How to Manage Your Money the Right Way

We are taught the importance of earning money from a very young age. In essence, school, college, sports, etc., are all stepping stones to make a living for ourselves ultimately. However, most people around you only guide you on how to educate yourself and then upskill yourself from time to time, so that you can draw a good income. Not many people talk about what to do with that money when you actually have it in your pocket. Earning money is only one part of the deal. The other and perhaps the most important part of the deal, is to know how to manage it efficiently for your present and future needs.

11 Ways to Manage your Money the Right way

1. Make a budget

The first thing on the list is to make a budget. Take a piece of paper and jot down your net monthly income and the list of expenses. This activity will give you a glimpse of how much you need to spend on groceries, rent, gas, and the likes. Knowing your monthly budget will also help you stay on track and not stray towards buying unnecessary, extravagant items of little value.

Don’t keep yourself from enjoying the little joys of life. A few things here and there are alright, as long as they don’t interfere with your overall goals.

2. Keep a check on expenses

Even with a budget in place, it is important to keep a tab on your expenses. Try and identify recurring expenses and non-recurring expenses. Recurring expenses include rent, the cost of gas or the subway, monthly insurance premiums, etc. Non-recurring expenses can include buying a television, a new couch, or a set of speakers.

Take care of your recurring expenses first. From the remaining money, check your list of probable, non-recurring expenses and pick the one that can be accommodated in your budget for the month. Learn to prioritize your expenses and choose the one that seems the most important at a given time.

3. Stay away from credit cards

This point can’t be stressed upon enough. Credit card bills only further add up to your expenses with high interest rates. Unless you find yourself in an emergency with absolutely no other way out, try to stay away from credit cards as much as you can. This will also help you maintain a good credit score.

4. Pay off your debt

Even if you minimize the use of a credit card, you may still have student loan debt or a personal loan to pay off. Taking loans from the bank is not a bad idea, as long as you pay it off in time. Try to get rid of your debts as soon as you can. If you are already grappling with a loan, try not to mount your list of debt by taking on more loans.

5. Save your money

As soon as your salary is credited into your account, keep aside a pre-decided amount as savings. There are several ways to save your money. The easiest way is to opt for automated transfers into your savings account at the beginning of each month. You can also earn good interest on your savings which can grow up to a significant sum over a period of time. 

6. Invest your money

Saving your money is only the first step towards building a fortune. The next crucial step is to invest it in the right avenues. Understand your risk appetite and look for ways to invest your money. For safe and assured returns, you can consider certificate of deposits or CDs. If you are open to more risk, you can invest in high yielding stocks and bonds. No matter what you choose, make sure you understand the implications of your investments with respect to market volatility.

7. Build up goal-oriented funds

Keep separate funds for different goals. For example, you can choose between a 401(k) and IRA for retirement, a 529 plan for higher education expenses, and a separate emergency fund for any unforeseen financial situations. Setting up goal-specific plans not only help you structure your thoughts and actions better, but also offer special tax benefits.

8. Set targets for goals

Try to draw a timeline for your goals. For example, buying a car at 30, your first home at 35, retiring at 60, etc. This will give you an idea of your short-term goals and long term goals and help you save for them accordingly. Here’s a calculator that can help you understand how much you need to save for specific goals.

The concept of FIRE, (financial independence, retire early) is also catching up these days. If you want to retire in your 40s, you need to add this to your timeline of goals and start saving accordingly.

9. Never lose track

Consistency is important. Many people passionately draw plans but lose interest in a couple of months. You need to make your financial plans a part of your life. Think of it as a never-ending process. The more consistent you are, the better shall be the rewards at the end.

10. Be open to help

Financial jargons are difficult to understand and keep up with. If you don’t understand a certain component of your salary slip, make sure you discuss it with your office’s finance team. Similarly, reach out to a financial advisor if you want to understand the fine prints before opening a savings account or investing in a stock. Don’t be afraid to ask for help. Remember that you work hard to earn that money. Paying a few dollars of fees to a professional is better than losing thousands of dollars because of poor or incomplete knowledge.

To sum it up

Earning money is important, but so is being able to manage it efficiently. Don’t get swayed by trends or what your peers are up to. Understand that everyone’s financial journey is different. Do what works best for you and helps you reach your goals sooner.

And if things ever seem challenging and you need a helping hand, feel free to reach out to financial advisors for some professional guidance.