5 Steps to Manage Your Money
Do you manage your money or does your money manage you? If your money manages you, it doesn’t have to be that way.
Let me assure you right now that you have the power to manage your own money. It will take some work, but if you really want to be in control of your money you can do it!
Are you tired of living paycheck to paycheck?
Are you tired of being in debt?
Do you want to have enough money on hand to buy a big ticket item?
Do you want to have enough money to take a nice vacation?
Do you want to save for retirement, but there’s no extra money at the end of the month?
These are just some of the reasons that people decide that they are tired of their money managing them. They want to be in charge of their money.
You can Manage Your Money
I have some great news for you! You can manage your money.
You can make changes that will positively impact your financial well-being right now and for in the future. Some of the changes will be small. Others will seem huge, but you can do them all.
Just in case you are thinking this is another post about living frugal, let me assure you that being frugal can be a part of money management. But it is NOT what managing your money is all about.
Managing your money is about you choosing where your hard-earned dollars go – each and every day. It’s about using your money for the things that you value most.
Perhaps right now you are in a money rut. You just don’t feel like you can get ahead. It doesn’t have to stay that way.
Follow these 5 Steps to help you make changes that will help you manage your money.
Step 1: Mindset Shift
The first step is for you to make a Mindset Shift. Spending money is not going to make you happy. It may in the short-term, but not for the long-term. On the other hand, spending your money wisely, in a way that agrees with your values, can add to your happiness.
Think about the last couple of times you spent money for an item of clothing (dress, shirt, etc.) and ask yourself these questions:
* Did you really need it?
* Do you wear it often?
* Or is it just taking up space in your closet?
* Do you wish you hadn’t bought it?
* Would you rather have that money in your pocket?
If you can change our mindset about money you are well on our way to making some big changes in your spending habits.
Step 2: Practice Discipline
The next step in managing your money is to practice discipline in your spending. Yes, discipline applies to our money habits.
We use discipline all day long for so many things in our life. We comb our hair and brush our teeth before we leave our house. We don’t eat sweets for every meal of the day. We drive our cars on the correct side of the road.
You may think of these as habits, but discipline is at the root of these habits. Discipline is required to make and keep a habit.
If you wish to manage your money instead of your money managing you, then you will need to learn to use discipline with your money.
Step 3: Track Your Money
Now it’s time to get to work. You need to know exactly where all of your money is going right now.
In order to do this, you will need to track every single penny. Why don’t we go ahead and start with one month.
Track your money for one month. There are so many different ways of doing this. It doesn’t matter which way you choose. What’s important is that you track every.single.penny. You want to know exactly where ALL of your money is going.
Step 4: List your Irregular Bills
Typically we have bills that are not paid every month. Examples include a bi-yearly real estate tax bill, or quarterly car insurance, or even propane that is delivered every couple of months.
Write down every bill that you need to pay during the year that is not something that you pay every month. Be sure to note the month that it needs to be paid.
We talk more about Irregular Bills and a better way of preparing for them in this post.
Step 5: Create Your Budget
This is where you get to start making some new choices.
First, determine what your income will be for the month, after taxes. Write that number down.
Now look at your one month’s tracking of expenses. How much did you spend in each category?
Create a list of just those categories and amounts. Are they exactly the same as the amount you wrote down for your income?
If not, you’ll need to spend less in some of those categories next month. Decide which categories you’ll spend less in. Write it down.
Are any of those irregular bills you listed due this month? If so, you’ll need to add them to your expenses list and adjust your other numbers again so that the total of the expenses list is exactly the same as the income you’ll be bringing in this month. There is a better way of handling irregular bills, but since you are just starting the budget process, this is where you’ll need to begin.
Stick to your Budget
Do your best to stick to this budget for the next month. Many people like the Envelope System as they adjust to sticking with a budget. You can also simply write down each category on a sheet or two of paper and write down the expenses in each category as you go through the month. There are also several online budgeting programs that you can try. Use whatever method works best for you. Preferably find a method that you enjoy using – you don’t want budgeting to be a big ugly chore, so do what you can to make it fun for you.
Just like before, once you start living with your budget, you’ll be tracking every single penny. This is how you’ll know how well you are sticking to your budget.
That’s the whole purpose of creating a budget. When you live within your budget you are managing your money instead of your money managing you.
Fine Tune Your Budget
There are so many things you can do with your budget once you get the hang of using one. You’ll always be fine tuning it. Here are just a few things that you may want to add to your budget:
- A vacation fund
- An emergency fund (highly recommended)
- A fund for a large ticket item
- Pocket Money (slush fund)
- One-time purchases (i.e. beginning of school year clothing & supplies)
We’ll continue writing posts on managing your money and will be preparing some printables along the way.
There are so many different areas where you can cut your expenses as well as ways of bringing in some more income. I can’t wait to share them with you.
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I’d love to hear how your managing your money efforts are going. Please share your comments, ideas and questions in the comments section below.