How To Manage Your Money
In these difficult economic times, many people are finding that the belt tightening that they have to do is actually working wonders for their money management skills. “No one likes to suck it in, but great money management skills allow for even better living when the crisis passes,” says one CPA.
Below are some tips on how to manage your money, whether you are in dire financial straits or you have plenty of discretionary funds, because no matter how much money you have, the basics of good money management remain the same.
– Pay yourself first.
Before bills, before taxes, before money owed to creditors, always set aside money in savings for yourself. The benefit here is both monetary and psychological. Fiscally your savings will grow, whether those savings are your emergency account or an investment account. Psychologically, you will perceive that your good money management is actually paying off.
You should consider this payment to yourself a bill in the same way that an electric bill is a bill. This is the money that will comprise your wealth and protect you from emergencies, and should only be used to work for you.
– Put money to work for you.
Money has two uses: To be spent and to be invested. The money that you save for yourself should begin working for you immediately to make your life better.
The concept of residual income is one that is not touched on enough in mainstream economic culture; however, this is exactly what the money that you set aside should be doing for you. Residual or passive income is the basis of wealth. There are many ways to change a savings account into a residual income account.
- Buy dividend bearing stocks (reinvest in the stock until retirement, then the dividend can be taken as cash)
- Put the money into long term high interest bearing accounts (annuities, HSAs, CDs)
- Buy a business that runs itself (anything from vending machines to a restaurant or retail franchise)
– Pay down debt in a snowball fashion.
You should pay down debts from smallest to largest, so that you can feel the sense of accomplishment that comes with paying back a debt in full. This is a technique that famous money maverick Dave Ramsey advises.
– Learn to invest.
What investment means, whether you are rich or poor, is learning how to pay upfront fully for a service that will save you money in the long run. For example, buying a $500 espresso machine instead of having a coffee out every day ($1200 / yr) is a good investment.
Invest in things that make your life easier and save you money. A good place to begin is with the Internet, researching new gadgets with technologies that make expensive things obsolete.
- Pay off credit cards in full every month.
The credit card is not something on which to hold balances. Get into the habit of paying off that bill every month. If it is simply too much, pay $100 over the minimum payment every month. Paying the minimum is guaranteed to have you paying much, much more than you should on your credit card. If you are not satisfied with your credit card company, apply for 0% Balance Transfer Credit Cards from credit card companies that you will enjoy to work with.
- Separate payment and discretionary accounts.
Put the money that you pay bills with into one account and any extra money into another account so that you never spend the rent money frivolously. This is the cause of many a late payment on a bill or a credit card, which only compounds the problem with interest and late fees.