Money Management: 6 Proven Tips
How to plan and stick to it! Get the entire family involved! Reward your success. Here’s how!
Preparing and following a budget is the first step to effective money management. If you're one of the many American families that are not budgeting, you need to start today. A budget is a basic and essential tool for managing your personal finances, and without one, you're lost from the start!
American families have been dealt a rough hand. Wages have stagnated as prices have continued to rise. Tighter finances make managing your money even more crucial and taking the time to understand your earning, and spending habits are important independent of income level. A 2015 survey found that 62 percent of Americans have less than 1000 dollars in savings. Other studies mirror this: the Pew Charitable Research Foundation reports that 55 percent of American households couldn't cover a month without income. Just under half aren't able to meet current household needs. Despite this, only one in three households prepares and follows a budget.
According to the Census Bureau's 2015 Population Survey, married couples with kids have a median household income of 85,087 dollars annually. Unmarried couples with kids are earning a median of 50,031 dollars annually. That's not enough money to bathe in dollar bills, but it is enough to prioritize savings, meet financial goals, and never again worry that you can't come up with emergency funds when needed. That income allows a budget with wiggle room, but not without active financial planning and management.
Don't worry - it's easier than you think! Here are some money management tips to get you started.
Start with Your Actual Spending Habits
The idea of staring at an empty excel spreadsheet and magically plucking perfect numbers from the ether is both daunting and absurd. You don't know what you're spending until you start tracking your habits, and trying to build a budget without a baseline to start from is a recipe for disaster. Before you ever start setting financial goals, you need to understand how much your current lifestyle costs. If the idea of transcribing checking account information fills you with glee, by all means, go for it! Otherwise, you can track your spending with virtually no effort.
Use Modern Tools
As modern technology continues to expand into various parts of our lives, we can automate many financial management tasks with online applications that link up directly to our accounts. They categorize your spending. Then they give you pie charts, and nothing is better than pie charts. Many of the apps also allow you to set spending goals and track how close you are to your monthly limits in each category. With apps like these, there is no reason to pull out the calculator or even Excel. It's fast, simple, and effective. One of the most popular is Mint, but there is a wide range of options.
Make Small, Realistic Changes
Once you have an idea of how you spend money, you can start to think about where you want to cut back. Remember to cut back slowly and purposefully.
A fatal flaw of any budget is unrealistic expectations. If you're like most warm-blooded Americans, the results of your experiment in financial tracking are going to be somewhat disappointing. (I spend how much on coffee each week!?!) There may be a strong urge to cut out all these seemly extravagant expenses.
Take a deep breath, and remember that Rome wasn't built in a day. Many of these small extravagances are there for a reason. If your weekly moment of Zen is a foot massage, keep it. If pizza every Friday night is a family ritual, let it be. If your daughter's ballet classes are her favorite time of the week, don't even consider dropping them.
There will be appropriate places for cuts. They will be appropriate for you personally, and you'll know what they are. For one family that might mean packing a lunch instead of ordering food, or starting and dropping a gym membership. For another, it might mean making coffee exclusively at home or cutting out deli turkey. Each family has to find its ways to reduce spending.
Plan on Savings, but Don't Feel Guilty About Spending When You Need To
Your budget will never be perfect. You will never know exactly how many times packed lunches just won't happen. You will never anticipate the ebb and flow of gas prices. There will always be that stray cost that rears its ugly head, completely unwelcome. That's okay. As long as you include a healthy savings plan, you'll be able to weather any financial curve balls that come your way.
If your son gets sick the same week as important deadlines are coming up at work, bring in a sitter. If an unexpected need to travel pops up out of nowhere, you can buy a plane ticket. It is important to save, but it is just as important to give yourself permission to use your savings. That is, after all, one of the reasons you are saving in the first place.
A budget shouldn't only be about what you can't have; it also needs to be about what you can have. There is nothing quite like the feeling of turning a guilty pleasure into a much-deserved pat on the back. Freelancers often have highly variable incomes. That unpredictability makes money management a little more complicated, but it can also make it more fun. If you have a minimum income that you need to hit each month, set up a special plan for anything over that, like putting three-quarters into paying off debt and the other quarter for something fun.
You don't need to make extra money to set some aside for entertainment. Earmark a percentage of your savings each month for a yearly vacation or allocate money for fun weekend activities. Your family will thank you, and you will still be saving more than you would if you weren't using a budget.
Get the Whole Family Involved
Every chore is more fun with company, and maintaining a budget is no exception. Make sure the whole family knows what you're saving for and get them excited about the rewards. Nothing says, "Sorry, kiddo, we can't afford that plush toy" better than "wouldn't you rather go to Disneyland next year?" Moreover, teaching your kids about the importance of money management early on in life will help them to handle their finances more responsibly. It's a great skill to have, and you can't start too early!