Whether you are an individual with a low income or one making more than twice the minimum wage, you need to manage your money properly in order to have a financially secure future. Money management is often about making choices about how and when to use available money. Another aspect of money management is deciding how much money to have, or deciding on an income level.
Before a person can come up with a strategy to manage their money they need to have a set of life goals. This helps in deciding fund allocation, risk appetite, and savings and investment. However, certain aspects of money management are common to most people.
Most debts come at a cost – interest, credit history, and credit ratings. As such any person who has debts needs to pay them off as soon as possible, making sure to repay the high interest debts first.
Simultaneously, a person has to try and reduce the risks of financial loss as much as possible. If a person has no dependents, they still need to have heath or medical cover and an emergency fund to take care of unexpected expenses such as a car problem, major appliance replacement, job loss, and so on. If a person has financial dependents, they also need to obtain a term life cover to ensure financial security for their dependents.
Once these basics are taken care of a person has to look at their long-term goals. Those wishing to study further should try and save for this. Parents who wish to help their children through college need to save and invest for this goal. Other goals for which people can save include travel, hobbies, and community work.
Another major life event for which people need to save is retirement. Retirement planning should begin as early as possible and include regular savings and investments.
Once all of these savings have been taken care of, the reminder of the income can be used for current expenses. Again, in order to manage this money properly, the bills have to be paid first and entertainment has to be fit in according to the funds available.
However, most people find it difficult to curtail all discretionary expenses – they might enjoy eating out, watching movies with friends, or gaming. In order to ensure that expenses toward these items do not spiral out of control, those aiming to manage money effectively should pre-decide the discretionary spend. This entertainment budget will enable a person to enjoy a few splurges while keeping this type of spending under control.
Managing money effectively is a skill that takes time to develop. However, it can only be done by those who have a life plan and goals as these ensure proper allocation of available resources. If a person finds that their income does not suffice for all their requirements, they can either plan to increase their income by improving their employability or rethink their goals and needs.