No matter what your financial status happens to be, it is very important to develop good money management skills. How you actually manage your money will influence your quality of life much more than the amount of money you earn.
These skills are what will allow you to achieve your long term goals such as buying your first home, starting your own business, sending your children to the best colleges or saving for a comfortable retirement. You will also be able to pay your bills on time and be in control of your money instead of your money controlling you. The following are five tips to help you develop this much needed skill of managing your money.
Set Financial Goals
This is key to not wasting all of your hard-earned money on shiny new toys and unnecessary expenses, and end up not having anything in savings to meet major life goals and events such as getting married, buying a house, sending your children to college or having a comfortable retirement. You will also hone your financial management skills by setting goals and then achieving them. It will also help you overcome poor habits like impulse spending.
Set short-term as well as long-term goals and then make a plan to achieve them. Be sure your goals are realistic and have a dollar value and deadline attached to them. For example, saving $1,500 by next June 1st for your summer vacation.
Track Your Spending
In order to make your money work for you instead of being controlled by it, you need to know where it is going first. That is why it is so important to track your spending to know exactly where your money is going. Keep track of everything, including your Starbucks coffee and trips to the vending machine, for at least a month so that you can get a good handle on everything you are spending money on. After that first month, continue to keep track and start to make whatever changes you need to achieve your goals, whether it’s paying all your bills on time, saving for a new washing machine or contributing to your retirement account.
Set Up An Automated Savings Account
All of us plan to start saving money “some day.” However, many times some day never comes. To prevent this from happening to you, set up a savings account and have money deposited into it automatically. You can either have money transferred from your checking account to your savings account using your bank’s automated payment system, or have part of the automatic deposit of your paychecks go into savings instead of your regular checking account. The key here is to have this set up so that it happens automatically without you having to do anything. This is an excellent way to start building up your nest egg.
Make A Budget
The final fundamental step you need to take to get your finances in order is to set up a budget and then stick to it. You have already started to track your spending, now use this knowledge to determine where and how much money you will spend on both your regular necessities and for contributing to your longer term goals. There are many software programs like Quicken that make it easy to set up a budget.
Developing good money management skills is not hard to do. It just takes determination and consistency. Use the advice in the four tips above and you will be well on your way to developing this very necessary skill and achieving your long term financial goals.