lives, and effective management of your money is vital. It’s a no-brainer that well-managed finances will reduce stress and anxiety, but it will also ensure that you’re prepared for the future you want and any unexpected surprises life throws your way. And of course, so you get to enjoy the money you work hard for, too!
Neglecting to manage your money can lead to difficulties in paying for necessary expenses and bills, untenable consumer debt, negative perceptions of money and a huge amount of stress.
If you start putting these four foundational money management components into action, you’ll be well on your way to effectively managing your finances!
1. Budgeting — the bread and butter of money management
Budgeting isn’t just for the finance department at your job, it’s a plan for how you use your money to make sure you can do all of the things you want (and need). Simple budgeting starts with determining your income and subtracting your expenses to give you an amount for spending and saving.
Smart budgeting starts with living within your means. That means never spending more than you earn. Even if you can only save a little bit, it’s still worth doing. If you’re finding this difficult, you might benefit from the structure of an established budgeting system; there are so many out there! Zero-based budgeting, rollover budget, Barefoot, the 50/30/20 budget — just to name a few.
And you don’t need to go it alone. Personal finance software like PocketSmith can help you automatically store and organize your transactions, plan ahead with a budgeting calendar and track your net worth.
2. Planning for your financial future
Managing your money well today is what sets you up for a financially stable future. Planning ahead is an important part of money management, because it gets you thinking about how you can prepare for your wants and needs in the future, in real time. You can do this passively through saving, or actively through things like investing and other wealth creation activities.
It also pays to plan for a future you can’t predict. Whether it be a car accident, a medical event or something breaks in your home, you’re sure to be hit with an unexpected event at least once in your life. By having a healthy emergency fund and the appropriate insurance coverage, you’ll make sure that you, and your financial plan, can remain on track.
3. Considering your spending habits
Establishing a financial plan is one thing, but sticking to it is another. What are your spending habits like? Do you go on a shopping spree every time you’re stressed? Is buying lunch every day costing you a lot over the long term? How many subscriptions do you pay for that you actually use?
If you find your spending habits are getting away from you, you’ll be more tempted to dip into your savings and stall your progress. Once you’ve established how much of your income is left over for spending, get clear on where your money is actually going. You can do this by auditing your transactions to see where money can be reclaimed from lifestyle leaks. Taking charge of knowing where your money is going and prioritizing what really matters (and getting rid of what doesn’t) can completely change how you manage your money.
4. Cultivating a positive money mindset
While it might seem a bit idealistic, good money management does start with the mindset that you have. Building a positive relationship with money will make all the other aspects of personal finances easier. Money is intensely personal, and everyone has their own attitudes and goals. Identifying your mindset will help you manage your finances in a way that’s meaningful to you.
Maybe you’re a net worth nurturer who likes to invest and work multiple side hustles to grow your wealth. Maybe you’re a budget organizer taking care of the family’s finances. Or maybe you’re a global citizen, with accounts and assets across multiple countries.
Making money management an integral part of your lifestyle builds over time — the sooner you start, the sooner you’ll improve your financial position, and financial confidence too!