Financial management is important if you want to improve your personal finances. It encourages you to be organized and to be in control of your monetary transactions. When you practice proper management of your money, you get to make better decisions. You are more aware of your finances and that gives you an idea about how every decision will affect your financial position.
Some people are hesitant to implement financial management because they feel like it is too much work. The truth is, it will be hard at first. After all, you may have to change a lot of habits along the way. But as you keep on practicing them, you will realize that it gets easier. You just have to start the change.
How can you improve your financial management skills
One of the reasons why you need to implement money management skills is to keep yourself from wasting money on unnecessary expenses. An article published on BusinessInsider.com discussed a tip given by David Bach, a known financial adviser. The author of “Smart Couples Finish Rich” calls the money wasting habit as the “Latte Factor”. Apparently, we cannot avoid passing up on those little expenses because we are not aware of their real weight in our finances. What we do not realize is that the little things add up. He advised that to get rid of this, we need to go through a 7-day financial challenge wherein you will track your spending.
He only gave two simple steps – write down everything and to be honest about it. Bach said that by doing so, you can identify the areas that you are wasting your money on. After identifying them, you can decide how you can take your financial situation to the next level. That is how you can begin improving your money management skills.
Inspired by this method, we have come up with 6-steps that you can follow to help you get started in revolutionizing your financial habits.
- Spend as usual for the next 7 days. This is very important. Do not try to change your habits just yet. If you do, you might not be able to identify what is wrong with your current habits. Just be honest with what you want to spend on and do not rein in just yet. That will happen in good time – just not now.
- Write everything down. For the next 7 days, carry a small notebook around and write down every expense that you make. Do not leave anything out. You can also use an app on your smartphone if you do not want to carry around a notebook. Note every penny that you are spending on even if it seems embarrassing to record what you have just bought. This is where your honesty will kick in. Do not shield yourself from the reality of how you spend. This is how you can correct the wrong habits – if there are any.
- Analyze what you have spent on the 8th day. This is when you will be forced to face the reality of your spending behavior. Take careful note of what you spend in the morning, afternoon and evening. Tally the expenses that you think are necessary and those that are not. Separate the food costs, transportation and other expenses that you think can be categorized. Once you have done this, you can proceed to the next step.
- Discuss your expenses with someone. Sometimes, we are blinded by our wants that we tend to justify even the wrong expenses that we make. This is why it is beneficial to have someone else look at your expenses to tell you what they think is wrong with it. You can talk to a trusted friend or a mentor. Not only will this help identify the errors that you are trying to justify, it will also give you a sense of accountability. You will try to succeed because someone knows about what you are trying to do. You can even use your friend or mentor as your support system to help you through the difficult phase of changing your money management skills.
- See what expenses you can eliminate. Getting someone else’s opinion will give you an idea what you may be missing from your expenses. It should now be easy to identify the expenses that you can stop spending on – no matter how difficult it may be. Check out the total amount that you spend on the unnecessary expenses and you will realize just how much you are wasting each week. If you divide that by 4, you will have an idea how much you are wasting each month. Multiply that by 12 and you will see how big of an amount you waste each year. That should be an eye opener for you. Once you make this realization, it should be easier for you to identify the expenses that you can eliminate.
- Put the freed money to good use. Whatever expense you eliminate can be put into good use in your budget. As long as you can discipline yourself in your spending, you can be assured to have this amount in your pocket. You can either save the freed amount or you can use it to pay off your debts. The choice is yours. In an article published on USNews.com, Jeanette Pavini, a savings expert from Coupon.com said that to be financially successful, you need to spend less and start saving more. She mentioned that it does not mean you will live miserably. She said that you simply have to put aside even a small amount – it will all add up.
Signs you are a great manager of your money
The road to improve your money management skills will not happen overnight. It will take some time so be patient about it. If you make a mistake, forgive yourself and move on. After that, you need to promise yourself that you will not make the same mistake again.
While there are signs that you have bad financial management skills, there are signs that you are actually good at them. Here are the signs that you have improved your money management skills.
- You can stick to your plans. FInancial management is all about discipline and self control. It is not enough that you can create a plan. What is more important is sticking to that plan and following it no matter what. If you can see that this is a habit that you have mastered, then you have improved as a manager of your own finances.
- You do not feel stressed about your money. A survey done by the American Psychological Association and published on APA.org revealed that the leading cause of stress is money. It is something that plagues people regardless of how much they are earning. This stress is said to have a negative effect on the health and well-being of individuals. When you know how to manage your money wisely, you do not have to stress about your finances. Stress is something that you feel when you know that you do not have control over your finances. But since money management teaches you to be in full control of your money, then stress will not have any room in your life. Or at least, there will be less of it.
- You educate yourself. Being a good money manager means you have to know how to take care of your money. That means updating yourself about how you can best manage your finances. You are not content on what you currently know. You are always seeking to update your methods to find out if there is more that you can do about it.
- You make savings automatic. Another sign that you are good at money management is when you can make saving automatic. Some people think about what they can buy or enjoy today every time they put aside money. This practice makes saving painful. When you are a good money manager, you know how savings can improve your life. That makes saving a lot easier to handle.
You see, money management does not only help you get your personal finances under control. It has the power to improve your overall way of living. There is no way that you can lose financially as long as you can manage it well. Even if you make a mistake, it becomes easier to bounce back from it.