It is often said that money makes the world go around and it is hard to argue with this statement. Humanity has organized itself into societies where goods and services have to be purchased with money and it’s hard to imagine what life would be like if we did not have access to cash and bank accounts. If we think just about our daily routine, the chances are that we need money to get to work and eat and even whilst we’re sat at home we’re paying money on our mortgage, insurance, heating and for services we consume such an Internet connection and TV subscription. Clearly, then, whilst money doesn’t necessarily buy happiness, successful money management is important if we are to avoid the unhappiness that a lack of money can bring.
Use budgeting to live within your means:
Shakespeare once famously wrote “never a borrower nor a lender be”. Time may have moved on considerably since the Bard’s era but this general advice still holds. With the exception of mortgage borrowing, to fund a house purchase, individuals should seek to avoid running up debt. The key to this, of course, is to live within your means but this is sometimes easier said than done. The best way to introduce discipline into your finances is to create a budget and then stick to it. Budgeting is simply a process through which you identify the total amount you are currently spending, what categories of things you are spending it on, and how much you have available. You then set targets of how much you are going to spend per week or month and monitor how you are doing against those targets.
Create a savings contingency fund:
A problem that people often encounter, even if they have been really diligent in their money management, is where an unexpected cost suddenly crops up. Maybe it’s a medical bill, or the need to do urgent repairs to your home. Whatever its nature, such bumps in the road can cause our financial wellbeing to be jeopardized unless we have a readily available source of spare funds to dip into. Financial planners refer to this as a savings contingency fund and it is money that should be maintained in an instant access savings account. Building up even a small contingency fund with give you some reassurance that you will be better placed to deal with any curve balls that life throws at you.
Pay yourself on pay day to grow your savings:
Where possible, everyone should seek to grow their wealth by putting money into savings accounts. This money can then earn interest for you, or you can use it to fund investments with the aim of eventually funding your retirement. However, what often happens is that we have spent all our income by the end of the month and have nothing left over to go into savings accounts. A useful tip, therefore, is to get into the habit of transferring money across from your checking / current account into your savings account on pay day. Make sure you’ve left enough in your checking account to cover your mortgage payment and other key costs. The act of moving money across on pay day removes (or at least reduces) the temptation to spend money that you have earmarked for your savings account.
Shop around before taking out financial products:
Whether it’s your choice of checking / current account, mortgage, loan, savings account, credit card, or insurance policy, it’s worth making sure that you have checked with a few financial providers so that you get a good deal. With something like a mortgage, even a 0.5% difference in an interest rate may amount to a difference of thousands of dollars over the course of the mortgage.
Realize early that money management is important:
Life is increasingly tough for young people who are just leaving the family home and embarking on a life of financial independence. For a start, the chances are that they may be saddled with a large student debt and then faced with a stagnant economy and house prices that are still very daunting for first time buyers. In this environment, the real winners will be those people who realize early the importance of prudent money management. Introducing a budget, avoiding or minimizing debt, and getting into the habit of saving (even if it’s just a little initially) will stand you in great stead for the future. Additionally, getting into a pension scheme as early as possible is going to be vital for a generation who are likely to face difficulties in funding a comfortable retirement.
Money management is often regarded as too boring or, worse still, too difficult and people therefore put it off and attempt to just muddle through. Muddling through, though, almost always leads to problems (and regrets) further down the line and the truth is that money management isn’t difficult and doesn’t need to be boring. After all, we’re talking about something that can help you become richer and more financially secure, so what’s so boring about that?!