For some of us, money management seems scary, complex and complicated. Thus, we tend to avoid it until something serious happened and we have no choice but to face it.
Don’t wait till your money spirals out of your control. Money management is not that difficult, it just needs consistency.
Here are 5 golden rules of money management:
1) Spend less than you earn
We all know this is the most basic part of money management. If what you spend is less that what you earn, then you’re in the safe zone. Try overspending for one or two months as a challenge, and you’ll know how difficult it is to make it back to black. It can be extremely painful to find that extra money to pay for the overspent amount. So, make sure you always spend within your means.
2) Pay yourself first
Always pay yourself first when you get paid so you’ll have to adjust your budget according to the remaining 90% of your income.
Take about 10% of your monthly income and deposit this into a separate bank account for savings.
Do not touch this savings unless it is an emergency. Make a short- or long-term plan for this savings – such as deposit for a car, down payment for a house, wedding fund, or retirement fund.
3) Avoid bad debts
Bad debts are frivolous debts that are high in interest and do not bring you any returns, such as credit card debts. I know it’s hard to overcome the temptation to spend using your credit card but, if you spend future money by swiping your credit cards, it will take you at least twice the effort to pay it back, and it will cost even more to clear your balance. Always use your credit card prudently.
4) Grow your money
Once you’ve built up some savings, learn to grow the money. Try with some investment products such as unit trust. Do not invest all in one go, and do not put everything in one fund. Like the popular advice goes, test the water. When you feel more comfortable and confident with your investment strategy, you can top up or diversify your investment. Do not expect your money to grow overnight, but do allow for a few years before you can see the result. Always make a point of understanding what you are investing in before putting your money in an investment.
5) Protect yourself and your wealth
I cannot stress enough the importance of having adequate insurance coverage for every part of your life. The operative word here is ‘adequate’ – enough but not too much protection. . This is even more crucial if you have a family – spouse, kids, and other dependents. With our current economic and personal financial situation, it is likely that a single accident or critical illness can bankrupt us. With good insurance coverage, at least it can lessen the family burden during difficult time.
Honestly, money management is not that complex. It is much simpler than handling a bankruptcy situation. Be a financial literate and tackle your finances step-by-step, one at a time. In the long run, you will be able to see the result.
* This article was first published on Money Magnet.