Just like leading a healthy lifestyle is important to enjoy life, in the same way practising money management is important for gaining financial security.
In this world full of temptations, more than earning money, the focus on efficient management of money is more important. Because any amount of money, if not managed properly will prove to be very less only and can derail your finances.
Money Management is not just the allocation of funds to different heads of expenses, investing etc. But, its a strategic technique, if practised properly will make your money yield more for any amount spent.
Here is the 10 Money Management Tips that will help you earn the most from your every money spent and will make you feel more financially secure.
Create a Budget Plan
A budget is just a simple plan on how you will spend your money. This helps to keep you on top of managing your money as well as let you know your financial situation in advance. Creating a budget plan helps you to keep a tab on expenses and deviate less on the part of your expenses.
Convert each of your dreams and long term financial requirements into goals categorised into short and long term goals.
Its becomes very easy to fund and manage the goals. Further, it provides clarity on how much you need to allocate in order to meet that goal. Goals should specific, measurable, achievable, relevant and time-bound.
Like building retirement kitty, buying a house, funding of child’s education or marriage, a foreign vacation etc.
Focus on Goal-based Investing
Goal-based investing provides a direction to investment and lets you know where your every penny is invested. Goal-based investing is not about achieving higher returns on investments or investing as per risk tolerance. The investments are made based on the needs and timeline of the goals in a more efficient manner.
For example, short and mid-term goals should consist of investments in equity with moderate risk type. And, long term goals should consist of funds with exposure to equity, bonds to make it a more balanced one.
Set Auto Transfer
Set-up auto transfer of funds to your investments. It helps to continue with your investments in a more disciplined fashion and never miss any due dates. In the case of manual transfer funds, there are higher chances that you miss on investment dates, which can severely affect the investment journey.
Build an Emergency Fund
Always have an emergency fund set aside to cover the unforeseen personal financial uncertainty such as loss of a job, a major illness or emergency repair of house etc. Generally, the emergency fund should able to cover all your basic expenses for the next six months and should be topped up to meet the inflationary trend.
Buy Life/Health Insurance
One of the most important parts of money management is managing and reducing risks. And of the many risks, the health risk is the most significant one and if not covered properly, it can derail your finances.
Protecting yourself and your family with health insurance, by paying a small premium amount, doesn’t only help during a health emergency but also protects your finances.
If you have debt in your account, start paying it back as fast as you can. Keeping debt for a long period of time hurts your finances badly, as you end up paying more, because of the effect of compounding.
If you have multiple debts, pay off the debt with higher interest first and also look for ways to convert it into lower interest rates. Further consolidation of debts in one account will also help to reduce the effect of interest.
Reduce Unnecessary Expenses
Account for every penny spent and look for ways to reduce unnecessary expenditure. Paying bills on time is one of these, as you avoid paying the late fees.
Use digital modes of payment wherever possible, in order to plug the expenses which are done unconsciously. Like, the small amount of Rs 1, 2, 5 which we get in return of a bill with local shops when paying in cash and mostly goes unaccounted.
Maximize the Value of Money Spent
Use all the options available to maximize the value of the money spent. Using a credit card is one of the best options to get the most from daily spending. If used properly, credit cards are very rewarding in terms of the reward point you accumulate on every spend, interest-free credit period of 50 days and different offers which you can take benefit of.
Also, ensure that you are getting the best deal on your purchases and services.
Stick to Plan
Once you have made and implemented all your investment decisions, don’t change or modify it too frequently to adjust with the short term volatility in the market. It affects the financial discipline and you will be at risk of not meeting the goals.
Sticking to the plan is necessary, in order to your investment and other financial decision to see work for you. But, keep a flexible approach to make small changes in the plan as per changes in fundamentals.
Money Management is not just two fancy words or permutation & combinations of your income and expenses. But, its a strategy to allows you to yield more value from your limited source of income.
The way to experience financial freedom or financial security is only through practising money management efficiently. Its not that difficult too, small tweaks in habits and proper planning will let you become more confident and financially secure.