What is money management? Simple – it’s how you handle your money and finances. It includes things like how you spend money, save and invest money, paying off debt and planning for big events in life (vacations, weddings, a house, etc). You work hard for your money. You need to manage it, otherwise money will control your life.
Why is money management important? Simple – it allows you to take back control of your money. When you have control over your money, you have freedom. It’s a life skill that I passionately believe all people need to understand.
What does money freedom look like? Here are a few examples.
- Hate your job? Quit it and find another one – because you have money saved!
- Unexpected expenses? No problem – because you planned for it!
- Want to retire by 65? Done – because you invested your savings!
As an accountant, I know that understanding money doesn’t have to be difficult. But it does take discipline. That’s why I’m here to help you! Here are my top 10 money management tips. Best of all, they very simple to follow. I’ll show you how by getting into more details in my upcoming blog posts. So, let’s get started with a quick review of my top 10 money tips.
Tip #1: Know Your Money Mindset
Even people who are trained to be accountants can be bad with money. These are people who get paid to budget and manage money for large corporations. Why? Despite having tons of financial knowledge, accountants can also have a mindset around money – just like you.
These mindsets often arise during childhood. They are influenced by what our parents and other people said about money. Common phrases are, “I’m not good with money”, “There’s never enough money” or “Rich people are greedy”. Do any of these phrases sound familiar? Being aware of your mindset means that you can take steps to address these mindsets and take control of your money.
Tip #2: Understand Your Financial Situation
You can’t achieve financial goals unless you understand your current financial situation. I know it might be scary, but it needs to be done if you want to improve your finances. Also, don’t be hard on yourself and give yourself forgiveness for past mistakes.
Start by listing all the assets that you own (house, car, investments, etc.), listing all of your debt (mortgages, car loans, student loans, etc.) and listing your largest expenses. Write everything down so you can see the whole picture. Then continue through the tips below to take back control of your finances.
Tip #3: Organize Your Finances
Organizing your finances means tracking your spending, making sure bills are paid on time, creating a budget, setting up a filing system, paying off all your debt and learning how to save your money. Whew – that sounds like so much work! Yes, it does take time to set it up, but maintaining it is a lot easier. Set aside some time each week – maybe one or two hours – until it’s done. Break it down into tiny steps so that you don’t get overwhelmed.
Tip #4: Have a Plan and Set Goals
Most people will have hopes and dreams for our future. This can include things like higher education (college or university), a car, a wedding, dream vacations, a house and saving for retirement. All of these things cost a lot of money. But without a plan, these hopes will remain unrealized dreams. Write down all of your dreams, put a dollar amount for each dream and when you want that dream to happen.
Tip #5: Live Within Your Means
Another way to say this rule is, “Never spend more money than you earn”. If you’re thinking, “that sound so boring!”, rephrase the rule as, “I have enough money to spend on what is important to me.” It starts by being intentional with how you are spending your money. Cut out what isn’t important and find ways to incorporate into your life the things that are important to you.
Tip #6: Have an Emergency Fund
In life, shit happens. It’s not a matter of “if”, but a matter of “when”. So, when shit happens, how will you deal with it? For most people, they shrug it off and think I’ll figure it out when it happens. But that will only lead to unnecessary stress. Instead, set up an emergency fund that will cover 3-6 months of expenses. Set it aside in a separate account, so that you won’t be tempted to use that money. Then forget about it – or at least until an emergency comes up.
Tip #7: Pay Off Debt
There are two kinds of debt – bad debt or good debt. Bad debt is fueled by consumerism and satisfies our wants – for example, holidays, cars, “stuff”, etc. Good debt helps you grow your money – for example, buying real estate that increases in value over time.
Bad debt needs to be dealt with. The first step is paying it off. The next step is to avoid getting into debt, so that you never have to deal with step one again!
Tip #8: Make Saving Automatic
You may have heard this rule before – it’s sometimes referred to as “Pay yourself first”. Put simply, it means having a set amount automatically transferred into your savings account(s) each month. That way you won’t spend it first.
Tip #9: Learn How to Invest
You work hard for your money, so it’s important to learn how to invest that money. If you need to, work with a financial planner, who can evaluate your risk levels and your goals, in order to help you select the right investments.
Tip #10: Give Back
Once your finances are in order, it’s important to give back to causes and organizations that you want to support. Think of the act of donating as a way to express gratitude for all that is good in your life.
Until my next blog post, here’s wishing you lots of joy and happiness!