What is Successful Money Management?
Let’s begin by defining “manage”. To manage, is to take charge, or care of. It also means to handle, to direct, to govern, or to control, in action or use.
I will simplify it, to handle and control. Therefore ” Successful Money Management ” is the proper handling and control of your Money.
When researching money management, it quickly becomes apparent why many people, especially at the High-School Level of education, have so much trouble managing their money.
They do not have a working knowledge of the vocabulary and terminology. Managing the money you earn, is one of the most important skills you can master. This is not a question of choice. This is an essential survival skill.
Why is money management so important?
The word money is resting under a bad cloud. Is it any wonder that many people are struggling with money?
The long and the short of it is, that we receive little to no instruction, on money management during our entire educational lifetime, therefore, we are left with only two choices. We learn about money from our parents, or we must learn about it by ourselves, often the hard way.
Our Elementary and High School years are filled with subject courses, on everything and anything, that is of little to no value. Rarely are we ever offered a serious or productive thought, on how to manage money wisely.
It’s always better to learn something the easy way. This is why I am including this series of posts on money.
It is just as important to learn how to manage the money you earn, as it is to learn how to earn the money itself.
The general consensus is that if we earn more, life gets better. This is generally true, but if you cannot manage small amounts of money, you will most likely not be able to manage larger amounts.
We simply have to look at the Credit Card issue to prove this case. The higher the credit limit, the higher the debt we accumulate. Credit cards are not money you have, they are debt you accumulate.
If you are not able to pay the full balance at the end of the month, you are headed for trouble.
If you use them wisely, and what they were intended for, then they are your friend.
No need to carry cash, tap or swipe, and done. Seems almost painless, until the monthly statement arrives.
My Simple Formula on Money Management
I, like many others, struggled for years with managing my money. For some crazy reason, I had forgotten to use the Arithmetic that I had learned in Elementary School, and that was simple Addition and Subtraction.
Add all your monthly income AND … Subtract all your expenses.
Sounds easy, and it is. This is the most basic of all money theory. You must learn to spend LESS than you earn. This is why we need to keep a very close eye on our money. Forget your feelings about money. Money has NO feelings. It only understands and reacts to Mathematics.
The money problems begin much earlier than people realize. They begin with feelings. Thoughts and ideas of why we need things we cannot afford. Unless the purchase is for a medical or other such emergency, the rigid rule of thumb is, if you cannot afford it, … don’t buy it.
I’m not suggesting that you should live like a hermit in a mountain cave, however, you should always ask yourself WHY, you are purchasing a $9.00 coffee that requires 10 words to describe it to your barista, if you are struggling to pay your bills at the end of the month.
Five Terms that you Must Understand
There are books full of “money terms” that you must learn to effectively manage your money. These five are a good starting point, to begin your journey.
These 5 terms belong to the world of accounting and bookkeeping. Maintaining a household for the well-being of a family is a simple process that has to be understood and adhered to. Without a proper recording method of income and expenses, there is little hope of financial stability.
Everyone can define Income and Expenses. Assets and Liabilities make the game more serious, and if you throw in Bookkeeping, engines begin to stall and slow down. Successful Money Management requires an extensive vocabulary on money and how it behaves. It is a skill learned, like riding a bike or riding a car.
Income refers to all the monies you earn, or bring-in, in a specified period of time. Income is the wages you earn at your job, the interest you aquire on money you have in a savings account. It even includes the $12.00 you won in the weekly lottery, although I would not recommend playing the lottery as a means of gaining financial independence.
Expenses are all the items that you have to pay for, usually, on a monthly basis.
Examples of household expenses are;
- eating out,
- phone service, landlines and cellular service,
- cable tv,
- medical bills,
- drugs (the legal kind),
- dental bills,
- car payments, car insurance, gasoline for the car, money for car repairs,
- and all other expenses that you accumulate in your day to day activities …
Bookkeeping is the recording of financial transactions. This action is performed on a daily basis in most big businesses, but it is not a daily activity in a household, except perhaps for the safe-keeping of purchase and credit card receipts. This varies from household to household.
Bookkeeping is keeping track of what you earn and what you spend. This is the easiest way to describe it.
A simple definition of asset is the value of ownership that can be converted into cash. Cash itself is also an asset.
Assets are things you own that can be converted into cash.
Liabilities are monies you owe to others.
A car loan or a personal loan are liabilities. So is credit card debt.
Adding It All Up
To sum it all up, you do not need to be an accountant or an economics major to successfully manage your household finances, but you do need some knowledge of money to stay out of debt.
From there, you can learn how to make money work for you. There are many ways to learn about money management and these are my two favorites.
1. Educate yourself on the subject of Money
This means reading books, magazine articles, and web posts such as this one. Learn to appreciate money’s role in our society.
Like it or not, it will still be here tomorrow, and perhaps long after you and I are long gone.
2. Hang out with people that understand Money and are willing to help you Learn how to Earn it and Manage it.
These people will be your teachers and mentors. They have been there, done that, got the T-shirt. If you are a millennial or of that age group, that is boomer talk, for experience.
Educate yourself about money.
Educate yourself about YOUR money. If you don’t, who will?