Money is one of the most important subjects in our lives today. With money being an essential part of life, having good money management skills is critical. Money management skills refer to your ability to track your spending habits and make clever decisions with your finances. Here are three important money management skills to secure your financial future;
Financial planning is the step-by-step approach to assessing your current financial situation, setting financial goals, and strategizing to realize these goals. This involves looking into your revenue, debt, insurance, savings, investments, and setting future goals. For you to realize your financial goals, you have to improve your current financial situation.
The first step to effective financial planning is determining where you stand. Assessing your current financial situation will help you identify any mistakes you might be making and take the right steps to rectify them.
Track your cash flow and assess the value of your assets. Compare these to your debts and expenses. If the balance is a negative number, this is an indication that you need to minimize your cash outflows and increase your revenue.
The next step is to set your financial goals.
Ask yourself the following questions;
- What do you want to achieve in the future?
- How much do you want in your emergency fund?
- Do you want to buy a home? What about a second home?
- How much do you want in your retirement fund?
- Is traveling and vacationing somewhere on your bucket list?
- Planning for your children’s college expenses?
Such questions are instrumental to understanding where you are headed. Ensure you set goals that are unique to your financial situation — we can’t all have the same goals. Also, set realistic goals and a timeframe to make it easier to work towards them.
Budgeting is a way to track how much money you have coming in and the amount you are spending regularly. It helps you regulate your spending.
Budgeting can also help you figure out how much extra income or savings you may want to set aside for future expenses, like paying for college or buying a house. You can also get credit card debt relief to increase the amount of money available to you for use.
Here are some tips for creating a realistic budget:
- List all sources of income, including bonuses, and irregular paychecks
- Include all accounts, including bank accounts or credit cards
- If there’s any money coming in from other sources, make sure they’re included too. Also, consider sources such as child support.
- Subtract everything that needs to be paid out each month, such as;
- Rent/mortgage payments
- o Car loans/leases, gas purchases, and repairs
- o Student loan payments
- Utilities (water/electric)
- Groceries and food purchases (including eating out) gas purchases.
Subtract any debt repayments made during that period too.
Set aside a portion of your income every month to make sure you are saving enough money. A good rule of thumb is to save 20% of your gross pay — some people can go as high as 50%. You can increase your savings rate if you get into a habit of setting aside some money more regularly and consistently.
Work with your budget to ensure that your basic expenses are covered and see how much of your income goes into your savings. You can put your savings into different accounts. For example, a sinking fund where you can save towards something you want to buy, such as a house, and a long-term savings account which can be your retirement fund.
Practice These Financial Management Skills
Money management skills are a must-have if you want to grow financially and live a comfortable life. You do not have to be rich for you to have financial freedom — you just have to manage your finances effectively. To manage your money properly, you should have a financial plan, budget well, and save up for your future.
If you have challenges managing your money, consider seeking the services of a professional. An expert will help you align your financial plan, budget, and saving habits for you to attain financial security.