Money management essentials
Money Management Essentials: Four Simple Tips
When managing your money day-to-day, do you find yourself asking:
- Will I have enough to pay this month’s bills when they are due?
- How do I keep from overspending?
- Where did my money go?
- How can I find money to save?
Four tips that can help you map out a practical plan to meet your regular financial needs so there’s enough money when you need it.
Know when your income is coming
Understanding the timing of deposits into your checking account, such as your paycheck or benefits, is an important first step. For some people, income amount and frequency are consistent (for example an employee who receives a paycheck for the same amount every two weeks). Others may have an income amount that varies widely, and is not received at regular intervals.
Know what bills you need to pay
A good starting point is to create a list of when your recurring bills are due each month – rent, utilities, car payment, phone bill, etc. Compare these due dates with the income flow you identified in the first step. Plan how much money you need from your deposit(s) to ensure you can pay your bills during the month. Some creditors and service providers may allow you to change the timing of your billing due date. This can be a great way to help align your expenses and your income.
Know what you are spending
After the monthly bills have been accounted for, identify your everyday non-discretionary and discretionary expenses. It may be easier to think of these as your “needs” and “wants.” The best way to get a handle on this is to look at your spending for a few months. Non-discretionary spending includes expenses you need but may have room for flexibility, such as groceries or gas. Discretionary expenses include things you want, but don’t necessarily have to have. If you are having trouble meeting bills in step #2, discretionary expenses are where to look to tighten your spending to free up money (for example expenses such as movies, clothes, hobbies, eating out, etc.)
Know your saving strategy
The ultimate goal is to manage the first three tips so that your expenses do not exceed your income. As a first step in building savings, you should leave a “cushion” in your checking account in the event your spending is higher than expected (for example a utility bill that is higher than usual). Second, you need to build emergency savings, typically equal to three to six months of your monthly expenses, to help cover unexpected expenses (for example a car repair). When you have an emergency savings account, you may want to move on to building your savings for future goals such as buying a new car, traveling, or paying down debt.
Getting comfortable with these four tips may help you meet your monthly bills, have a good handle on where your money goes each month, and build a solid plan for meeting future financial goals.