Managing finances is something everyone begins to learn at some point in their lives. Perhaps for you, it was when you were a child putting coins in your piggy bank to save for a coveted toy. Alternatively, maybe it was as a teenager when you got your first part-time job working for the local market and your parents made you set a portion of your earnings aside for college.
As your life becomes more complex financially, meaning you have a full-time paycheck and bills piling up, the need for understanding how to manage your money properly is thrust upon you, and if you’re not careful, you’ll find yourself falling behind.
If you’re wondering if you need financial management, here are seven signs that you do.
1. You’re Earning Money
Once you have a job that pays you money, you need to learn how to manage it. You may still be living at home, and you may be lucky enough to have few or no bills, but this is the perfect time to begin learning what you should be doing with your money, even if you’re only saving a little. Your older you will thank you.
2. You Have a Bank Account
These days, it’s nearly impossible to be an adult without a bank account; many employers require one for direct deposit of your paycheck, and many rental properties require that you show proof of an account. Putting your money in a bank is one of the safest ways to make your money grow.
3. You Have Bills
If you’re receiving monthly bills such as utilities, phone, and rent, then you need to be able to calculate your expenses and not accumulate more bills than you can afford to pay.
4. You’re Saving for a Goal
It could be something far away like retirement, something a little far away like a house, or something you need sooner like a car. All three take strategic financial planning if you’re going to reach them.
5. You Use Credit
Most people use credit when buying a car or house. However, using credit cards is much riskier; and, if the balance isn’t paid off in full each month, then that balance being carried over every month can quickly get out of control.
6. You’ve Started Investing
Most people begin investing when they get their first job that offers a 401(k) retirement account. It’s good to know how this works and where your money is going if you want to have a nice, fat nest egg when you reach retirement.
7. You Start Paying Taxes
Everyone needs to do it. According to the IRS, nearly 80% of tax returns in 2016 resulted in a refund. It’s great receiving a bonus check every year at tax time, but it’s not a windfall; the IRS was merely holding money that was already yours. Your withholdings are such that you’re overpaying your taxes with each paycheck and essentially loaning it interest-free to the government. You may rely upon the government to hold onto this money for you, but it would be better spent paying down credit card bills or earning interest for you in the bank.
What’s Financial Management?
You have money coming in and you need to control where it goes. Managing your finances can be divided into four main actions.
Following a budget doesn’t necessarily mean pinching every penny. It simply means that you’re being careful not to overspend by setting limits. Those limits are dependent upon how much money is available to spend while still allowing yourself to have money to save, pay bills, and invest.
It’s important to put money into a savings account even if you don’t have much left over after you pay your bills. A little money will add up over time. Few people have an emergency fund set up (six month’s salary is recommended) in case they lose their job or become ill or injured and can’t work. If you can swing it, put money into both an emergency fund and a savings account, but if you can’t, get that emergency fund funded first.
When contemplating a purchase, ask yourself, “Is this a ‘need’ or a ‘want’?” While it’s nice to buy some “wants” now and then, you should try to stick mainly with the needs if you’re going to keep control of your spending.
Keeping a close eye on your credit card statements is not only good for spotting fraudulent purchases, it also helps you to see where you may be overusing your credit cards and can find areas to improve.
It’s never too early to learn how to manage your finances. By keeping a watchful eye on where your money comes from and where it’s going, you can avoid the pitfalls that come with not paying attention to what happens to your finances. Keeping control over your money can help you avoid getting into credit card debt and give you the tools you need to have a secure financial future.