Learn How to Manage Your Money
How to Manage Your Money and Take Control of Your Spending
There are a few simple steps for you to learn how to manage your money. To begin with, you need to understand that you’re in charge and not your bills. Take the time to find out exactly how your money is spent.
Most individuals can only guess where their money goes after they pay their fixed expenses such as the mortgage or rent, utilities, auto payment, and perhaps a student loan. If you want to take control of your spending and also get your debt under control, you must identify your spending patterns. Then learn how to manage your money by re-allocating funds that are spent on items that are unnecessary.
For a period of one month, you need to list every cent that is spent, and that means the morning cup of coffee that you buy on your way to the office or that magazine that catches your eye at the news stand. Get a notebook and list these expenses on a daily basis. I know this is a pain in the back side, but this is a necessary step in learning how to manage your money.
[bctt tweet=”Learn how to manage your money and take control of your spending…” username=”HBSMoneyTips”]
At the end of the one month period, categorize as much as possible, all of these expenses and add them all up. It’s not rocket science by any means, but take the amount of your monthly net take home pay, and subtract all of your fixed expenses and then all of the variable expenses listed in your notebook. Hopefully you’ll have a surplus remaining; if not that will be our next article.
If you normally receive a large income tax refund at the end of the year, you need to change this for a couple of reasons. Firstly, to see how to manage your money even better, you can file a new W-4 form to reduce the tax refund and increase your monthly take home pay. These extra dollars should go towards paying off any credit card debt, as should many of the unnecessary expenses you found from your notebook.
The second reason why you shouldn’t be receiving a large income tax refund is that it’s possible your return may be flagged for an identity check. This article that we shared earlier explains it quite well. Some taxpayers have experienced long delays in receiving their refunds.
Now that you’ve reduced a lot of your variable and unnecessary expenses and increased your take home pay, it’s time to tackle any high interest debt such as credit cards or any personal loans. Prepare a list of all of your debt, beginning with your mortgage, if you have one. List by the bank name, type of debt, interest rate, and the minimum monthly payment required.
We’ll assume that when you made that list of all of your expenses, both fixed and variable, you arrived at the stage that enabled you to create a personal budget. You need to calculate how much extra money that you can apply to your debt each month, by reallocating the variable spending.
Once you have the total amount available, apply the extra money to the credit card with the highest interest rate and pay at least the minimum on the others. As soon as that highest rate card is paid off, start on the next highest one. However, there might be one exception, if you have a credit card that we call a “time bomb”; that is where the card issuer gave you a very low rate for perhaps 6 months, and then at the end of that period the bomb explodes and a rate of probably 25% kicks in.
The card issuer knows that most individuals will use that card because of the low rate, and they are also fully aware that most individuals can’t pay it off in 6 months. Then they have you between a rock and a hard place paying a high rate of interest. If you have one of these gems, apply the extra funds here before the high rate kicks in.
Many individuals find that by controlling your discretionary spending, even for a short time, can go a long way toward reducing debt. Some also discover, that they don’t need some of those impulse items and put that money on their debt permanently.
If the above suggestions don’t provide enough surplus funds to reduce your debt, you may have some further options like refinancing your mortgage at a lower rate, or you can even request your credit card company to reduce your rate of interest, assuming you have a good payment record. Learning how to manage your money wisely will go a long way in reaching your financial goals.
Gust Lenglet is the CEO of HBS Financial Group, Ltd., an accounting & tax preparation firm in Maryland. He has more than 25 years of experience in the banking and financial industry. Gust started his career as a loan officer at a major national bank, and then moved on to become controller of a major law firm. In recent years, he has written many financial articles that have been published on Ezine Articles and many websites.