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July 27, 2016 | money-management

Nine Essential Questions About Money Management

If you’re reading this, chances are you’re contemplating getting serious about your financial situation. Before turning that interest into a concentrated effort, you’ll want to read this indispensable Q&A.

What is Money Management?

Is it a fancy phrase for how to budget your money, or is it something entirely different? While the concept of money management does include budgeting within its parameters, it also encompasses much more than that. One of its primary functions is to set goals for future purchases, expenses, and savings. To this end, when a consumer meets with a money manager, they will review their debts and spending habits to determine where their paycheck goes. While making a plan to manage money, the consumer should determine their short- and long-term financial goals, which should include savings, investments, retirement and other expenses such as home buying, college tuition, vacations and auto purchases/repairs.

How Do I Start Managing My Money Better?

Past: The first place to look when seeking to address money management challenges is for the consumer to figure out how they have come to be in their present situation. What spending habits do they have and are they willing to change them if they have proven to be detrimental to the money management process? Eliminating non-essential monthly debts from the past should be a priority.

Present: The “present” concept involves reviewing current monthly expenditures and deciding which may be unnecessary or wasteful and eliminating them. In order to best manage money, it is also necessary to establish what is essential and is not so as to streamline expenses.

Future: The inherent goal of any money management program is to create the starting point for a happier, more stress-free financial future. Part of that is figuring out what amounts need to be set aside monthly for retirement, vacations, tuition and even emergencies (life’s inevitabilities). At first the consumer may find that the amounts they are able to set aside for these categories may be small, but that is perfectly acceptable. Once money is saved by paying off debt and reducing monthly expenses, those now-available funds can be redirected toward the future.

Who Can Help Me Learn How to Manage My Money?

There are different types of managers who can guide you as you learn how to manage your money. Some are associated with non-profits while others are associated with financial institutions and investment brokerages. The non-profits normally have very nominal fees or none at all. While the other entities may also not charge, there may be costs incorporated in any investments they make on your behalf. Do not enter into any agreement with a money manager until the cost – if there is to be one – is detailed beforehand.

How Do I Balance My Budget With Self-Reward?

Consumers should most definitely do not have to give up the things that make life fun, however, they may need to curb them and make sure their budget allows for them. Budgeting should include funds for items the consumer enjoys such as movies, dinners out or even weekends away. As long as the funds are allotted in the budget, the consumer gets to enjoy the indulgence in two ways: Firstly, there is the enjoyment the indulgence itself provides and secondly, there is the satisfaction that comes with engaging in the activity with the knowledge that they won’t have to sweat out paying for it somewhere down the road. Remember that patience outweighs splurging. Now, it may take a few paychecks to save for the object of desire, but it will be that much sweeter when that desire is not indulged as often and it can be had via cash transaction.

And keep in mind that your indulgence can come in the form of a cheaper substitute! Instead of eating out, try a new recipe at home. You can manage your money properly and still splurge on some special ingredients, while still spending a lot less money than you would at a restaurant. Instead of meeting friends for drinks, why not have them come over with their favorite beverage? As for movies, you can save a few dollars at a matinee and even more if you’re a bit patient and wait for the film to arrive at the dollar theatre. Packing a picnic lunch never goes out of style. Family hikes are just about cost free and have the added benefit of giving everyone exercise. Remember, just because it doesn’t cost a lot of money doesn’t mean it can’t be fun.

How Should Investments Play Into My Money Management Plan?

Some financial gurus state no investments should be made until one is debt free. This is certainly one way of approaching how to manage money. If the consumer is diligent and has a very specific time frame for becoming debt free, they could possibly wait until that point. However, if the consumer ends up always carrying debt, investment for the future could be put off indefinitely, and one day they’ll wake up and realize it’s too late to get any kind of investment program up and running. Remember that any amount put aside for investments to pay for college or retirement will make a difference over time.

What Are the Benefits of Automatic Paycheck Deductions?

It’s the old “you can’t miss it if you never see it” trick the consumer can play on themselves. When funds go directly to the desired accounts and bill-pays, there is no chance they can be spent on unbudgeted items. That is why it is crucial to include savings when setting up auto deductions, that way, the funds go directly into reserve without offering the temptation to spend them along the way. When it comes to budgeting, consumers should pay themselves first before any discretionary items are paid for.

How Can I Best Manage Bonuses, Tax Returns, and Other Financial Windfalls?

As you learn how to manage your money, you’ll also learn about delayed gratification. So, most importantly, do not spend your windfall funds before receiving them. Remember that some windfalls also come with a tax bill and the gross amount you’re due will be much greater than its net. When the money is in hand and you have a definite knowledge of how much of it is yours to keep, take care of items you may have been putting off such as medical procedures, new tires for the car, or air conditioning maintenance for your home. Perhaps some of what is left can go into savings or, if your money management plan is working well, this may also be a great time for a pre-budgeted treat such as dinner out, movie night or a road trip.

Do I Need to Get My Family Involved With My Budget?

It is actually very important to get your family’s support. If the whole family doesn’t buy into the financial goals and budgeting strategies that have been established for everyone’s benefit, then the program is likely doomed to fail. Having family members spending outside of the budget will cause stress and will likely cause those who are keeping to the goals begin to deviate themselves. To combat this, consumers would be wise to keep the whole family involved in the process, making sure to let everyone in on the discussions as to how the discretionary funds can be spent – the fun part of the money management adventure. By promoting this inclusiveness, everyone knows what the score is and will be less likely to make an unreasonable request because they know how much is available for spending.

What Are the Steps to Building a Budget?

Now that you’ve decided to make your life a budgeted one, here are the first three things you need to do:

  1. Talk it over with your family and make sure everyone understands that you’re all in this together.
  2. Make a full accounting of your assets, debts, and monthly spending.
  3. Meet with a money management professional to get valuable, outside input from an impartial expert.