Creating and following a money management system is the first step you take to improve your finances. A money management system is basically a structure you follow that helps you with your budgeting, savings plan strategy, and investment strategy. While it may take you some time to identify what works best for you, below we have listed out some common money management practices that work for all.
- Track your expenses
The best way to curb your unnecessary expenses is to know where your money is going. You won’t be able to have any budget or savings plan if you don’t know your exact income and expenditure. You can use apps like BudgetGuru to help you maintain a record of all your income, expenses, savings, and investments.
- Keep a separate Savings Account
You are highly mistaken if you believe that you can save money by keeping one single account for checking and savings. The best way to ensure you are keeping aside some money for your emergency fund or future is by keeping a separate account where you put off a set amount of money each month. Make sure that you keep the debit card to this account in a place that is not easily accessible by you to curb your urge to use the money. This will also help you to quantify your savings and give you an exact number of how much you have saved so far.
- Divide your expenses in percentage
Dividing your expenses is another way of making sure you stay within your budget. The most commonly followed formula is to keep your spending including living expenses and debt at a maximum of 50% of your income. Set aside 30% of your earnings as savings, 10% for charity, and 10% for your learnings and self-development. Giving out money for charitable causes will give you a feeling of abundance and investing in your learnings and expanding your skillset will help you increase your earning capacity.
- If you are a business owner, then don’t forget to draw your salary
Business Owners often lose track of their earnings and savings because they don’t know their exact monthly income. It is a common practice among entrepreneurs to reinvest their earnings in growing their businesses. While this is necessary, it is advisable that you draw a fixed salary even if you are the business owner. This practice will help you manage your finances more wisely and give you a clear picture of your income.
- Teach money management to your kids and spouse
Knowing how to manage your money as the breadwinner of the family is not enough if you want to reach your financial goals. The financial habits of your entire family determine the health of your finances. You can’t achieve your financial goals until your whole family is on board with it. Teach your spouse and kids money management tricks that will help them keep their allowances well managed and decrease the chances of them coming to you to help them cover their emergency expenses.
- Every month/quarter, measure your success
While following the above-mentioned practices will bring you on the right path of your financial journey, you need to know if it is working for you or not. The best way to determine that is by tracking your success every month or every three months. This will help you figure out the flaws in your plan and what’s working best for you. You can redefine your money management system accordingly.
While there is no perfect way to reach your financial goals, following these tried and tested tricks will definitely help you get started on your path to achieving financial well-being and wealth creation.