Debt Free Christian

Money Management

The process of money management is a multi-pronged endeavor, but can be summed up this way: it is about setting goals, being organized, reducing wasteful spending, building a budget and saving money. Money management is vital to a successful plan for debt reduction and ongoing budgeting. In this article we will look at each one of these areas in depth.

Money Management Tip #1 - Set a Goal

Money goals are specific. You think clearly about your goals and then break them down into one of three categories - short-term goals (those you can reach within a year or so), middle goals (those that might take 2 to 5 years to reach) and long-term goals (those that take 5 years or longer to reach).

An example of a short-term goal might be saving for a summer vacation to the beach. A middle range goal might be paying off a car or boat loan, and a long-range goal might include saving for college or retirement.

On the whole, it is not hard to figure out how much to save for each of your goals. Figure out when you need to reach the goal and then how much you need to save. Divide the amount you need to save by the number of months until you should have the money saved. Your resulting number is the amount you should save each month to reach your goal.

It is important to be flexible when saving for your goals. If you have an unexpected financial emergency and need to borrow money from your savings, either replace it as soon as you can, up your monthly contribution until you are back on track, or adjust the length of time you will give yourself until you reach your goal.

Money Management Tip #2 - Get organized

It is not uncommon for an accountant to admit that at home, the finances are not well organized. Many of us just do not take our personal finances as seriously as we should. This is a mistake and it is an easy one to correct.

Good money management means being organized. Set up a workplace at home where you can manage your personal finances. You should have a filing cabinet or a portable filing system in which you can keep receipts, paid bills and account statements. This information should be easily accessible and organized so you can find what you need quickly. Ideally, it will be near your personal computer, especially if you use money management software.

You should have a shredder and a fire-proof safe. The shredder should be used to shred old account statements you no longer need, expired credit cards, pre-approved credit card applications and other information that could enable someone to steal your identity.

The fire-proof safe should include items like birth and marriage certificates, your passport, your home deed and home insurance information, original copies of wills and powers of attorney and a key to your safe deposit box, if you have one.

One of the most useful things you can do to fully be in charge of your money management program is to streamline your paperwork. Set up online billing with your bank and go paperless with other bills (your creditors, utility company and others will simply email you when a new statement is available to view). Just make sure you record the bills you set up to be paid automatically, so you do not forget and have your account overdrawn.

Money Management Tip #3 - Cut Wasteful Spending

Anytime you spend money on something that is not necessary you are spending wastefully. To be a true manager of your money, you must cut this wasteful spending.

To find out where you are spending wastefully, track your spending for a month. Pay careful attention, in particular, to spending on items that are not necessary (like coffee from Starbucks and or the latest electronic gadget). These items fall under the category of books, magazines, dining out, clothing and the like.

At the end of the month, examine your expenses. Do you spend money needlessly? Are there areas in which you can cut your spending on unnecessary items? Make a plan to reduce this unnecessary spending and stick with it. In another month, track spending again and see if you have made improvements.

Money Management Tip #4 - Build a Budget

Although many people get intimidated by the idea of a budget, it need not be an intimidating concept. Building a budget is really nothing more than having a plan for where to apply the money you make. It is a record of the household income and outgo.

Initially, your budget might be a simple record of only income and where the money goes. But as you become more adept at recording your financial activity, you will find that a budget frees you to think about long-term savings goals. In the budget you can account for these savings goals and keep a record of how your savings are doing.

Consider building a budget the cornerstone of a sound money management strategy. You can’t get ahead without one.

Money Management Tip #5 - Save Money

For people not accustomed to saving, it can seem daunting. The best way to begin is to start with saving a small part of your income. Experts say you should eventually realize the goal of saving 10% of your income, but if that seems like too much, or if money is currently tight, save less. Even a few dollars can make a difference, add up over time and help you develop the savings habit.

Start your savings plan using a high interest savings account but make sure there are no fees or minimum balances. These accounts usually pay anywhere from 3% to 5% so it is easy to see the interest begin to accrue after just the first month.

To get into the habit of saving, consider these tips:

- Apply any money you receive from the sale of something, or that you receive as a gift, to savings.

- If you get a raise, apply the entire raise, or a good portion of it, to your regular savings.

- Save your change and turn it into the bank when you have at least $30 to $40. It will add up over time.

- If you get a tax refund, plan to save most of it. Pick one purchase you want to make, use money for that and then save the rest.

- After you pay off your debts, take the money you were applying to debt and put that in savings. The money will add up quickly.

Money management is about understanding how money works in the system and then utilizing it in the best way given your current situation. With a smart plan proper money management can lead to a very successful financial future.

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