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Money Management: Why You Need to Plan Your Finances

Just imagine what it will be like to try finding your way in an unfamiliar place without a map: you’ll end up going round and round instead of footing a simple and straightforward path to your destination (financial stability and prosperity in this case). And that’s a scenario similar to living without a financial plan or not being interested in managing your money.

When you live without a financial plan, you’re more likely to buy things simply because you have a credit card or some money on you, and more likely to be in debts because of such a financial life. Enough of the bad news and analysis! Is there a way to make use of a financial plan to manage your money and is it all that easy? It is.

You may not be an accountant, an economic guru or a finance student, but you need to plan your finances and you can learn how to do that to manage your money. Outlined below are three tips on planning your finances and being able to manage your money.

Budget to manage your money

A personal finance budget is a simple tool that you can use in managing your money. And to start with, you can draw up what I personally call the layperson’s budget (you can use more sophisticated budget software later on if you fancy them).

Take a pen and paper and write out your expenses (things you usually spend your money on almost everyday) and revenue (the amount of money you have available to spend in each month or year) on the opposite sides of a straight line drawn vertically on your paper. You can now total your monthly expenses and revenue. If your expenses exceed your revenue (as they normally do if you live without a financial plan), then you need to make some changes in how you spend money.

Differentiate between your needs and wants

Be honest with yourself and realize that you sometimes spend money on things you don’t really need. You only buy them simply because you can use your credit card or have money on you. Practice self-discipline and resolve to spend money on only what you need and cannot do without.

Try to come up with other ways in which you can also cut down on the amount of money you spend to reduce the likelihood of your monthly expenses exceeding your income.

Become creative in saving money

As soon as your income starts exceeding your expenses when you draw up new monthly budgets because of the reduction in the amount of money you spend, save the surplus somewhere. You should also make it a point to try saving 10-20% of your income every month for future use or as a buffer against having to borrow money sometime. It saves you the scenario of having to pay ridiculous interest rates and watch yourself sink further and further into debt. You can avoid such a situation through saving parts of your monthly revenue.

To sum it up, learn to budget your money regularly, cut down on expenses and save as much as you can to use in buying things you really need to enjoy your life without being in debt. Save dollars, save cents; even pocket changes. If little drops of water make mighty oceans, little dimes make mighty dollars.

Image Credit: Wikimedia Commons

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