3 steps: How to Manage Money

Getting your first pay cheque is a heady feeling but after you’ve splurged on a few of the must haves, gone out for a nice meal and bought treats for yourself, what do you do with the rest of it? How do you manage your money? Gaining financial security and independence will set you up for life, so managing your money right from the start is key. The good news is it’s never too late to begin – here’s 3 things you can do to manage your money right.

how to manage money bills thepersonalfinancepros

1. Meet your immediate needs first

Note I said “needs”, not “wants.” A new Prada handbag or a fresh pair of Onitsuka sneakers are “wants”, not “needs.” Focus on making your money meet your immediate needs first – rent, food, utilities, transports, loan repayments – then figure out how much of your pay is leftover. From that, pay yourself and set aside 10% of whatever is left over into a savings account – even if this is $10, put it aside in a high interest savings account. The beauty and power of compound interest will help to grow that money into something substantial over time if you’re disciplined about putting the money away.

Anything left from that is your disposable income which you can put towards a splurge like a new handbag or shoes.

Making sure your immediate needs are taken care of is the first step to taking control of your money. Once you feel like this aspect of your life is under control, you’re better placed to start thinking about your longer term goals – such as going back to school, travelling, or getting married.

how to manage money financial security thepersonalfinancepros

2. Master your cash flow

What’s the difference between cash flow and income? If you freelance or work shifts, you’ll have to manage money carefully and ensure that you have sufficient cash flow at a particular point in time to smooth out the highs and lows of feast and famine. It’s essential that you have a good idea of your income and expenses – not just what you’ve earned and spent, but what’s coming up, especially over the next 3 months so that you’re not sidelined by a car servicing fee, or the quarterly over-winter gas and heating bill. The easiest way to master your cash flow is to make a list of all your fixed expense over the course of a year and make sure you’ve built up enough cash savings before the bills are due. You can estimate how much you may owe on a utility bill by comparing it to what you actually paid the year before.

how to manage money growing money thepersonalfinancepros

3. Invest early

Saving is the first step to investing – without some money put away you will be unable to invest, and without investing you will be unable to grow your wealth. Investing doesn’t have to be complex. If you have extra savings, open a high interest earning account, and deposit your money. Congratulations, you’ve just invested.

Look for as high an interest rate as you can, but remember that if you need access to your cash not to invest in term deposits.

If you are able to put some savings away, the power of compound interest will help grow it over time. Other investments include shares, bonds, even real estate, but at its simplest, investing can be just the interest rates on a cash account. When you’re starting out, never put your money in any investment you don’t understand and be wary of any schemes promising a “sure-thing” or guaranteed returns. There is no such thing as a fast buck, and you’re better off growing your money slowly and surely especially at the beginning of your money management journey.

2 thoughts on “3 steps: How to Manage Money

  1. I know so many people who have no idea how to manage their money, and it makes me incredibly stressed! I guess as someone with a casual income, I have to be so disciplined to make sure there will be enough each month to pay bills & build savings. I’ve just started investing in stocks through Acorns- I guess building that is my next step!

    Like

    • Hi Abbie, Thank you for your comment! Thinking about money can certainly be stressful. It’s part of the reason why Peggy and I wanted to start writing a blog about personal finance. We thought we could show the lighter side and make it simpler to plan. I like that you’ve made a start. Even something as simple and innovative as Acorns. We’ve learned through our experience, that the small things compounded over time can add up to something big. We’d be interested in hearing how you go. When did you start with Acorn and what has been your experience?

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s