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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 better control of your financial affairs.
Here are 5 positive habits that will 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. Don’t keep your finances or investments a secret. Ongoing communication about your financial affairs is an absolute must if you want to establish a sense of trust, accountability and financial peace within your family.
2. Reduce debt burden and expenses while increasing your savings.
Can you reduce your expenses and be satisfied with getting a little less? List three to five areas you can cut back on immediately that 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’ve eliminated the burden of bad debt, you can start saving money.
3. Get peace of mind with your emergency fund.
There’s nothing like the worry-free knowing how you’ll pay for the next crisis down the road. Your goal should be to build enough reserve funds over the course of the next year to cover three to six months of your normal expenses.
Start by opening a savings account or money market account that won’t penalize you for deposits and withdrawals. Eventually, you’ll also be able to set aside extra savings for longer-term projects like vacations, post-secondary education or projects around the house.
4. Create balance in your money management plan.
The following money management plan allows you to build your savings and reward you every month for your efforts. Start by setting up separate accounts for each of the categories below and allocate funds according to the recommended amounts:
10% of your net income to invest in your financial freedom
Your goal is to set aside money each month while building your capital in various investments.
At no time should you spend capital that you have already invested. You can reallocate capital to finance a project that is going to create wealth, but avoid the temptation to pay any expenses.
10% for your education
Your financial literacy is fundamental to becoming 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% for the day
Giving to others is not just joy; It also brings you 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 outlined earlier, set aside money to cover any unexpected expenses.
10% for games
Life should be enjoyed now and through retirement. The secret to managing money well is to strike a balance between working hard and rewarding yourself. 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 great restaurant or a day at a health spa.
50% for requirements
Most of your monthly financial obligations or expenses fall into this category. Make a concerted effort to reduce your expenses early in the trip by cutting back on certain luxuries or wants. A key factor in moving forward is coming to an agreement with your spouse about how to manage your financial affairs, including your long-term financial goals.
5. Track your cash flow and your net worth.
Analyze your cash flow
An important aspect of controlling your money and being successful in the financial world is keeping regular tabs on your cash flow. Your cash flow analysis is a written plan of how you will spend your money. This is a simple cost-breakdown of your expenses, as seen in most budgets, and includes tracking your income and expenses on a monthly basis. Your cash flow analysis should take into account several important factors, such as:
• Your budget preferences as a family based on your passions and dreams
• The impact of your specific family values on your cash flow
• Specific short-term budget plans, as well as long-term projections over a six-month to one-year period.
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 add up your assets and subtract your liabilities. Properties typically appear in categories such as:
• Bank accounts,
• Pension schemes,
• Chattel or
• Equity in your personal residence.
On the other hand, liabilities include such categories as:
• Credit card debt,
• 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 simplest way to keep track of your net worth is with an electronic spreadsheet.
In short, by implementing these 5 positive money management habits you will begin to realize your dreams for a better future. Keep in mind that what you focus your attention on will grow.
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