We will all have said “I just can’t fathom out where all the money has gone” at some time or another, in response to perhaps a shopping trip or a night out when we seem to have spent far more than we envisaged.
The problem with money management is that it seems tiresome to have to work it all out and as it’s our money, we often feel reluctant to have to manage it, apportion it out and limit ourselves to spending restrictions.
However, as we’re all aware, money management is something of a necessity if we’re not to end up in debt with all the resulting stresses and pressure that it can cause.
Long-Term Money Management
In order to manage our money effectively, the most important investment we have to make is our time and the earlier we do that, the more our money will work for us rather than against us.
Some people put off things like considering pensions before it’s too late to play catch up and we’re often guilty of living in a buy now pay later culture. However, if you want to be free of money worries, you should plan a long-term money management strategy early. This will not just enable you to consider the big picture but will also enable you to manage your money on a weekly or monthly basis better too.
In general, you need to ask yourself what your financial goals are, set yourself deadlines by which you want to achieve them, what funds or income you have available to achieve them and what risks, if any, you are prepared to take to achieve them. By risks, this means investments and whether or not you are prepared to risk more to achieve higher returns.
You will also need to consider lifestyle issues and where that fits into your money management priorities. For example, if you enjoy going on a luxury cruise each year, then this might have an impact upon your savings and investments. You’ll also want to consider things like pensions for when you retire and your income from employment drops.
Short-Term Money Management
With so much credit available to us these days, many people are living well beyond their means. When we look around at other people these days and see the trappings of consumerism everywhere, it’s impossible to tell whether they have been able to amass their big house, 4 x 4s and other luxury items through honest, hard work or if it has been more the result of credit and loans and of the ‘have it now, pay later culture’.
The problem is many people will do whatever it takes to keep up with the Joneses even if they don’t earn enough money to do so. This is where the problems arise as sooner or later, their credit fuelled spending will ultimately catch up with them. This can have devastating consequences with unmanageable debt, bankruptcy and house repossession all distinct possibilities that can arise.
The first thing it is crucial to do is to draw up a weekly or monthly budget, dividing all your outgoings and incomings into two separate lists and to work out the totals on each. Remember to include all your outgoings, even down to your daily newspapers and the resulting paper bill. It can often come as quite a shock to people when they see how much they’re actually spending each month and what they’re spending their money on.
If you find that your expenditure exceeds your income, then you need to make some hard choices and to come up with a solution in terms of what you intend to do to either reduce your expenditure or, alternatively, to increase your income.
Basically, what you need to do is to make a budget plan and, more importantly, to stick to it. We’re all different and, once our regular bills are paid, if there’s money left over, we’re all going to have different priorities in terms of how we want to spend that money or what to do with it. Some people, for example, might compromise on the size and standard of their home to have more money left over for more holidays. Others may prefer regular outings to sporting, theatre or music events than feel the need to have a nice car so everyone’s going to be different.
Whatever your preferences however, the crucial thing is that you work out a budget accurately and then stick to it. Don’t make any detours or think it’s not a problem to exceed your spending budget one month as you’ll only have to make it up the next month and it can often be difficult to play catch up. Not sticking to the budget is what eventually gets some people into financial difficulty that often spirals out of control.
Keep a grasp on reality and your priorities based upon your household circumstances. You’ll know the difference between essential spending, i.e. food, bills etc and optional spending and it’s crucial that you put your essential spending needs first.
Reap the Rewards
Once you have worked out a budget and stuck to it, you’ll then benefit from the comfort that you are in control of your finances and that your money will go where you want it to go. Finally, keep a rainy day pot of money too. Budgeting is a great way to manage your money but you have to be prepared for the unexpected. It may be an unexpected medical bill or something like a replacement boiler for your home but, from time to time, we all experience having to find cash for something we hadn’t bargained for and, if you’ve set aside some money for the unexpected, it won’t play havoc with your budgeting when it does occur.
And remember, a budget isn’t static. Your income might fluctuate and you can be sure that you’re never too far away from the next bill increase so review your budget periodically, keep all the figures up to date and modify your spending accordingly.