How to start Money Management?
By Sanjeev Jain
Money management begins with identifying your future goals. Once you have decided on your goals, you must then create your financial plan. Financial planning is a practice that enables you to determine the money required for your current expenses, long term financial goals and retirement. To plan well, one must be proficient in managing income and expenses judiciously.
With the help of right financial planning one can ensure sufficient funds for emergencies and long-term goals. With intelligent money management, you can strike the right balance between the money inflow and outflow thereby reducing unnecessary expenditure and saving for the right objectives. You may also follow Elizabeth Warren's 50/30/20 budget rule. As per this rule, one should split the after-tax income for 50 per cent on needs, 30 per cent on wants and 20 percent on savings. How to start money management? Here are a few tips:
Prepare a monthly budget
Calculate all your monthly expenses by listing them, think of any subsequent expenditure, and calculate the sum to derive the total. Now minus this amount from the amount you earn every month. You will now be able to understand
the quantum of money left. Based on the calculation, you can exclude certain unnecessary expenses and modify the costs over other purchases to balance. Prepare your monthly budget and decide how much you'll spend and save!
Set limits for unbudgeted spending
In spite of the fact that you have set your monthly budget and spending, there will always be possibilities of the expenses on unplanned events like traveling, and or attending major events like a wedding in the family. You should, therefore, also set a limit in such events and include it in the budget for efficient money management.
Track your spending
Once you are ready with your budget, stick to your plan and at the same time keep a track on your spending. In a situation where you have extended the budget, try to identify a not so important expense and modify it so that there is no deviation from your preset monthly budget. You may also inculcate the habit of buying products at their best prices. Even small amounts saved on a regular basis can accumulate to large amounts.
Invest in saving plans or mutual funds
After planning your budget and monitoring your spending for a couple of months, you will find that your savings have started to swell. Monitor your savings and once you realize that you have saved enough to survive for more than six months with your savings in case there is an emergency kind of a situation, then you can start thinking of investing in mutual funds through SIPs or buying saving plans to manage or fulfill long term commitments like children education, marriage or paying off debts like home and car loan. You may also invest with a goal for a regular income post-retirement to enjoy a peaceful life.
Money management and proper financial planning helps you face any crisis in your life at any time. Therefore, plan your budget, limit unnecessary spending, make provision for important expenses and scale greater heights!
About the author: Sanjeev Jain is a Senior Partner at Tata AIA Life Insurance
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the author. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you.