Everybody needs to know how to manage his or her money in order to grow wealth and thrive financially. Whether you are in college and saving up for life after graduation, you’re working a job and putting away money for your retirement, or you’re budgeting so that you can afford to send your kids to college, it’s crucial at every life stage to follow money management tips.
But what exactly is money management, and how can you ensure that you’re doing it correctly? Keep reading to learn more about this important and critical life skill.
What Is Money Management?
Money management is exactly what it sounds like: it’s the practice of managing your money. It entails buying, saving, investing, and spending money. If you’re spending your money on groceries or investing in the stock market, you’re managing it.
Typically, individuals and professionals (broker, financial advisor, hedge fund manager, etc.) or a combination of both do money management. You can manage money on your own, hire someone to do it for you, or, ideally, work together to manage your money.
Why Is Money Management Crucial?
Money management is crucial because by doing it well, you’re ensuring you have money in the bank and more to live on for extra expenses and life events. You can have money for the basics like your rent, mortgage, food, and healthcare, and for fun things like entertainment, vacations, weddings, birthdays, and retirement.
Unfortunately, many Americans do not know how to properly manage their money, causing a lot of unnecessary trouble in their lives.
The average American has $38,000 in personal debt, including mortgages. In fact, 2 in 10 Americans are spending 50% to 100% of their monthly income on repaying their debt, and 39% of Americans have enough in savings to cover a $1,000 emergency… and the rest would need to use a credit card, borrow from friends and family, reduce their spending on other things, or take out a personal loan to cover it.
Those are horrifying statistics. The American people weren’t taught money management tips in school, and now they are paying for it. If you’re in the same boat, don’t worry. You can take back control over your finances and get your bank account in order with some simple money management tips.
5 Money Management Tips
Use the following tips to start managing your money correctly:
- Create a budget. Determine how much you make every month and what you’re spending money on. Then write down exactly where that money is going to go in the future. Divide your budget into categories like Rent or Mortgage, Gas, Utility Bills, Credit Card Debt, Student Loan Debt, and Entertainment. Always overestimate how much things cost and track your spending through an app likeYou Need a Budget and Mint.
- Start your retirement fund. Do this through your employer or open one yourself. Look at the tax benefits of each option. Contribute at least 10 to 15 percent of your yearly income towards your retirement savings. Put it into a mutual fund that you’re going to stay invested in for the long run.
- Don’t go into credit card debt. If you can’t afford something, don’t put it on a credit card, unless it’s an absolute emergency. Even then, look for a credit card with a low annual percentage rate (interest rate). Make sure to pay it off every month in full.
- Pay off existing debt quickly. Use a proven tactic, like the debt snowball method, where you pay off the lowest debts first, then the next lowest, and so on. Or, pay the debts with the highest interest rates first. Do whichever method will encourage you to pay off debts faster.
- Invest your money. Instead of spending money, invest it. Use a variety of methods, including investing in the stock market, mutual funds, real estate, commodities, etc. There are a number of options available and what method you choose will depend on how much you have to invest, how much time you can dedicate to it, and whether you’re looking for short-term or long-term profits.
Money Management Mistakes to Avoid
When you’re managing your money, make sure you stay clear of these common mistakes.
- Don’t borrow more than you can afford to pay back.
- Don’t put non-emergency items on credit cards.
- Don’t pull out your retirement funds or stock market investments.
- Don’t get a high-interest credit card.
- Don’t file for bankruptcy unless you absolutely have no other option.
- Don’t day trade if you can’t control your emotions.
- Don’t follow the advice of people who claim to be experts without reliable sources to back them up.
An Ongoing Practice: Keep Managing Your Money Well
Now that you know the basics, it’s time to ensure that you’re constantly learning new things about managing money. After all, investments may change, you may figure out you need to save more for retirement, or you might face an emergency financial situation. Whatever you’re going through financially, Money Map Report is here to help.
Money Map Report provides up-to-date tips on managing your money well, no matter where you are in life or what your financial goals are. You don’t need to go surfing the internet or reading book after book. We deliver the news and tips right to your inbox. Now is the time to sign up for Money Map Report. Start taking control over your money today.