10 Simple Money Management Tips
Whether you are a billionaire CEO or someone who recently started their professional journey, you always have a set of financial goals. Today, you can go on the internet and easily learn a myriad of ways to make money. But do you know it is not enough to simply earn money? Yes, you heard it right.
While the importance of earning money is undeniable, you also need to be cognizant about saving money for emergencies as well as wealth creation. But you don’t need to worry as you can achieve these goals by learning money management.
Money management teaches you to earn and save money for future financial security. And to help you with this imperative life-skill, we have listed ten simple yet effective money management tips you can practice for a better future.
Ten simple money management tips for financial security
- Understand your monthly expenses and future goals:
The first step towards effective money management is understanding your current costs and future goals. For instance, your monthly expenses may include paying:
- House rent or EMIs
- Car EMIs
- Utility bills
- Kids’ school fees, etc.
Now, take a look at your future dream goals. It may include:
- A foreign tour with family.
- Purchasing your dream home or car.
- Planning for kids’ higher education.
- Destination wedding of children.
- A safety plan for your retirement, etc.
By analyzing your current expenses and future aspirations, you will come closer to the first pillar of money management- prioritising how to allocate your funds. You need not compromise your future dreams due to a financial crunch. After all, implementing useful money management tips can make the impossible possible for you.
- Craft monthly budget:
Having a well-defined budget is a crucial step while following the path of money management. After knowing your actual expenses and your future aspirations, start working on crafting a monthly budget. Make a note of your monthly income sources. It may include:
- Your actual salary
- Quarterly bonus
- House rent, etc.
After noting your monthly income, minus the expenses (analyzed in the first step) from this income, the balance is what you are left with at the month’s end. If the amount is satisfactory, plan to invest it to achieve future goals, which we will discuss later. In contrast, if the leftover balance is significantly less, plan to cut down on unnecessary expenses.
- Limit unnecessary expenses and set a realistic plan:
What does an unnecessary expense mean? It might be a common dilemma for many people, as every penny you spend feels worth it to you. But, a thorough analysis of total spending will quickly filter out your unnecessary expenditures. Of course, the expenses mentioned in point 1 are essential. However, expenses like your shopping, restaurant, and travel bills may tick into your unnecessary spending.
For instance, if you are a shopaholic person, you can create a list of essential and non-essential commodities at the beginning of every month. Essential commodities include groceries, toiletries, cleaning items and such. This will help you figure out where you are overspending on unessential items. Similarly, everyone can create a realistic budget-plan which may include things to avoid or cut down to save some extra pennies. Apart from drafting a budget, sticking to it is also an important aspect of this effective money management tip. Initially, it may be a daunting task for you, but eventually, you will get used to this good habit.
- Limit your credit card usage:
While credit cards have surely made life easy, they have their downsides too. As per statistics, in India, around 62 million credit cards were used in the year 2021. Credit cards are best for fulfilling your instant finance needs. But with credit cards, you end up spending more money than required. In contrast, liquid cash introduces you to actual available money. So, you spend as much as you have.
Further, you may find the credit card’s pay later facility appealing at first, but it may be stressful when you need to pay the monthly bill, processing fee and other expenses of using credit cards.
Moreover, if you fail to pay your credit card’s debt on time, it impacts your credit score negatively. A negative or low credit score poses many side effects, like loan rejection, new credit card rejection, etc. So, you must limit your credit card usage and avoid its negative impact. It is one of the most crucial personal financial management tips that will benefit you in the long run.
- Start investing early:
There is no minimum age criteria for most money investment avenues. However, early investments offer you better returns in the long term. Strictly following the aforementioned money management tips will help you save money that you can utilise for investing. These investments can serve multiple purposes, including a safe retirement or creating wealth steadily and consistently. However, investing should be planned effectively for positive results.
You must educate yourself about multiple investment platforms, including risk factors. With this prior knowledge, you can effectively invest in FDs, RDs, SIPs, mutual funds, ULIP, etc.
- Automate investments:
Investing money is a good habit; however, the investment has to be regular to give you optimal returns. In contrast, a missing schedule in the investment plan might cost you a fortune-building opportunity. So, automate your investments by putting investments on autopilot, and don’t refrain from generating wealth.
- Get professional help:
You may find the complete financial planning task a big hassle. In that case, you can take professional help from expert finance advisors. They are the subject experts and can solve your queries effortlessly. Moreover, robust guidance from them will assist you in investing for fair returns.
What else? They can create a customised finance management plan based on your expenses, needs, aspirations, etc.
- Plan for emergencies:
Emergencies always knock without warnings. It may be in the form of natural calamities like pandemics, recessions, or any other form. So, you must plan for emergency funds with other expenses when crafting your budget.
You can avail facilities like fixed-deposit accounts to ensure a safety net. Moreover, you should always have life insurance and health insurance policies to prepare yourself for medical emergencies.
- Use an online banking facility:
Today, online banking is much more than only paying your bills online. You can use this facility for multiple reasons. These include setting future payment reminders, viewing pending dues, instant transfer of funds, auto-payment option, etc. Furthermore, the auto-payment option helps you clear your dues on time and protects you from late fee charges. Lastly, online banking technology, among other money management tips, aids you in effective money management.
- Practice! Practice! Practice!
It is the last and one of the most essential money management tips. It says to practice these money management tips consistently and monitor the growth in terms of cutting expenses, savings, etc. Then, if you experience a positive result, keep practising them to get a hold of this new lifestyle.
Money Management Tips for Beginners:
Are you a beginner in money management or someone who never thought of finance planning earlier? Well, we got you covered with some money management tips for beginners. Receiving your first salary may be overwhelming, but it is the first step in a real-life adventure. So, you should practice these money management tips right after you start earning.
Starting money management at an early age offers you the time to make mistakes and learn from them. However, as a beginner, you may find finance management difficult. To ease this process for you, here are some useful and practical recommendations:
- Make a habit of tracking your expenses
- Control unnecessary expenses
- Plan budget wisely
- Seek family advice or choose a financial advisor
- Clear your debts on time
- Plan and invest for uncertainties
- Have a retirement plan ready
- Don’t let bad advice influence you
- Keep taxation in mind
These financial management tips will help you make a secure future financial path.
Money Management Tips to create wealth
Wealth never comes overnight. You need a determined approach to build wealth in the long run. In short, it is a step-by-step approach that makes you financially strong over the years. Wealth is how much you own minus your liabilities. Here are some money management tips for creating wealth.
Making money requires you to acquire some skills. Learn those skills, get a dream job and start earning. If you are more on the entrepreneur side, start your business. To have some passive income to support your expenses, start side jobs if time permits.
Once you learn to earn, remember to save. First, know your expenses, cut unnecessary costs, and don’t rely on credit cards to save money. Moreover, you can use online tools such as budget planners to save smartly. It offers an intelligent way to finance management by allowing you to track, manage, and plan your expenses. Furthermore, you can get your customised budget plan ready using these tools.
Only saving money is insufficient to create wealth. Therefore, you must search for possible ways to grow your saved money. For instance, saving money in a savings account keeps your money safe but stops its growth. So, for growth, you can invest money in financial instruments like mutual funds, SIPs, invoice discounting, etc. These investment platforms give you returns on investments in the long run and help you create wealth. However, it will be wise to invest after considering the risk factors.
The last money management tips for wealth creation are multiplying your investment returns. Once you generate revenue from investments, further invest it and multiply your money. It is the ultimate mantra for wealth creation.
6 FAQs About Money Management
1. What is money management?
Money management is the art of managing your money smartly to take care of your current priorities and future goals. It involves steps like planning, budgeting, saving, investing, etc.
2. Is clearing debts a good habit?
Debt is the due amount for an expense, including a home loan, car loan, credit card bills, etc. Delay in clearing your debt may lead to a stressful life. So, clearing your debts early is always advisable. It benefits you in multiple ways, including a stress-free life, good credit score, future earnings, savings, etc.
3. What should be my debt limit?
The debt limit is the maximum money amount you can borrow. Your debt limit is calculated based on the debt-to-income ratio (DTI). A DTI ratio is the percent of debt you owe compared to your pre-tax monthly gross income. Your monthly debt may include borrowed loans, credit bills, etc. So, a good DTI ratio is below or equal to 36%. However, it is a concern for you if it goes above 42% to 43%.
4. When should I start saving for my retirement?
Starting retirement savings at an early age is a good option. However, you must plan your retirement savings after keeping aside an emergency fund. A small but regular saving amount will create valuable retirement savings over the years. Further, the sooner you start investing for your retirement, the more benefit you can avail of compounding interest. Basically, compound interest increases your wealth faster as it is calculated on the principal as well as on the interest earned.
5. How do automatic paycheck deductions help manage money?
Automatic paycheck deductions involve automated payments from your account. It means you will pay your bills and other investments automatically on time. This ensures that there is no obstacle to your monthly payments or investments and you can manage money effectively.
6. What are the aspects and principles of money management?
Money management principles include organisation, action, consistency, time adherence, documentation, etc. Whereas money management aspects involve budgeting, tax-paying, saving, investing, debt planning, retirement saving, etc., steps. The above money management tips cover these aspects of money management for your financial security.