Understanding your Money
Money is what makes our world go around. We work for it, we live to spend it. We are happy when we have enough of it and we are troubled when we don’t have enough of it. Money affects us in every area of our lives. We have to understand it. We have to manage it because poor money management will wreak havoc in our lives. We must be in control of it and not let it control us.
Here is a quick survey you can take to see now well you manage your money. Go Here.
Basic Money Management 101 Getting started
The first step to managing your money is to know what is coming in each month and you can answer this question; “Exactly how much do I have to spend?” You may be thinking – well that’s easy. I make $500 a week and with taxes and other deductions, I bring home $300.00 a week so that is how much I have to spend. While this is true, and you really have $300 in hand to spend, there are other things to think about when it comes to how I should spend the money.
Knowing how much is going out or how you are spending your money right now is the second step.
Let’s look at Nathan’s example to get a better understanding. Nathan is working his first full-time job out of college and has decided to stay with his parents until he has enough saved to move out on his own or maybe into an apartment.
Here is what Nathan listed as his expenses per month and his net take home pay is $1200:
Car Payment $360
Car Insurance $ 75
Gas $ 80
Lunch ($6/day) $120
Cell phone $ 45
With take home pay of $1200 a month, Nathan has a little bit left over each week that can give him a cushion of about $170 if he happens to go over on one of the expenses that he has listed out.
While Nathan’s list seems to cover everything that he needs, there may be a few items that could be added into his current spending plan.
What about the routine car maintenance that will need to be done like the oil changes and the tires. What if the car breaks down, needs a new battery, or he the AC goes out. Some things may be covered by a warranty, but routine car maintenance is not.
What about vacations? The $200 a month for recreation would only cover eating out with his girlfriend each week and maybe a movie once in a while, but it is not enough for a trip to the beach or a weekend cruise.
What about saving to move out into a home or apartment of his own or share cost with a roommate? With $170 a month left over, Nathan is going to have to save all of that for about a year or more to be able to move out on his own.
Nathan needs to set a goal for saving to cover his future needs and for those occasional but necessary expenses like car maintenance.
Nathan is putting money into the matching 401K plan at work and this is great for his long-term savings, but he is not putting anything away for those unexpected needs that always happen to each of us sooner or later.
What should Nathan do to be a better money manager?
TAKE TIME TO PLAN: Nathan should take some time to decide where he wants to be in a year, in two years and in five years. For someone Nathan’s age, it is hard to focus on long-term goals. If he would do that, he would be among the group of ‘the elite’ young people that can see beyond the here and now.
TAKE STEPS T REACH THE GOAL: When Nathan knows what he wants to do or where he wants to be financially in a year, he can work backwards from the goal. In other words, he will do a gap analysis and look at POINT A -where I am today and POINT B -where I want to be a year from now. He then builds a plan to get from A to B. Now Nathan has the advantage point and can take control of his money. He can build a plan to reach his goal for one-year, two years or longer.
To save $1000 in an on-line bank that pays interest on the regular savings account. He decided to put $25 a week in the account and will reach his goal in 40 weeks. The extra twelve weeks of the first year of saving will give him an additional $300 that he can use for car maintenance should he need it.
He will continue to save until he has about $3000 in the bank. He feels like this will be a good start if he can find an affordable place to live. Nathan is hoping that he will be getting a raise each year and his salary should be up to about $30,000 or more in a few years. He can then reassess his situation and make adjustments to his budget.
How good are you doing with your money?