How are you managing your own money? It takes several trials and errors before you can settle on a money management technique that suits your income and lifestyle. Mastering the art of managing finances also means being able to cope with constant changes.
I've been handling my finances for several years now, and let me share with you what I've learned from experience.
1. Budget your money
I grew up in a household where we had just enough, and I learned how to manage money from my mom's example. What I realized is this: budgeting requires discipline and commitment.
So when I began working and earning, I resolved to create a budget for every paycheck I receive and stick to it. Here's how it's broken down:
Tithes for church
Savings
Investments
Payments for bills (i.e., utilities, medical needs, laundry service, etc.)
Government contributions
Personal allowance
Travel fund
Mind you, it isn't always exactly like this. I regularly adjust my budget based on how much I earn and where I need to put my money.
Having a budget helps you know exactly where your money is going, regardless of the amount you have. This way, you'll avoid unwelcome surprises — like realizing you don't have anything to spend anymore when you badly need it. Yikes!
Even if your salary or allowance isn't consistent, most likely, your expenses are. If you have a budget, you'll have a reliable estimate of how much you should have to meet all your needs.
2. Invest on what's important to you
When I hear the word "investment," my mind immediately goes to stocks, mutual funds, and insurance. But it's actually more than those.
Investing on your personal growth, health, convenience, and even entertainment are also important and they most likely require money as well. If you're set on pursuing something, create a budget for it.
Knowing that I'm saving up for something that's important to me, like a trip abroad or a musical theatre experience, motivates me to be more frugal and wise with how I spend. Cutting off what's unimportant becomes worth it when I finally get what I truly want.
There are times when you really can't stretch your money to cover for something you want. In this case, it becomes a matter of need vs. want — and needs should always come first. You can always save up again for something you want when it's within your means.
3. Keep cash on hand and in your bank account
An important principle in managing finances (and even in business) is to not put all your eggs in one basket. Make sure there's a healthy balance between your cash on hand, the amount in your bank account, and the amount you put into your investments.
No doubt, we're now moving towards a cashless society, but cash is still king. Unexpected situations can happen when you won't be able to immediately access your bank account. This is where having cash will come in handy.
Another alternative is to create an e-payment account that's separate from your bank account. This gives you another payment option if you prefer a cashless transaction.
When it comes to financial investments, our tolerance level differs — you're either aggressive or conservative. Go with what you're comfortable with so you won't regret the amount you invest.
4. Set aside an emergency fund
Ideally, you should save up at least six months' worth of expenses as your rainy day fund. You'll be able to compute how much this is if you keep track of your budget every month.
Saving up for an emergency fund isn't urgent, but it's important. You never know when you'll need it, after all. But let me tell you, it will hit you hard when you need that money for an emergency and you don't have it.
You don't necessarily have to set aside a huge amount every payday or every time you get your allowance. But you need to consistently save up.
Personally, I maintain separate bank accounts for my finances. This keeps me from dipping into the savings I shouldn't spend to pay for regular expenses. And if it's more feasible, you can also opt to merge your savings and emergency fund.
5. Give generously — but within your means
It's humbling to keep in mind that God doesn't bless us so we can continuously upgrade our lifestyle. Rather, we are blessed so we can give generously to others.
You can be a cheerful and generous giver without breaking your bank account. This means making sure that you still have enough to meet your own needs. And you shouldn't have to borrow money just so you can help out others.
There are times when I struggle with cheerfully sharing what I have with others. But I found that it helps to maintain a benevolent fund so you can still extend help without compromising your own budget.
If you will recall, this isn't included in my usual budget breakdown. Like me, you can also get your benevolent fund from the extra cash you have left over after allocating funds to your regular expenses.
I'm curious to know what your money management hacks are. Send me a message — I'm always on the lookout for proven ways to handle finances well!
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