Managing money isn’t as easy as falling off a log, but it is simpler than many folks believe. Even the experts like this simple definition of money management: using what you have to get what you want.
No one promises that if you manage your money you will be able to have everything you want, but it is clear that if you manage money well, you will be more likely to have the things that are most important to you. You will be in control of your money.
Based on the definition, it is clear that the first two steps in managing money are:
1) knowing what you have, and
2) knowing what you want.
These steps require some thought, and should involve consultation with other family members as well, so that everyone’s needs and wants are considered. After you have explored these two items, the next step is a budget.
Make a budget. The word “budget” is an important word with an undeserved bad reputation. A budget is simply a spending plan. It is your plan for how you want to spend your money.
There are people who think of a budget as an obstacle that makes your life difficult or unpleasant; usually these are people whose experience involves someone else making a budget and telling them to follow it. A true budget is a plan that you make yourself so that you will have enough money for the things you want. Once you give it a try, you’ll find that a budget is not something to dread; instead it is a useful tool that can actually help you relax, knowing your finances are under control.
To work well, a budget should be written down. Since most bills come once a month, it usually makes sense to do a budget for a month. If you get paid weekly or bi-weekly, you may need to plan for each paycheck, but always work at least a month ahead so you can plan for all your bills. Read about the three basic steps in making a spending plan.
Follow Your Plan. Once you’ve made a budget, the next step is to follow it. By using your income according to your plan, you will get the results you wanted.
In order to follow your plan, you need some type of system to help you control how you use your money. Without a system, you may find that despite your good intentions, you accidentally spend more money than planned in some categories. As a result, you won’t have as much as you wanted for some other categories, and you won’t get the results you were hoping for. Several different systems are available for controlling your spending --choose one that fits your style.
Revise and Improve Your Plan. After following your plan for a month or two, you may find that it isn’t quite right. You may find that you didn’t plan for enough money for some categories, and you may also find that you planned more than you need in other categories.
Remember – this is your plan, so you can change it (together with your family) any time you wish. In fact it would be surprising if you didn’t make some changes after trying out your plan for a while.
Your family’s needs and wants will change as your life changes. Review your plan every year to see what changes are needed. You should also review your plan any time you have a significant change in your life – new job, new home, changes in who lives in your home, etc.
Even as things change, however, the basic process stays the same:
- Know what you have and what you want;
- Make a plan;
- Follow the plan;
- Review and revise for the future.