how to best manage your money

PERSONAL FINANCIAL MANAGEMENT

MONEY MANAGEMENT

By Stephen Kiritu MwangiMr. Co-operative@Frenzyied on Twitter

Money management is often referred to as budgeting.

Managing your money is a away to map out how your money will be spent and how it is currently being spent.

Its good to start as early as possible on learning how to manage your money effectively so that you do not end up in debt or spend beyond your means.

What is Money Management

Your ticket to financial freedom doesnt lie in getting a raise (though that might help) or enlisting services of a personal financial consultant.

Your ticket to financial freedom lies in mastering basic money management.

All you need to do is to regulate your finances by logging income and expenditure, set motivating financial goals and save for a rainy day just in case e.g. your company is hit with a round of layoffs.

What is Money Management Contd

Money management is used when you are planning for a purchase.

Set aside a certain amount of money each month or week to reach your goals.


By setting a goal on what you wish to purchase you will know exactly how much money you need to put aside.

Setting financial goals is an effective way to weed out unnecessary spending.

If you have a specific goal in mind, you are more likely to set aside money than if you had no specific plans for your savings.


Determine how much money you will need and when you will need it.

Divide the total amount by the number of months until you need the money, and you know how much to set aside each month.

Short-term goals are attainable in less than one year, mid-term goals are attainable within two to five years, and long-term goals will take five or more years to reach.


An impending wedding is an example of a short term goal you can save towards.

Setting goals will keep you on track with your spending


Plan out your budget each month

Make sure to include all fixed bills such as rent/mortgage, electricity, water, airtime, etc.

These are bills you know you have to pay each month.

Subtract this from your income and you will know how much you have left.

Its important to pay these bills first so that you do not get behind payments.

Budgets

Keep all you bills in one place.

A filing system works great.

Have one file for incoming mail and another for bills that have been paid.

Note when the bill was paid and other payment details.

Its important to have a permanent record of bills and purchases on file.

The key is to stay organized and know where everything is.

Organization

Take your lunch to work daily and save eating out for special occasions.

This will reduce the amount of money you spend.

Bring your own soda or bottled water to work instead of buying.

Wasteful spending

Set aside money each payday for savings.

If you have direct deposit, have the money transferred into savings every time you get paid.

Saving is important for those emergency expenses that you had not budgeted for.

You can also use saving to plan for vacation or for Christmas holiday.

The important thing is to be prepared and know where your money is going.

Savings

Even if you feel you have job security, plan for the possibility of rainy day.

You should have enough savings in the bank/Sacco to cover at least three months of bills and expenditures.

If your income doesnt allow for you to rapidly build your savings, consider cutting back on the little extras.

Savings Contd

Financial problems can easily surface if left unmanaged.

The best way to avoid financial problems is to learn to budget money and watch spending closely.

Learning to better manage money can help save you from financial distress later on.

How to Better Manage your Money

Step 1.

Record all you expenses on paper or spreadsheet.

Categorize you expenses under areas such as rent, loan payment, electricity, water, grocery, entertainment, kids and other expenses.

This way you can keep track of how much is spent on each category and develop a budget plan.

Steps on how to Better Manage your Money

Step 2.

Review the expenses incurred each month.

If it exceeds your take home income, look for ways to reduce your spending.

Eat out less, shop for cheaper alternatives or take you children to less expensive activities.

The rule to remember is if you cant pay it with cash, you cant afford it.

Steps on how to Better Manage your Money Contd

Step 3.

Set aside some money for savings.

Financial professionals advise that the amount should be at least 10% of your pay.

If you cant save that much, every little bit you save adds up and can make a difference.


Step 4.

Buy what you need, not what you want.

If you cant afford it, dont buy it.


Step 5.

Make it a habit to check your bank, credit and Sacco statements.

Credit card companies, banks and Saccos sometimes make mistakes that cost you money.


Step 6.

Strive to own a house instead of renting.

Owning a house is an investment in your favour and renting is putting money into someone else's investment.


Step 7.

Avoid using credit cards or avoid bank loans. If you have to for major expenses, use them sparingly as possible.

Also, shop for a credit card or bank loan that has a low interest rate.

WARNING: If you cant pay up in full each month, the interest rate can creep up on you.


Step 8.

Stay away from short cuts to wealth such as gambling or get rich quick schemes.

The chances of losing or getting frustrated are much higher than success.

You just end up throwing your money away.


Step 9.

Seek a financial adviser to help you plan your finances and investments.


The End

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