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How To Manage Your Money (The Beginner’s Guide)

How To Manage Your Money (The Beginner’s Guide)

You can’t manage your money, and there are two reasons why you cannot…and they may surprise you. They have nothing to do with your income or your self-discipline. They have nothing to do with your will power or your intelligence. The two reasons are:

Reason 1 – You do not have the tools and knowledge needed to manage your money.

Reason 2 – You don’t want to.

In this article, you will find the tools and knowledge you need in order to manage your money. However, reason 2 is the most shocking, so let’s address it right here.

Willpower and self-discipline are only called for when you are doing things you do not want to do. If you feel that you need willpower to lower your spending, increase your saving, or build your wealth…then it because you don’t want to manage your money. People need willpower to stop them eating 30 spare ribs in one sitting (well, it’s a combination of will power and stomach size). People need self-discipline to stop them calling their sexy ex, even though their ex is not right for them. Self-discipline and willpower are tools we use when we are doing something we do not like, and/or to stop us doing something we would like to do.

You Need To “Want” To Change

Let’s face it; you don’t want to manage your money. You want to spend it, and you probably want to spend on credit cards too, so that you can keep your spending up. If you want to manage your money correctly, you need to change your attitude. You actually have to convince yourself that you want to manage your money, to get out of debt, to start saving, and to start wealth building. Convince yourself that you want to start managing your money. Imagine all the benefits, and imagine all the problems you would avoid. Attach your self-esteem to your ability to manage your money, and you will have far more success.

Spend Less Money Than You Earn

This tip (via the header) is not meant to insult your intelligence. Telling you to spend less than you earn seems like common sense, but if it were that “common,” then why are more people in credit card debt than ever before?

People create budgets because they want to control how much they spend and manage their money, and the main reason behind that is so they do not spend more than they earn.

Always Plan For The Future

The better you plan for the future, the better your chances are of making some hefty savings. If you plan for the future and buy in bulk, you make savings. If you sign up for longer leases in return for lower or unchangeable renting fees, then you save money. If you buy presents all year round instead of during the holiday seasons, then you save money. The list is endless; suffice it to say that if you plan and budget further into the future, then you are able to save more money.

Learn How To Budget

If you have online banking, your job may be a lot easier. Note all of your expenses and all of your income, and use those figures to predict what you will spend in the next month. You should then create micro budgets. For example, if you see that you spent $180 on food last month, then create a budget of $200 for the next month, so that you are not allowed to spend any more than $200 next month. Do this, and you can predict and plan for how much you are going to spend.

Look up a few pre-made budgets to help you plan for the coming months. There is a free one here:

Make Your Money Make More Money

The idea of having your money work for you should be top of your priorities. It is possible to save money and have that money pay you. It is a little like having free money given to you.

You can try it yourself in a small way with peer-to-peer lending. You put in money for a month, and at the end of the month, you get your money back and some interest. It is not much interest, but it is free money because you got it for doing nothing. Research different ways to invest your money so that your money works for you.

Saving For Starters

If you have a partner, then try living on your wage for a month, and putting your partner’s wage into a savings account where you cannot access the money for a month or a year. Just try it, and you will see how easy it is to save. You may have to struggle in the coming months because no doubt you have become accustomed to having both wages coming into your house, but soon you will recover and you will be able to do it again. Once you see just how easy it is to save up a lot of money, your whole attitude towards saving may change.

Find A Bank Account That Suits You

You need a bank account that offers the most benefits for the least amount of money. Make long-term financial goals, examine the way you manage your money, and then decide on the best bank account for you. For example, you may pay many of your bills online, send money to friends and so forth. In that case, you really want a bank account that doesn’t charge for online transactions. There may only be one ATM in your area, which means you need to pick a bank that doesn’t charge for you to use that specific ATM.

If you are in two minds about which bank to choose, check out a few of our articles on banks.

The Ultimate Guide to the Types of Bank Accounts

How to Switch Banks

Best Joint Bank Accounts

Best Bank Accounts for Students

Best Bank Accounts for Kids

Best Offshore Bank Accounts

Do Not Use Credit Cards Unless You Are Building A Credit Rating

Stay away from them. The world’s population now has more credit card debt than ever before. Credit cards are like digging a hole in soggy clay. It is easy to slop out the clay, but it becomes more and more difficult to climb out once you are in the hole.

Credit cards are only good for one thing, and that is for building a credit rating. If you are planning to get a mortgage in around five years, then you can use a bank account. However, if you do not pay off the balance in full every month with money to spare, then you need to stop using them. Take note, you must have money to spare after paying off your credit card debt.

Here is how you use a credit card to build your credit rating. The example is very specific because it is very easy to become dependent on your credit card.

  • You are paid $500 per month.
  • Rent is $100
  • Bills are $100
  • Fun expenses are $200
  • Savings are $100

Month 1

  • You are paid $500. This MUST go into a savings account!
  • Rent is $100, which you pay for with the credit card
  • Bills are $100, which you pay for with the credit card
  • Fun expenses are $200, which you pay for with the credit card
  • Savings are $100, which you put in a savings account

After month 1, you have $600 in your savings account. Your credit card bill comes in the next month. Pay it off with your savings, which leaves $100 in your savings.

DO NOT make the mistake of paying off your credit card bill with next month’s wages. It is tempting because your credit card bill may be paid with your next wage, but you need to save your first wage to pay it off, otherwise you are getting into debt and treading water by paying off the balance every month. You are putting yourself into debt if you do this wrong.

Look At Things You Shouldn’t Be Spending Money On

Cutting back doesn’t mean you have to suffer. Think of it as reducing the amount of money you waste. To start you off, here is an article on the 24 Things You Should NEVER Pay For.

People waste money all the time but do not know it. The ways they waste money ranges from leaving the lights on, to buying inefficient washing machines. People buy jars of coffee when they can buy refill bags, and they spend a fortune on branded goods, when the store brand versions are often just as good.

In order to get a clearer view of where you may be wasting money, an enlightening (but boring) exercise is to calculate how much you are spending in each area per year. A good place to start is how much you are spending in the cafeteria every year. Spending just $6.50 per day may not seem like much, but over the year it costs you around $1500, and yet you could just as easily cook too much food at night and then take the leftovers to work the next day and microwave them in the canteen.

Anti-smoking and anti-Starbucks campaigners will often use the whole “How much you spend per year” argument to convince you not to drink expensive coffee with an immoral company, or to try to convince you to stop smoking. The experience may be enlightening for you if you take the time to examine how much you spend every year. It is especially surprising when you realize how much you are subsidizing the life of your adult children, or how much you are spending on fuel.

Cutting Back Without The Bounce Back Effect

The bounce-back effect has many names, including being called the “Rebound” effect. For example, when dieting, it is called Yo-Yo dieting. A person does really well for a certain amount of time, and then the same person “Treats” himself or herself and over indulges. What is worse is that the effect is often more devastating for people trying to save, pay off their debt, or manage their money.

For example, Mr. Cakes, (Johnny) had a balance of $1500 on his credit card. He worked like a mad man for two months and got the balance down to just $300. Johnny was very pleased, but had planned to have his card paid off in two months. He figured that he did so well during those two months that he would have the balance of £300 paid off by the end of the third month. Therefore, he bought a new mattress that he desperately needed and a vacuum, and had his car tires changed. By the end of month four, he was in $2750 of debt!

How do you stop yourself from becoming the next Johnny Cake? People that try a “big” change are the ones that seem to bounce back the hardest. It is the same for dieters too. They go from eating junk food every day to an eggcup full of salad twice per day, and they rebound or bounce back with a binge. Start slowly with work your way up. Start with cutting out your Starbucks coffee and putting the heating on less. Create a budget for the week and the month, and create a new weekly budget every week so you get the hang of what is needed in your budget and what is not.

Remember To Link Your Self Esteem To Your Money Management

One fun trick is to take pride in how well you manage your money. You don’t need to brag about it, but make sure you mention it when the subject comes up. Being excellent at managing money is uncommon, and managing money is difficult, so you should take pride in how well you manage your money and save your money.

Again, you only have to start small. Being able to say, “Hey, I saved $70 this month by driving a little less,” is worthy of praise. You should feel good about it. Plus, the fact that you monitored your spending so that you knew you saved $70 is also something to feel good about. it’s a good start, and the better you become at it, the more you may feel proud of yourself.

About The Author

Ben Todd

Ben was a seriously broke graduate student with bad credit who after finding himself rejected for any sort of credit card or loan for most of his adult life, finally decided to get his financial life in order. ' He spent several years reading as many financial advice books and blogs as he could. And suprisingly, Ben found he actually LIKED the topic of personal finance; after fixing his own finances, starting his own successful work at home website business, and using his earnings to get out of debt, created to help others do likewise!

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