It’s an unfortunate fact that money management skills are not taught in many of our school systems today. In fact, only 17 of 50 States require a personal finance curriculum. It’s no wonder what some many people carry debt. They simply just don’t know any better. The average American household with credit card debt has balances totaling $16,748, and the average household with any kind of debt owes $134,643, including mortgages.
The sooner you can take control of your money situation the better. How do you start if you’ve never had a handle on your finances before? Education. The good news is that financial education material is readily available and for the most part common sense. Let’s look at some basic steps to get your money management plan on track.
Have a Plan
Like any big area of your life you need a plan. Would you host a meeting with an agenda? Build a house with a set of blueprints, coach a team without a playbook? I think you get the point. Having a plan for your money is a great starting point. You don’t need to call it a budget if you don’t want to, but the simple fact is you need to know how much money you have coming in and going out on a daily, weekly, monthly basis to be successful with it.
It’s not one of those areas that you can bury your head in the sand and expect everything to be okay. Life happens, cars break, homes need repairs, children get sick, etc. So why not be prepared. Tracking receipts for a minimum of one month is a great exercise to help see where your money is flowing and identify any leaks.
Once you have your money agenda, blueprint, or playbook you can begin to move to some of the next areas.
Have a Goal
Do you have goals in other areas of your life? Want to lose ten pounds, learn Spanish, or clean the garage? Well if any of these sound familiar you should have money goals too. Are you spending money on things you value? Define your money goals and what it will take to achieve them. Often thinking of them in terms of a “Why” is helpful. I want to save more money for the goal of taking the family on vacation, but why? To spend more quality time with them and build memories.
Quality time and memories with family is much more motivating than just going on vacation. So just by shifting the way you frame your money goals to money whys them can be more meaningful and motivating to accomplish.
Debt is a four letter word for good reason. It’s a killer of plans and goals. If you have debt it’s important to prioritize its elimination. There are many ways to get rid of debt and will vary based on your personal situation, amount and type of debt. Looking up the debt snowball or avalanche method are two good places to start.
Getting out of debt gives you cash to spend in other places, save, and build wealth. It also gives you an emotional lift too. Just imagine for a minute having a surplus of cash each month. Isn’t that an amazing feeling? Like you got a raise, won the lottery, and all you did was take control of your money.
Cash is king as the expression goes. Many refer to a cash saving as an emergency fund, e-fund or peace of mind fund. Having any type of cash saving on hand even as little as five hundred dollars can help insulate you from the unexpected, and the worry and stress those things cause.
The more you can save I bet the better you feel, and the bigger unexpected event you can weather. Stop me if you heard this story before. Ever hear the one about the guy who lost his job after working for a company for 15 years, his spouse stays at home with their three children, and they have any savings.
Now five hundred dollars won’t take you far into that scenario, but 3-6 months of expenses will or better yet 1-year will. The amount of cash you decide to keep is a personal choice and level of tolerant you have for the unexpected.
Let’s just recap what Insurance is: a company or government agency provides a guarantee of compensation for specified loss. Now take the above story about the guy who lost his job and replace it with losing his life. Unfortunately we’ve all heard these type of stories too. Imagine the situation this leaves his wife and kids, or just reserve it, what if the wife passes away. Who cares for the kids? Proper term life insurance insulates you from all this.
It takes the money question out of a tragic event like this and gives you time to grief, heal and put your life back together. The last thing you need when dealing with the unexpected loss of a loved one it to add money stress on top of it all.
As you can see many of these money management steps are intertwined. Developing your plan, gives you an understanding of home much debt or surplus cash you have for things like savings or insurance. The sooner you can start the better, one to protect yourself from the unexpected, two, to reduce stress related to money and three, to start working towards your why.
Brian is a Dad, husband, and an IT professional by trade. A Personal Finance Blogger since 2013. Who, with his family, has successfully paid off over $100K worth of consumer debt. Now that Brian is debt-free, his mission is to help his three children prepare for their financial lives and educate others to achieved financial success. Brian is involved in his local community. As a Financial Committee Chair with the Board of Education of his local school district, he has helped successfully launch a K-12 financial literacy program in a six thousand student district.