As the income level of the general population continues to be under pressure, more and more people are learning smarter ways of managing money. You have heard about lottery winners who squandered away their winnings because they had no idea that they were spending it so quickly. It does not matter how much money you have right now. You can maximize the use of your dollars if you learn how to manage money properly.
Any money management approach must start with a sound budget. This budget has two main parts: your income and your expenses. Start by adding up the money that you earn plus any other money coming in each month, and write down that amount. Then, write down all of your monthly expenses, starting with fixed expenses like your rent or mortgage, insurance premiums, etc, followed by an estimate of each type of your variable expenses like food, entertainment, and so forth.
Finally, add a line item for savings which is equal to ten percent of your monthly income. This amount is your emergency fund that you should not use for your daily, non-essential expenses. You can view your savings as a type of “expense” against your income because when you save, you are actually paying yourself.
Add up your monthly expenses and savings. If the total is more than your monthly income, you have to start reducing some of those variable expenses. For example, perhaps you need to cut your entertainment expenses in half. Or, you can reduce your food expense by eating less at restaurants and cooking more meals at home. Scrutinize each one of your variable expense items and find a way to cut back on them. Do not reduce your savings amount until you have exhausted all possibilities in cutting back your expenses. Your goal is make your income equal to the sum of your expenses and savings. If you can keep that balanced, you will be in good financial shape.
A key to proper money management is by being aware of how much money you spend on things. Credit cards can blur that awareness. If you have a running balance on your credit cards that is carried over month after month, you are essentially living in perpetual debt. Focus on paying down that debt as soon as you can. The high interest rates drains away your money quickly. When you can control your debt, you will have a better handle on your money.
If credit card use is a problem to you, you should consider paying for things with cash as much as possible. It is easy to pay for something that you cannot afford with credit. However, when you just pay with cash, you will not be able to pay for something that costs more than what you can afford. This will prevent your debt from spiraling out of control.
Managing money takes the right knowledge and discipline. With the right information in hand and a commitment to be a better money manager, you can survive this tough economy.