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.
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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.
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I agree allocation is really important when it comes managing money. However, sometimes an unexpected comes in that’s totally out of your allocated budget. By experience, that’s usually where I fail to solve. Do you also have any suggestions for unexpected expenses?
We know nothing about your financial situation Nicole, but one thing that we all can count on, the unexpected expense (s) will always come when we usually can’t afford it. We need to budget for those expenses, putting as much as possible in savings. We cover this in more detail in this post https://www.hbsfinancialgroup.net//budget-software-track-your-spending. Read through it.
It takes discipline to avoid unexpected expenses. It is better to have a budget for them. Paying off the debt with higher interest is a good strategy.
My dad has always been a big fan of recording his purchases in a little notebook. After seeing this article, I just might take it up, too!
I got caught a couple of times as well with those type of credit cards with a “burning fuse.” I know we’re supposed to read the terms and conditions, but they make them so long and some of the language they use would take a lawyer to figure out. There should be a law making the credit card issuers explain the terms in plain English in a 100 words or less.
Ugh, I’ve had a few “time bomb” credit cards in my day. In reality, it’s best to actually read the terms of agreement BEFORE purchasing a card. It’s a pain, but it’ll save you trouble in the long run.
It’s simple: don’t spend more than you earn. I don’t know why Americans can’t get this through their heads!
I, unfortunately had to learn the hard way with credit card debt. This is a good article, however, I disagree on the tax refund issue. First, claiming 0 forces you to live on less. Also, like for me I have property taxes-I own my home. so I have to pay out of pocket it is nice to know that the money can not be spent wastefully during the month but can be held to pay the taxes…
Learning the hard way, also known as the “school of hard knocks”, is an excellent teacher. There are many opinions on the tax refund issue and quite frankly, I can’t say that any are wrong. Its a matter of personal choice and what ever works best for you is the one that you should use. Thanks for your insight.
I was fortunate that my father laid down the foundation with me on budgetting. He didn’t go into details of have me practice it but he did at least put the idea in my head. I’m still trying to configure the best way for me to track everything but at least I have a decent handle on things. I have hardly ever gone in the red and make sure I never spend what I don’t have. 🙂
Thanks for stopping by Becky. Glad to hear that your father got you on the right track to make budgeting easier.
I totally agree. Most of us do not save enough money on a regular basis. I am working on it, I have been told I am penny wise but pound poor…if I could make these two ends meet I would be set!