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Better Money Management in 5 Steps
How well do you manage your money? Ultimately, your financial success depends on your ability to take good control of your financial affairs.
Here are 5 positive habits to help you become more effective at managing your money, no matter where you start:
1. Start by involving your whole family in the learning process.
Get your whole family involved in learning how to manage money effectively. Do not keep your financial dealings or investments secret. Constant communication about your finances is essential if you want to instill a sense of trust, responsibility and financial peace in your family.
2. Reduce your debt load and expenses while increasing your savings.
Can you reduce your expenses and be satisfied with less? List three to five areas you can cut back on immediately that will allow you to reallocate unspent money to grow your savings over time.
Reducing your debt load may be a long-term goal, but once you eliminate bad debt, you can start accumulating wealth.
3. Get peace of mind with your emergency fund.
There’s nothing like the peace of mind of knowing how you’ll pay for the next crisis down the road. Your goal should be to build up enough reserves to cover three to six months of your normal expenses over the next year.
Start by opening a savings account or money market account that doesn’t charge you penalties for deposits and withdrawals. Eventually, you’ll also be able to set aside additional savings for long-term projects like vacations, post-secondary education, or projects around the house.
4. Build balance into your money management plan.
The following money management plan allows you to grow your savings and rewards you every month for your efforts. Start by setting up separate accounts for each of the following categories and allocate funds according to the recommended amounts:
10% of your net income to invest in your financial freedom
Your goal is to build your capital in various investments by setting aside money every month.
You should not spend the capital you have already invested in time. You can reallocate capital to finance a wealth-creating project, but avoid the temptation to pay any expenses.
10% towards your education
Your financial literacy is fundamental to being a wise investor. This knowledge can be obtained from various sources, such as home self-study courses, workshops, seminars, books, CDs, websites and investment clubs.
10% to give
Giving brings joy to others; You also get a sense of satisfaction knowing that you are adding value to other people’s lives. Make it a habit to support your community and help those in need.
10% for your emergency fund and future projects
As already outlined, keep money aside for any unexpected expenses.
10% for sports
Life should be enjoyed now and through retirement. The secret to managing money well is to strike a balance between hard work and self-reward. Your Sports Account should be spent each month on ways to rejuvenate your body and soul, such as a weekend getaway for two, a meal at a fine restaurant, or a day at a health spa.
50% for essential items
Your monthly financial obligations or expenses fall into this category. Make a concerted effort to reduce your expenses in the beginning by cutting back on certain luxuries or wants. An important factor is coming to an agreement with your partner on how you will manage your finances along with your long-term financial goals.
5. Track your cash flow and your net worth.
Your cash flow analysis
An important aspect of taking control of your money and being successful in the financial world is to monitor your cash flow regularly. Your cash flow analysis is a written plan of how you spend your money. This is a simple cost-breakdown of your expenses, similar to what is seen in most budgets, and involves tracking your income and expenses on a monthly basis. There are several important factors to consider in your cash flow analysis, such as:
• Your budget priorities as a family based on your interests and dreams
• The impact of your specific family values on your cash flow
• Specific short-term budget plans, as well as long-term forecasts over a period of six months to a year.
An easy way to keep track of your cash flow is to use an electronic spreadsheet.
Your net worth
In addition to monitoring your cash flow, it’s important to periodically assess your net worth. To calculate your net worth, you need to subtract the total number of assets you own and your liabilities. Assets are typically shown in categories such as:
• Bank accounts,
• Pension Scheme,
• Chattel or
• Equity in your personal residence.
On the other hand, liabilities include such categories as:
• Credit card loans,
• Long term loans,
• Home mortgage,
• Tax payable or
• Unpaid bills.
Calculate your net worth now and then monitor your net worth every three to four months. The easiest way to keep track of your net worth is with an electronic spreadsheet.
In summary, by implementing these 5 positive money management habits you will be able to realize your dreams for a better future. Remember that what you focus your attention on will grow.
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