Make a Plan for Money Management
Regardless of where you are in your life personally and financially, you need a plan to work by. Without a budget you can stick with, you can’t invest intelligently, save effectively or spend with confidence. But the word “budget” means different things to different people.
Managing your money is a lot like managing what you eat. Some people do well with strict routines, lists, and firm self-discipline. Others like to have a support network to help them out when they’re tempted with bad choices. And others prefer a looser awareness of what food they eat, or money they spend, while keeping a finger on the pulse of broader issues like what they weight from week to week and how they feel (or how their bank account balance looks from month to month).
Any of these methods can work well, but you must be matched with the right one for your personality. Below are three money management strategies to cater to differing preferences.
For the Organized
Some people like to be extremely organized and thorough in their bookkeeping. Others don’t have a choice: living paycheck to paycheck doesn’t leave any room for error. Another group that may want to consider this budgeting method is those who are usually disorganized with their money, but otherwise lead very structured and orderly lives.
This method involves creating a spreadsheet on your computer, or keeping records with pen and paper. Divide your expenses into individual categories: rent or mortgage, electric bill, phone bill, groceries, health insurance and medical expenses, etc, and budget a reasonable amount for each category. Add up the budgeted amounts and multiply by 12 months, and you’ll know how much money you’ll need to earn to pay your baseline expenses for a year. Keep in mind that unexpected expenses always jump into your budget.
Next, start keeping every receipt, every time you spend money. At the end of the week or month, enter your receipts into your budget and see where you stayed under budget and where you went over. Adjust accordingly in the weeks ahead.
Problems:
This method only works if you keep every receipt or otherwise track every expense (such as on a credit card statement). The inherent strictness and care required to make this system work gets easier over time, but adjusting to it is difficult if you’re used to spending what you want, when you want, so don’t give up too easily.
For the Party Lover or Impulse Shopper
This method is for the person who is good about keeping their expenses reasonable in day-to-day life: you don’t go out to lunch every day, don’t impulse buy at the grocery store, don’t let window shopping turn into a shopping spree. But when you go out with friends, whether to a restaurant, bar, mall, concert or other event, your money flows like water. And even if you only go out with friends as little as once or twice a month, that can be a serious budget buster.
Or maybe your weakness is the grocery store. You promise yourself to be reasonable, but you can’t resist the speciality sodas, the over-priced pre-packaged snacks, or the best cuts of meat. You look at your account balance and wonder what happened.
For the person who has one problem spending habit, but otherwise manages their money just fine, I recommend using cash for your problem-area expenses. Before you go out with friends, go to the grocery store or go to the mall, decide how much you will spend. Put that amount of cash in your wallet and don’t spend a penny more, absolutely no exceptions.
Problems:
People who have been used to overspending may find it difficult to stick to that budget. And we will make all sorts to excuses as to why we deserve to relax with friends, order one more drink, or buy a special treat. Fortunately, if you can get through the first few outings without cheating, things will get easier as you develop strategies to stretch your dollar further and prioritize your spending.
For the Free Spirit
Some people say they “just aren’t good with money”, plain and simple, and are almost unwilling to learn better money management skills. They don’t have a clue what they spend or where they spend it, and it seems too much effort to sort it all out. But they aren’t necessarily doomed to financial failure.
For this category of people, I recommend depositing your paycheck in savings and then withdrawing a predetermined amount per week, no cheating. This should be enough to buy you groceries, go out to eat and provide entertainment. And when the money for the week is gone, that’s it. No more until the next week.
Problems:
The big problem here is making sure you know how much money you have left. If you don’t pay attention and spend too much early in the week, you may end up with three days left, no money and no groceries for your kids. And if that happens, you will cheat. And once you’ve cheated the first time, it is easier to do it again, and again.
The key to good money management in any method comes down to good old-fashioned self-discipline and awareness. But how you apply them to yourself and your money is up to you. Using the right method, you can manage your finances well, no matter who you are.
Image by Jason Rogers
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