In the society we live in, money serves many purposes and the importance of having money hardly needs to be explained. Money is the easiest and most commonly accepted means of paying value for the goods or the services bought.
Secondly, money is an important tool as well as the ingredient for wealth creation process.
Importance of managing money intelligently
Thus money is a precious and useful instrument in your hands. If you learn how to manage money intelligently and handle it in the right way, you can have more money, spend more money, gift more money thereby enjoy your life more and without any limitations.
Why money management is usually ignored
Even though one of the most significant factors in a person’s life is his wealth and the state of his financial standing, one rarely spends time on managing them since unlike official business, an individual is not answerable to any one for his personal financial goals and results.
How to manage money intelligently
Here’s what you can do to start taking control of your money now:
1. Learn the value of money
Check your thoughts and associations about money. It may be a worthwhile exercise to check that how do you subconsciously relate with money. Whatever story is stored in your subconscious mind about money, it becomes a program which and it is always running in the backend and it shapes our lives. See Our Relationship With Money
Were you brought up with the belief systems such as ‘Money is the root of all evil’, ‘People with money are insensitive’, or ‘Rich People are snob because of the money they have’? If you think rich people are evil or selfish or having too much money will attract bad habits then you will be neither good at money management nor comfortable with having too much money. This is because your subconscious mind is running the negative program that having good amount of money is bad. This stops you from creating wealth – no matter how hard you try on the conscious mind. In that you may like to change your mindset about Money.
Therefore, as a first step, redefine what money means to YOU! It is money and prosperity that make you wealthy. If you are convinced and clear that money and wealth bring you more happiness, joy, and service, you’ll naturally want to make more of it. Pl see How to remove negativity about money.
2. Learn the skills of Financial Management and Financial Planning
According to Wikipedia, Financial management refers to the efficient and effective management of money (funds) in such a manner as to accomplish the objectives of the organization.
Let these strong words not scare you. Whether you have lots of money or have set yourself on the journey to make money and do wealth creation, financial planning is first tool you need to acquire and master well. Financial planning is a systematic method which lets you control or reduce your expenses on one side and help your idle money to earn more money while you are busy doing something else or not doing anything at all.
Both these areas call for determining the need, efficiency and time frame before getting started.
Financial planning helps you determine your short and long-term financial goals and create a balanced plan to meet those goals. Financial Planning allows one to meet money and wealth goals by prudent management of expenses (spending) and investments from the earnings. it may be observed that learning to manage money intelligently could be the first step towards the bigger financial goal.
The process of financial planning should help you address three issues. These are:
- Where you are today, that is, what your current financial position of assets and liabilities is
- where do you want to be future, that is, your financial goals after a specific period of time, and
- What you must do to reach there. This will comprise of budgeting, expense management and investment strategy that will help you achieve your objectives.
Once you have read the article, come back to this point and do take some time off to complete this important exercise.
This is the stage after your Financial Planning is done and now it is time to put it in action.
You know what your income is and with the Financial Planning, it has been divided into two directions. One the money required to make necessary expenses – which are planned now. And second to make regular investments.
Here are some tips for preparing a realistic budget:
- Estimate your daily, monthly expenditure and prepare an annual expense budget.
- This could go under various heads such as clothing, transport, children’s education, entertainment, holidays, rent or house mortgage, Car EMI etc.
- Do it on a monthly basis.
- Be as close to actual figures as possible while estimating your expenses for next 12 months. Budgeting exercise will be futile if you either over-estimate or under-estimate.
- Mark the expenses as regular or one time; Discretionary or Non-Discretionary Expenses:
- Check if the total is well within the expected annual income after taxes, otherwise attack the one time or Discretionary expenses to bring the total figure under control
- Keep track of expenses under broad headings.
- Compare monthly variances between actual expenditure and budgeted expenditure.
- Don’t compensate in one expense head if you exceed your budget in another. Preferably, try to reduce your expense under the same head in succeeding months to make up.
4. Expense Management
Expense management is all about getting the (a) right value for every dollar or rupee spent and (b) right choice on the mode of payment – cash, cheque, credit card or equated monthly instalments (EMIs). The two can help us meet our spending needs with ease and comfort.
Here are some tips for managing your expenses smartly:
(a) Choose the payment system:
When buying big ticket items such as furniture or consumer electronics or valuables like car or going on a holiday, you must analyse the various payment options – cash discount, zero-interest EMIs, etc. Calculate the final cost to you and go in for it.
Make sure your check if there are any hidden costs like the processing fee behind zero-interest EMIs. Do not be tempted to use credit card just because you do not feel the money actually going out of your pocket at the time of purchase.
Of course, borrowing through a credit card scheme should be a strict NO.
(b) Get the best deal
Do not be shy to negotiate for a discounted price or something extra for which you have a right need or use. This could be complementary products or services. Also have patience to wait for discount sales. These habits can play a key role in saving money and getting the best deal.
You should not hesitate to ask for a price lower than the MRP ( maximum retail price). It is common to get a better room tariff in case of hotel booking along with complimentary breakfast / dinner and airport pick-up and drop
Similarly, do compare the rates on online shopping portals – especially when buying watches, books and computer accessories.
5. Invest Regularly and Compulsorily
Make sure that you have subscribed to one or two schemes which automatically draw fixed amount from your salary account and invest. This way you won’t have any excuses like you forgot or could not save the amount and you won’t be tempted to spend that extra money unnecessarily.
Talk to your portfolio manager or investment advisor and select one or two mutual funds where the return is a little higher than the Bank Fixed Deposit and is safe too. You may divert 10 to 15% of your salary and transfer funds by way of systematic investment plan – SIP. The additional funds available for investments can be invested after periodically reviewing the best options and the economic forecast of the country you live in.
Automatically investing means your money will be earning money for you and working for you.
Keep in mind the golden rule to invest in financial instruments you have studied well and understand, and more important, stick to financial products that have an established record of regular payouts.
6. Raise your income
You should neither be satisfied nor stop at this stage – for whatever is your standard of living is today is bound to go down because of inflation. Ask yourself regularly, ‘how can I add more value in the time in which I serve?’
The answer will serve two purposes – one it will make you a more important and wanted employee in your employer’s eyes and second you will constantly and surely move in the direction of earning more money than before – consistently.
When you come up with new ideas for your clients, or for your employers, you are adding more value. Your productivity level is going up and this can’t go unnoticed. You are become more wanted in the marketplace and your real value in terms of salary and perks keeps going up. Soon doors to other opportunities get opened.
Remember the increase in income should not be followed by proportionate increase in expenses, in fact there should be an increase in rate of savings leading to more investments and more return on investment in absolute terms.
Eventually you shall be paid much more for the same time you put in.
7. Try something new or different
Finally, you don’t be afraid of doing something innovative or trying something new that could potentially bring some new value, new lifestyle into your life experience. This will require you to be bold, believe in yourself, push the boundaries.
The more you do that the better experience you shall have with rewards from money management.
Put your finances in order by beginning now.
You can make a better contribution in almost every area of your life when your personal finances, investments and taxation are properly planned.
Get ready to experience the Changed Life.
Recommended for you
- How to become a Millionaire – Core Principles
- Keys to achieve Financial Freedom
- Evergreen Rules of Wealth Building
Your feedback and suggestions please
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