Money isn’t just about buying goods and services. Money influences how we feel about ourselves and other people. More money is not the answer, gaining control is.
Managing money is a skill. Like most skills, it requires practice. Without this skill, it’s likely you will experience financial stress – running out of money regularly, feeling deprived or juggling to pay bills. Even those who make lots of money can experience problems without a healthy respect for their finances.
There are people who HAVE and people who DO NOT HAVE, and it has little to do with the amount they earn. Some have difficulty getting by with a good salary, while others who earn less seem to have it “together”. Herein lies the difference between those who have learned good money management skills and those who have not.
A good plan acts as a guide for you. It doesn’t need to be down to the penny. It needs to be easy to understand and it should require a minimum amount of time and effort. It is a reflection of your needs and wants, your values and your goals. It does not determine who you are but reflects that special unique person that is you.
A good plan is based on current income and expenses. It allows for future possibilities and probabilities. It must be flexible, allowing you to adjust it as things around you change. The plan must also provide for pleasures as well as necessities.
A plan is not a magic genie to grant your every wish. It is your servant. It will promote good spending and saving habits and improve your financial health. It is your most valuable financial resource.
Do you see a future free of financial worries? Are there specific items you want to buy?
If so, you need to set specific goals for how to use your money. Good money management begins with setting goals. Goals give you direction, a purpose for the way you spend your money and the way you live. Goals motivate and encourage you. Goals are dreams or wishes that could come true. If your goals are specific enough, you will be motivated to balance your spending and savings to reach your goals.
If you don’t set goals, you will find yourself saying, “I wish I had.” The idea of goal setting is to specifically decide what you want. Goals should be set and reconsidered periodically because they can change. Take some time to think, then write down your financial goals below.
Once you have identified your goals:
- Determine how long you need to realize each goal and the money you need to put aside to reach your goals.
- Develop a plan for achieving your goals.
- Set aside a weekly or monthly amount that needs to be saved to meet a particular goal.
Goals guide you. Remember, goals are an important key to successful money management. Goals can help you make your dreams come true within a specific period of time. They help you use your money to do the things that are important to you.
After goals are listed and prioritized, a workable budget should be devised. This plan for spending and saving first requires an estimate of income and expenditures. For best results, a budget should not be too complicated or rigid, but must be realistic.
Develop a realistic budget.
Now that you have listed your goals you have completed the first step in your spending plan. The next step in making a budget is estimating your family’s income. Before you can plan wisely, you need to know how much money you will have during the planned period.
After you have figured out how much your income will be for the planning period, it is time to estimate your expenses.
If you have records of family spending, they can serve as a basis for your budget. List items of expenses that your family had, with the amount you spent for each item. Include fixed payments, contributions and other predictable expenditures. If you do not have records, you may be able to recall some of your previous expenses. Cheque book stubs, receipts and old bills can serve as reminders. This may be all the guidance you need in estimating your expenses.
If you are new at budgeting, you may want to start by finding out where your money goes. Keep a record of current spending for two or three months. It’s easier to keep track of your budget if you have a family financial record book (Monthly Budget Tracker). Use it to record your daily expenses and then compare these expenses to the monthly expenses you have written down. Use the revised column of the Monthly Expense sheet to re-evaluate your monthly expenses.
Evaluation is the most important step.
Make the necessary adjustments to meet your needs and reach your goals. Here are some helpful tips on creating a successful budget:
- Have at least two bank accounts.
- Personal chequing – used for all household regular monthly expenses.
- Savings – to meet goals, and acts as a safety cushion for emergencies.
- Make sure everything you spend is listed in your budget booklet (Monthly Budget Tracker) including any small items such as coffee, gum, candy bars, etc.
- Leave your instant teller card at home. The temptation to withdraw money may not be as great if you have to physically go into the bank each time.
- Use your “piggy bank” to help you save. Although this is not a planning tool, putting away your change on a daily basis can help you save for small ticket items.
- Look for ways to reduce your expenses.
- Minimize the number and usage of credit cards.
10 Basic Rules of Money Management
Plan for the future, major purchases and periodic expenses.
- Set financial goals.
Determine short, mid and long range financial goals.
- Know your financial situation.
Determine monthly living expenses, periodic expenses and monthly debt payments.
- Develop a realistic budget.
Follow your budget as closely as possible. Evaluate your budget. Compare actual expenses with planned expenses.
- Don’t allow expenses to exceed income.
Avoid paying only the minimum on your charge cards, try to pay more. Don’t charge more every month than you are repaying to your creditors.
- Saving is good.
Save for periodic expenses, such as care and home maintenance. Save 10 to 15 percent of your net income. Accumulate three to six months salary in an emergency fund.
- Pay your bills on time.
Maintain a good credit rating. If you are unable to pay your bills as agreed, contact your creditors and explain your situation.
- Distinguish the difference between needs and wants.
Take care of your needs first. Money should be spent for wants only after needs have been met.
- Use credit wisely.
Use credit for safety, convenience and planned purchases. Determine the total you can comfortably afford to purchase on credit. Credit payments should not exceed 15 to 20 percent of net income. Do not borrow from one creditor to pay another.
- Keep a record of daily expenditures.
Use a “Monthly Budget Tracker” daily expenses budgeting booklet to assist you in identifying how you spend your money and where any adjustments need to be made.
Build an emergency fund.
If you are short on savings, your first budget priority should be to start an emergency fund to cover three to six months worth of expenses. Do this before you do anything else.
You need the cushion and assurance that if you should lose your income, you could still meet your obligations until the emergency is over.
Starting a savings program.
When creating a budget it is essential that you include a savings account. The savings account is not a luxury but an absolute necessity for financial comfort. If you get into the habit of “paying yourself first” you will always practise saving. The savings account is there to meet goals. The savings account does not exist to pay bills.
The easiest approach to saving money is to take a percentage of your income and put it away each pay. Each time you receive your pay cheque, take a percentage of it and put that money in your savings account or some other type of investment vehicle.
Your personal banker can help you by setting up an automatic withdrawal to take money out of one account and put it into another account every time you get paid. By taking money off the top before you have a chance to spend it, you will find it easier to save. If you wait to see if you have anything in your account at the end of the month, there may be nothing to put away.
It takes discipline and dedication to start a savings program but just watch how your savings grow when you do.
- If employed try to save from 10 to 15 percent of net income.
- If unemployed try to save two to three percent of net income.
Are you facing credit difficulties?
If for any reason you cannot meet your payment obligations to any of your creditors contact the creditor immediately and discuss your problems candidly. Creditors are flexible when changes in your life make repayment of your obligations difficult but you must make them aware of your situation. Do not try to avoid your creditors; it will just make the situation worse.
Maintaining a Good Credit Rating
- Pay your bills on time. If you are unable to pay your bills as agreed, contact your creditors and explain your situation.
- Don’t sign a credit contract until you have read it and understood it. If you don’t understand it, ask questions until you are satisfied.
- Never sign a blank sheet. Your signature is your promise to pay and a contract is a legal document. It’s a simple matter of knowing the implications of what you are getting yourself into before you get into it.
- Try to pay off any debt quickly. Avoid those prolonged low monthly payments and avoid having to refinance at higher interest rates. Try to pay more than the minimum monthly payment.
- Deal with known, respected and established companies.
- Be sure you understand the total cost of your purchase.