Money has become one of the most important assets to our existence. If we do not have money, we cannot afford to pay for an apartment or house, we cannot afford to pay for transportation, and we won’t be able to feed ourselves and, of course, our families. Thus, having a good-paying job has become one of an essential fact of life – this helps you earn a sustainable income that gives you the ability to pay for the most vital things in life every month. Yes, some people have better jobs than others, and then there are also those that have their own companies, often earning more than a standard nine-to-five job would ever be able to pay you. The problem, however, is that people often only focus on making money and rarely consider how they are spending their money. Unfortunately, while schools and colleges do teach their students math, personal budgeting and money management courses are rarely provided by these educational institutes to help equip their students with a mindset that will not only get them a good career, but also to ensure they are able to properly manage their money in such a way that they can classify themselves as truly successful.
Now, it should be noted that “successful” has a different meaning for everyone. While one person may consider themselves successful if they are able to meet month’s end without running out of money, another person would not consider themselves successful until they have reached the highest possible position at the company they are working. In this post, we do not want to discuss a successful life, but rather focus on being successful with your money management. Since there are so many people that often tend to overlook the importance of properly managing their money, we would like to help those “beginners” obtain vital skills that will take them further in life.
The Essentials Of Successful Money Management
We should start by taking a look at the essential parts of being successful at managing your own money. The primary goals that successful money management includes:
- To spend less money than you earn.
- To save the excess money you have left after your monthly expenses.
- And to use the money saved as an additional income source.
Yes, successful money manage can be as simple as these three steps but, if you do not possess the appropriate skillset to accomplish these tasks without failure, then it might be somewhat challenging to get started. Let’s consider each of these vital parts of personal finance management separately.
To Spend Less Money Than You Earn
The first step is an essential step that you need to succeed at in order to be successful in managing your personal finances. According to Fox Business, the average American household earns a combined annual income of about $51,939. The Balance also explains that the average American individual earns approximately $44,148 every year. If your annual salary falls within this range and you are spending, for example, $60,000 a year, then it means you are spending more than you are earning – and running a negative balance.
Thus, the very first step to managing your own finances is to get to a point where you spend less money than you earn. If you are able to get your expenses to an amount that is significantly less than your annual earnings, then you will be able to succeed at the following steps easier.
Cash Money Life recommends the following steps to reduce your spending to an amount that is less than what you earn:
- Start by analyzing your own financial habits. You can perform this step by utilizing any of the free financial management apps that are available on the internet and on the mobile app stores. For an online tool that you can access anywhere, try BudgetTracker or Buxfer. If you’re looking to perform this step on your smartphone, then try Mint.
- Once you are able to analyze your spending, you need to create a budget – and then try to stick to the budget as much as possible. While it may seem difficult in the beginning, if you stick to it, then your budget will become second nature to you.
- Finally, you can use the previous two steps to see where you can cut back on expenses so that your expenses do not exceed your income.
To Save The Excess Money You Have Left After Your Expenses
After reducing your monthly expenses to an amount that is less than your salary or combined income, it is time to start saving that extra money you now have at the end of each month. There is no use in reducing your expenses and then simply using that extra money on something else. Instead, start a savings account and deposit the money into that savings account every month.
Use The Money You Save As An Additional Income Source
Once you have saved up some money, it is time to make that money work for you. You can choose to invest the money in a fixed deposit account, or you could invest in a better opportunity that will make you more money than a simple savings account. One excellent example would be to use that money to start a business on the side that can add to your monthly income.
Choosing The Best Bank For You
To save money and earn interest on that money at the same time, you cannot simply push all of the extra money you now have left at the end of the month into your cupboard. Remember that your goal is to increase your savings through interest and other investments. Apart from the interest, it is also not a safe idea to store all of your money in a physical location. Thus, depositing your savings into a dedicated bank account can have several benefits for you. The problem, however, is that choosing the bank that will work best for you can be a difficult task. To help you make a good choice, consider following these simple tips, as reported by Forbes:
- Consider a bank that can offer you a bank account with no monthly fees if you can maintain a minimum balance in the account at all times. Since you will be using the account as a savings plan, you should be able to easily meet this minimum, and then there will be no charges taking away from the interest you earn.
- Look for a bank that will not limit a number of transactions that you can perform. There are also some banks that will limit the methods available for accessing your own money – try to avoid these.
- Many banks will give you free ATM transactions, which is another benefit to look out for. This can save a considerable amount of money should you be in urgent need of money during the month.
- Finally, try to opt for a bank that will give you access to your account through an online banking channel. Most banks also offer a mobile app that can be used on a smartphone to access your accounts at your own convenience – and, of course, from anywhere.
If you are used to spending your money without any guidance, then there is a good chance that you are not planning for the future and also not “going anywhere”. Becoming more educated about the most appropriate ways to manage your money better is the first step to reaching a better life. We recommend starting out by reducing your expenses, saving your extra money and then to utilize a method that will help you earn more without having to work more.