In general we are creatures of habit. We learn a behavior, make it part of our routine, and soon enough we do it without even thinking. Sometimes though, the precision with which we execute that behavior can go down substantially over time since we’re not really concentrating on it anymore. The same can be said about basic money management principles. The better you get at managing your money, and the more your financial situation solidifies, you tend to not “sweat the small stuff” anymore. The problem is that “small stuff” is most likely what got you where you are in the first place. So here are some truly basic money management concepts that are always good to keep fresh in your mind whether you’re just starting out or even if you’ve mastered them already.
Set up your budget
photo credit: irina slutsky
If you don’t know where your money is going, there’s really not much you can do about it. The first step should be to get your finances organized in such a way that makes sense to you. Make sure you’re honest with yourself when creating your budget, otherwise it will be useless to you. If you’re an expert already, take a second look at your budget and see where you may be able to make some new improvements. Maybe some pieces of your situation have changed since you last reviewed it, and there might be some additional gains to be had.
Cut out unnecessary spending
Once you see where your money is going, cut out any unnecessary spending that you have going on. You’ll be surprised how much of your money goes to things that you don’t really need. If you’re already working your finances, this is the one that comes back to haunt you most often. I know my wife and I struggle with this a lot. Back when our financial situation wasn’t as good we were extremely disciplined in this area. Now that we’re doing fairly well, we tend to spend a little here and a little there without worrying about it. It’s key to keep your true financial goals in mind at all times to not get caught up in an impulse purchase.
Work towards reducing your debt
photo credit: SqueakyMarmot
Our society is piling up the debt at an alarming rate, and with our need for shelter and transportation, you’re bound to have some kind of debt. The key is to concentrate on eliminating your bad debts first (credit cards, car loans) while leaving your good debts (mortgage, student loans) until later. Once you’re able to pay off some of those debts, you’ll be amazed at how much monthly income it can free up to put elsewhere. There are many methods to reduce your debt, it’s all about doing what makes the most sense to you. From time to time it’s helpful to revisit your debt statements to get an update on where you’re at. If you have any with variable rates, make sure you’re always on top of when it will change and what it will change to. That way you can make adjustments in your debt reduction as necessary.
Save money
Just like your Dad used to tell you all the time, saving your money is important. If you treat your savings as a bill that you must pay every month, it helps a great deal to making you do it. Alternatively, you could make your savings automatic and not even give yourself the option to spend it. Use whichever method is simplest for you. Once you have it set up, make sure to check back at periodic intervals. If you get raises, promotions, bonuses or any other bump in income, make sure you’re bumping up your savings as well!
Your credit score is important
Having a good credit score is important for many reasons. Your credit is pulled anytime you want to make a big purchase and need financing, when you need to get insurance, and possibly when your in consideration for a job. Having a high credit score means that you’ll always be approved at the best interest rates, meaning you’re paying less in interest and any debts you do have will at least be at great rates. It’s important that you treat your credit as you would your reputation, because in essence that’s what it is to financial institutions. The good news is that following the other tips in this list will naturally raise your credit score anyway.
For some of you out there, this may seem like common sense. These are not mind-blowing concepts in any way, they are the basic building blocks to a solid financial outlook. The reality is that many people in our society lack these basic concepts and are not able to manage their money. Whichever side you’re on, keeping these concepts in the back of your mind at all times can help to give you the guidance and discipline to reach your financial goals. Managing money is a slow and steady process that takes us truly changing our behaviors in order to work. That is the struggle and the beauty of it. It can be frustrating for the inexperienced, but once you get the ball rolling it’s a wonderful thing to watch.
April 14th, 2008 at 11:12 am
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