Money management is all about budgeting, saving, investing, spending and keeping track of all of these. It also includes tracking of banking activities like withdrawals you make, monthly statements of credit card bill etc. Money management shows us our spending patterns which helps us to gauge which are the expenses or purchases that do not add any value to our financial goals and helps us understand the best avenues to invest in.
Proper money management helps your reduce risk. Proper money management involves looking ahead with a negative bias. Looking at the ‘What if’ scenarios and taking appropriate action. It signals you when to stop spending money before your run out of it. Make allowances for unforeseen circumstances and make savings a priority.
Roadblocks faced in Money Management
- Exceeding the monthly budget
Crossing the monthly budget is a common occurrence among us and should be avoided. If you consistently breach your monthly budget then it’s time for you to re-plan and re-do your budget.
Check what you are constantly over spending on. See if you are reviewing the expenses based on receipts and statements.
- Unexpected expenses
You cannot predict when sudden expenses may come up. Your laptop may breakdown and need repairs, the car might just stall one day needing engine work, a leakage in the ceiling just before rains, sudden hospitalization of loved ones are just some examples which can throw your budget out of the window. If you don’t maintain a good budget these emergencies can prove costly.
- Being lax about budgeting
There is a tendency among us to just be plain lazy when it comes to keeping an eye on the budget. We take the time out to prepare a good budget and also have great money management ideas but procrastinate over actually tracking and managing the budget. Or, we may purchase 3-4 policies or make multiple fixed deposits hoping that it would be enough to manage our savings and make little effort to review these instruments.
Money management is definitely not easy. You need to devote time, knowledge and patience if you want to manage your hard earned money wisely.
Here’s how you can manage your money
- Set financial goals
- Writing down your goals will help you prioritize your spending. Prepare short term (achievable under a year), medium term (between 1-5 years) and long term goals (five years plus) on cards or stickers and put them up around the house.
- For short term goals you can work towards all of them at once. Look at how much you need for example to purchase a new laptop within the next 6 months. Have you started saving for it yet? Where can you allocate funds for that?
- For long term goals you will have to plan a bit harder because you will have many expenses along the next 5 years. Think of investment options, for example. Better than keeping idle cash in your account, you can invest through Digital Lending
- Divide your spending plan into separate categories with necessities taking priority. Groceries, utilities, insurance payment, policy payment, personal loan EMIs and credit card bill payments should take precedence over other expenses.
- Create a budget
- A budget guides your spending decisions so that you spend on things that are important. It sets margins on spending and by staying within those limits you can stay on track. The most important rule of a good budget is – Your Expenses should never be more than your Income.
- Review earlier month expenses for inaccuracies or make corrections to the current month’s expenses. Use receipts, statements or bills to evaluate the accuracy on the expenses.
- If your expenses cross your income, try and change your spending pattern to stay true to the goals you have set yourself.
- Prepare a list before you go out shopping and buy only what’s on it. Avoid excessive use of credit cards, minimizing the chances of falling into credit card debt.
- Track your spending or expenses
- Track your expenses for a minimum of one month. The longer your track them the better. Write down the purchases you have made in a notebook or an excel spreadsheet, or use apps.
- Use debit or credit cards for transactions so you can maintain receipts which you can utilize when tallying expenses during the end of the month.
- Keep all your financial information and budgetary paperwork in one place. This will save your time because when you do want to plan or assess your financial goals, you will find all the information easily.
- Focus on savings and review
- Savings provide you with a safety net during challenging times. You should save depending upon your financial goals. Start with around 10% of your income each month and then slowly increase it as months progress. If you do encounter any unexpected expense, turn to personal loans from a digital lending platform for emergency fund needs. This way your savings will remain intact.
- Investment options such as mutual funds, recurring or fixed deposits are ways you can improve your savings in the long term. When you receive a raise in salary use this extra cash to increase the amount of savings you maintain.
- Every once in a week take time out to review your budget and savings. See if you are on track with your financial goals. Check if you need to shift some funds from say savings to emergency funds.
- Fine tune the financial plan if need be.