The first key in learning how to manage your money is to get more in tune with your current finances. The first focus should not solely be on making more money, because if you are unable to manage your current income, saving, expenses, ect., then you will not reap the full benefits when you do start to earn more money. Getting a grip on your current expenses is very important. Your expenses are a big part of your life. Some are able to earn a lower wage and have a larger savings than someone who earns more and chooses to live life beyond their means. So the first step in how to manage your money is to review, understand, then lower your expenses.
Your expenses are divided into two categories: The things you need vs the things you want. When I examined my expenses and what really was hitting my wallet the hardest, I found that the things I wanted largely outweighed my needs. I asked myself how did this happened? I realized as I began to earn more in my career, I also began to buy more of the things that I had always wanted. The results of the “want” spending severely shrunk the amount that was going into my saving, 401K, and amounts for future investments. So I needed to act quickly and with conviction. I needed to get on a budget.
In knowing how to manage my money, my second step was to create a budget that catered to my lifestyle, but cut out all the fat. When I say cut out all the fat, I am referring to cutting all of the unnecessary and random buying habits. I wanted to get to the basics and re-learn how to manage my money. Since step one is to do a quick pulse on your spending habits to see if a budget is needed, step two is diving head first right into the thick of budgeting. For this step I investigate and examine where my money was going by going over everything with a microscope. I combed through my bank accounts, my credit cards, my savings, and investments. I was surprised as how much I could be saving vs how much I was saving. I’m ashamed to admit that after I paid my mortgage, HOA fees, car payment, insurance, cell phone, 401K ect. that I had very little to none going into my savings due to my “fun spending/entertainment budget”. I was pretty shocked since I have always been a person who likes to save and is currently deemed as the frugal family member. So now that I had my true expenses identified, it was time to cut the fat.
How to Manage your Money : Where is the money going?
I created a budgeting excel spreadsheet that has one column for all of my fixed ongoing expenses. These are amounts that no matter what, I’m obligated to pay as long as I choose to own that item. This is my Mortgage, HOA fees, homeowner’s insurance, Car Payment, Car Insurance, Cell Phone, Internet, Student loan, ect. Then you have the variable expenses. These are expenses that you more than likely have to pay but they vary such as gas, car maintenance, credit card bills, and groceries. Please note that depending on your current lifestyle that you need to adjust your budgeting accordingly. Therefore, if you have children in daycare, cable bills, or any other type of billing, please add those items to your overall expense column.
As of now you should be on your way to understanding how to manage your money. Now that you know what all of your “mandatory” expenses are, what “fat” or excess spending do you have coming out of your bank account or accruing on your credit cards? My finds were that I was going out to eat way too much. My food expenses from going out to eat were higher than my car payment. I knew this had to change. Now don’t get me wrong. I’m not saying never go out or don’t have any fun. I more so speaking to get ahead of it and control your “fun” spending so that you do end up in debt at the end of the month because of it. You need to identity your “why”. Why do you want to know how to manage your money? Why did you need to save and budget? My why was that I had a wedding to pay for on my own (with my fiancé’s help of course), and that I wanted more money going into my savings. More money in my savings account meant that I had a stock pile to invest into business opportunities. More money also meant an emergency fund safety net. So what is your why? Please leave a comment! It does help to share.
How to Manage your Money : Cut more fat!
Let’s get back into it. So by now you have identified your fixed expenses and your variable expenses. You need to gage what your entertainment budget will be along with anything coming up in your life. Will you need money to travel? Making a big purchase? What about buying Christmas presents or birthday gifts? It helps to think of all the things that you could spend your money on in a year. So ask yourself. What does this year look like? What are my money goals? How much would I like to save each month without starving or neglecting my life? You would then take all of your income and subtract all of your expenses then what ever is remaining is what you have left over to go into your savings. It’s simple really but difficult at the same time.
Now that you have the numbers laid out in front of you, is there anything that you could adjust? I adjusted my groceries bill and my entertainment budgets just so I could be saving a bit more for traveling and my wedding. I even examined my car payment and mortgage. Please forgive me, but I did go a bit extreme and thought should I give up my car altogether? Should I trade it in and buy a cash car? What about my home? Should I sell, reap the profit, and buy a less expensive home? I was ready to sell everything get rid of all my expenses and live truly frugal. I decided to hold off on fire sale and move back over into adjusting my budgeting. Just know that if you do take the road of completely changing your life and downsizing, it can be a very freeing and beneficial experience.
Now that I have my expenses under control, I am saving more, I now can focus on earning more.
So what’s your story? Please let me know if I can further aid you in learning how to manage your money.