It's an old song but it is oh so true -- "money makes the world go 'round." And if you're like most of us you've got questions about money. Not just the big question of whether you'll have enough to retire some day.
But the every day questions of where your money is going, how to save enough for that big ticket item you have in mind, and whether you could be doing something to earn more on a regular basis.
At one point or another most of us spend time trying to understand how to make more money, and how to keep more of the money we make.
Fortunately, over time, all of us can improve our money management skills.
Use these five strategies as a starting point.
Step One: Start Saving
A cornerstone of smart money management is spending less than you earn.
Savings habits are crucial to developing reserves for retirement and to provide stability in times of crisis. They're also central to amassing funds for discretionary spending such as vacations. Many people fall into the habit of spending all that they earn early, rationalizing that they will start saving when they earn more and have "extra."
Not surprisingly, for many, the extra never materializes and they never begin to save.
To get on the track to smart money management start saving something. Plan to set aside between 5 and 10% of your income. As you get used to saving at that level save a little more, until you're saving between 10-30% of your income on a regular basis. How do you save when all your money is committed to ongoing expenses such as rent, food, and transportation?
You have to choose to spend less.
You can do this by canceling one optional purchase and setting that money aside.
Skip a meal at a restaurant.
Rein in your daily Starbucks habit and save the few dollars per day that costs.
Pick whatever expense you want to experiment with and then skip the expense altogether and pay yourself the difference.
Do this again and again until it becomes a habit. You'll be on your way to the savings discipline that good money management requires.
Step Two: Follow the Dollars
Do you wonder where your money goes on a regular basis?
A second element of good money management involves getting a handle on your spending habits. Knowing the cost of your daily expenses and your lifestyle habits such as dining out, entertainment and the like can be very enlightening.
The best way to get this data is to keep a spending diary for a week. Write down every dollar that you spend so you have a record of the amount and the reason for each outflow.
At the end of the week add up the amount you spent on different categories. For an even better understanding work with a months worth of data. Get the data by tracking your actual outlays for a full 30 days. If keeping a diary for a month feels like too much effort track your spending for two weeks and double the totals in each category.
Frequently, the totals in each category, on a weekly and monthly basis, will include some big surprises.
Larger totals in some discretionary areas than you realized can show opportunities to save. Or you can look at how changing some expensive habits means money is available for other items that you haven't thought you could afford to this point such as a gym membership or a weekly date night.
The more you know about where your money goes the more you can be in control, achieving the goals that are important to you. Isn't getting that control the reason you became interested in better money management in the first place.
Step Three: Hunt Down and Eliminate Financial Surprises
Good money management also means that in most cases you are ready for big expenses that would otherwise feel like a crisis.
A large category of expenses are infrequent but not really unexpected. The self-employed, for example, have to file tax returns quarterly. This large outlay is irregular but hardly a surprise since it corresponds to the income they have generated in the past 3 months. Other expenses you pay annually or semi-annually such as homeowners or life insurance premiums, or property taxes are similar.
Because they involve a change from their every day routine many people struggle with these outlays. But sound money management suggests they should prepare instead, by looking ahead at what large expenses can be anticipated and then making a plan to fund them when they're due.
Tackling the financial calendar this way can eliminate many ups and downs, substantially stabilizing your cash flow. Once again, you wind up in control.
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