Learning to manage your money well is probably the most important financial skill that you can develop. It does not really matter how much you earn. Sometimes, people who earn a 6-figure income still struggle with their finances because they do not know how to manage it well.
The key to being financially successful is to learn and implement personal finance management properly. Believe it or not, you can earn the minimum wage and still be free from financial worries. The amount of money that comes in is irrelevant. While earning more will make success easier, it is not a guarantee. You can take home a huge paycheck but if you cannot control your spending or you suck at tracking where it all goes, you will still feel like you are living from paycheck to paycheck. You can still drown in debt and end up declaring bankruptcy.
If you really want to take your net worth to the next level, you have to learn how to manage your money properly. According to a study published on CNBC.com, the average credit score in the country is 668 – which is considered to be fair. However, the study done by WalletHub revealed that one out of four adults fail to pay their bills on time. The same study mentioned that the places where there is a low credit score average showed a lack of exposure to personal finance lessons. People fail to manage their money well because they are not taught how to do it.
Fortunately, you do not have to spend money just to learn how to manage your money the right way. There are free tools and articles online that will teach you how to do it. All you have to invest is your time and dedication to improve your knowledge about financial management.
7 signs that you learned to be a smart money manager
Sometimes, money management skills come in naturally while in other cases, it has to be developed. If you really want to find out if you are a good manager of your money, here are 7 signs that you need to look for.
You have a budget.
The first sign of being a good financial manager is having a budget. This is the most basic tool that will help you manage your money. A budget plan will allow you to see your income and expenses. You can make financial decisions based on this data and you can be near-accurate when it comes to determining if you are financially capable or not.
You make sure you pay the best value for your money.
Another sign that you can manage your money well is when you have the habit of getting the best value for your money. This means you do not buy impulsively. You approach spending with a plan in mind. You compare prices, wait for discounts, etc. You do not buy without making sure that you are getting your money’s worth.
You plan for major expenses.
Planning for major expenses is another sign that you are a good money manager. Impulsive buying is not really a healthy financial habit. It is a behavior that can easily put you in debt. So if you want to manage your finances well, you need to plan for big expenses – and other major financial decisions. You have to know where you are getting the money. If the expense can be done in the future, you can save up for that expense little by little. This will help you avoid debt and will keep your finances secure.
You limit your credit spending.
The way you use credit will determine how well you can manage your finances. A great financial manager knows how to limit their use of debt. You do not depend on it to pay for monthly expenses. You only use it when necessary – and when it will open an opportunity for you to grow their finances. You understand that you do not really need to eliminate debt. It can be a useful tool to grow your finances. However, you need to know how and when to use it.
You track your spending.
Tracking your spending is a great way to ensure that you will not go beyond your income. Most people end up in debt because they spend more than what they are earning. Obviously, if your expenses are bigger than your income, the difference will be borrowed money. If you want to make smarter spending choices, you have to make sure that everything that you spend on will be tracked. This is one way for you to check which ones are necessities and which expenses are not really needed.
You allocate money for entertainment expenses.
This may come as a surprise to some people. Believe it or not, a good financial manager is one who knows how to budget for entertainment expenses. Although this is not really something that you need to survive, it will help make your life worth living. Spending on something that you love to do, like a hobby or passion, will increase the positive experiences in your life. According to the data from the BLS.gov, the average American household spends $2,482 on entertainment each year. This is a little more than $200 a month. Surely you can include this in your budget no matter how tight it is.
You saved for an emergency fund.
Finally, the last sign that you can manage your money well is when you have saved for an emergency fund. Take note the past tense – saved. This means you have reached your fund target and you can maintain it despite the unexpected moments when you are forced to dip into it.
When you see all of these signs in your financial habits, then you can proudly claim that you can manage your money very well.
Benefits of managing your money well
You may be wondering, why do you need to manage your finances well? There are several benefits to the effort that you will exert to get your finances in order.
- You can easily make decisions. Managing your money well means you have a clear picture of your finances. This knowledge is the key to help you make better financial decisions. You can easily determine if you can afford to buy something or not.
- You can avoid making mistakes. In connection with the first one, your ability to manage your money will help you avoid the mistakes that you could ruin your financial stability. It can keep you from borrowing too much money that you can no longer pay it back. It keeps you from spending unnecessarily on things that are not really important.
- You can plan for the future. Since money management gives you an understanding of your financial situation, you are in the best position to plan for your future. In fact, there are financial plans that you can actually use in your money management efforts. These are the very same plans that will help you with all your financial goals.
- You can reach your goals. Your ability to plan for the future will provide you with the steps that will help you reach whatever goal you have set for yourself. You can easily monitor your progress to see the habits and behavior that will help you meet your targets a lot faster.
- You can set a good example. If you have kids, you can teach them to be great financial managers by example. If you can manage your money wisely, they will take note of that as they grow up. Your financial decisions and behavior will be copied because, in all honesty, they will get their first lessons from you.
- You can minimize money stress. Probably the most important benefit of managing your money well is the fact that you can minimize the stress that you feel about your money. You do not have to worry about where you will get the money because you know exactly where it all goes. According to an article from APA.org, money continues to be the top reason why Americans feel stressed about their lives. We all know how stress can lead to a lot of problems – especially health issues. You have to avoid stressing yourself out and the best way to do that is to manage your money well.
