When it comes to managing people in an office environment, most human resources professionals advocate finding a middle ground between hard-nosed discipline and commiseration. You won’t get your employees to produce their best work, the thinking goes, if they’re either constantly living in fear or think that you’re too much of a pushover to take seriously.
Managing money is a different story. Obviously, your cash on hand, credit facilities, overall credit score, physical assets and the other things that comprise your financial identity don’t have agency and can’t think for themselves. In fact, sometimes it seems like they conspire to act against your best interests. You need to treat them as such, maintaining an iron discipline over your financial resources and letting it be known to the world with an ever-improving credit score that you have know how to manage money.
If you’re like most people, your introduction to money matters may have involved a token weekly income from your parents or a menial first job that may have been a lot of fun but probably didn’t pay very well. You no doubt received some advice about how to manage your income stream from the older role models in your life, who may have encouraged you to save a portion of your take-home each week and use the rest for sensible purchases.
Whether or not you listened to their advice, this may be as far as you’ve gotten along the road to learning how to manage your money properly. As your income has increased, you’ve been able to afford more and perhaps build a significant savings cushion. Then again, you may also have bitten off more than you could chew somewhere along the line. Fortunately, you can correct virtually every money mistake that you’ve made in the past.
You have to spend money to make money, as they say, but first, you need to save a little too. Exact figures differ depending on who you’re asking, but 5 percent of each paycheck is a good starting point. Set this amount, or more if you’re comfortable doing so, into an interest-bearing account like a flexible CD or high-yield savings vehicle and don’t touch it unless there’s an emergency for which you can’t afford to pay out-of-pocket.
Better yet, set a medium-to-long-term goal for what to do with this savings cushion once it’s grown to a pre-determined size. It might be frustrating to set aside a decent proportion of your disposable income, but learning how to manage your money involves self-discipline as well as financial discipline.
Draw up a budget for the money that you have left. Although many of your monthly expenses, like utility bills and fuel costs, are more or less fixed, it’s possible to reduce these costs right off the bat by adopting some simple, painless lifestyle changes.
You probably can’t ditch your car and walk or bike yourself and your family to work, school and wherever else, but you can cut out unnecessary trips by planning your weekly errands ahead of time and setting aside an afternoon to take care of them all in one fell swoop. Depending on where you live, you may also be able to walk or bike to a neighborhood grocery store to pick up last-minute essentials. Look at it this way: If gasoline costs $4 per gallon, you’ll save $16 per week on fuel for your 25-mile-per-gallon vehicle by cutting 100 miles from your weekly driving schedule.
The same foresight and discipline applies to your utility bills. Running only large loads of laundry, turning off lights and appliances when you’re not home, and even unplugging electronic devices like cell phone chargers and computers when they’re not in use can slash your monthly bills and free up serious money for you to spend on more important things.
Some of your fixed costs may require no lifestyle changes at all, just a little swallowed pride. Unless your car or cars have been paid off completely, there’s an elephant sitting in your garage. By itself, the principal on your car loan drains hundreds of dollars from your bank account each month, and your interest rate may be embarrassingly high if your credit score is less than perfect. Factor in in the cost of insurance, which is invariably more expensive if you have a nice car or any major blemishes on your driving record, and the allure of owning a big late-model behemoth starts to fade.
You don’t have to downsize to save money on transportation. Most car dealers are only too happy to trade your late-model car for a similar five-year-old model that runs just as well. In fact, they’ll often cut you a deal on the cost of the new vehicle because they know that they’ll be able to mark up the price of your trade-in.
If you’re in the market for a new car anyway, consider buying a “pre-owned” vehicle from a reputable dealership. These cars tend to be two to five years old and are guaranteed to be free of the sorts of aesthetic defects and hidden mechanical issues that plague the private used-car market. Since they’re worth less, they’ll also be less costly to insure.
The recent financial crisis and the ensuing collapse in home values shook the uniquely American dream of home ownership to its core, and it hasn’t yet recovered. Public reticence to sink great deals of money into homes or condos that may continue to depreciate in value has driven rents in most cities to historical highs. If your employer asks you to move around a lot, your living situation is temporary, or your finances are tenuous enough that you can’t afford a down payment on a home, renting may be your best option.
Then again, mortgage rates are lower than they’ve ever been, and banks and credit unions are slowly beginning to open up the lending spigot once more. As long as you plan on staying in your house for five years or longer, buying a home is generally more prudent in the long run than renting. Taking out a mortgage and making your monthly payments on time is also great for your credit score, meaning you’ll find it easier over time to take out auto loans or obtain starter capital for a new business.
No matter where you live, you’ll have to furnish it and keep its pantries stocked. Rather than using your credit card to rack up a stratospheric tab at Ikea and buy expensive brand-name groceries at your local health food store, avoid overspending by using cash in day-to-day situations.
You can break out the credit card in an emergency, like a breakdown or unforeseen trip to the doctor’s office, but make sure you can pay off the resulting bill before you begin accruing interest. Even the most lenient credit cards come with double-digit APRs, and the penalty interest that kicks in after you miss a payment can be devastating.
With so many tools and tricks out there, the process of learning how to manage money is ongoing. It won’t be easy, but you’ll thank yourself in the future if you can maintain your discipline and do your best to make smart financial decisions now.