For financial dreams to come true, it is enough thoughtfulness and caution in money-related matters. Managing personal finances means controlling expenses, planning for the future, and investing wisely.
How to Manage Money
Based on the most popular tips of successful investors, we can formulate the golden rules of personal finance management:
- Spend less than you earn
- Save slowly but steadily
- Prioritize financial goals
- Don’t accumulate debt
Analyze Your Emotions About Money
We are all used to measuring cash in numbers or percentages. But things are a little more complicated. Money is colored emotionally. Each of us has our attitude towards them. Therefore, speaking about money, it is not enough to arm yourself with a calculator; you also need to listen to your emotions. If you’ve never done this, consider your feelings about money and write down the first ten associations.
If you understand your attitude to money, your fears, and your dreams, you can communicate with them and manage them more effectively, which means it is easy to achieve financial goals. If financial planning does not cause you undue stress, your financial path will be positive, safe, and efficient.
Be honest with yourself. A lot of people have conflicting emotions about finances. Negative money associations and joyful emotions are something we learned in our earliest years as we soaked up how our family discussed, spent, and saved money.
Set Financial Goals
How to start managing your money? The answer assumes what level of financial literacy you have and at what stage of the movement toward your financial goals you are now. In other words, why do you need money, how do you use it, and what tasks do you solve with it?
As you can see, these are completely different goals of financial management. If you live paycheck to paycheck, the best strategy for you is to learn the principles of saving and how to save. If you already have free funds that you can afford not to spend for a long time, you can start exploring investment tools (buying shares, etc.).
An excellent strategy to inspire yourself to get serious about financial management is to write down everything you want to achieve in life, from buying a house to paying for a prestigious education for your child or a cruise to Tahiti.
Make a Budget
Keeping an equilibrium between income and expenses is difficult if you are not in the habit of keeping a budget. It is essential to spend less than you earn. It will help if you manage your monthly or daily costs. The funding will guide you toward your financial goal.
The first step in budgeting is to add up all your expenses. Be specific and thorough when you count them. It is challenging and inefficient to do budgeting in your head, contrary to the belief of many beginners.
Divide expenses into categories and look at the exact costs per month. Some classes are challenging to predict, such as car or country house spending. But it is quite possible to analyze them and understand the average figures.
Soon, you will see that some expenditure items are straightforward to manage because they are always about the same spending. But some articles appear irregularly but hit your budget. It is essential to understand here that it is impossible to consider everything. Don’t forget to include expenditure items such as savings for short-term and long-term financial goals. And don’t give up.
Budgeting ruble to ruble. This analysis is when you accurately take all income and expenses to the ruble. And once a month or a quarter, lay out your funds by item, including savings. This strategy, which considers every ruble, is beneficial for visually seeing where your money went when you did not consider it.
- Budgeting 50/30/20. It divides your income into parts and helps to direct money to specific goals. For example, you send 50% to daily expenses, which you cannot do without—30% for financial purposes—and 20% for savings.
- Digital Budgeting. Your finance app keeps track of your spending and monitors your progress toward your pre-set goals. The complexity and danger of this method are that you must provide the application with complete information about all your financial transactions.
- Cash only. Using only cash is an excellent way to stay on budget and not overspend. Take as much money as you need for daily expenses: groceries, gas, entertainment, etc. Designate an envelope for each category. Once the envelope is empty, you can’t spend more, so anything that doesn’t fit your budget will have to wait until the next month.