We all manage money. Does that mean we all know a thing or two about money management? Not really. Money management is an art that people can master if and only if they see money from an objective frame of reference and are damn serious about it.
Every adult needs to learn money management. How they can learn it is a discussion best saved for some other post. In this post, I would like to demonstrate the benefits of managing money effectively. Some of the benefits are obvious while some are not so much.
Control over your finances
If you excel in money management, you gain control over your financial life. As strange as it may sound, most people don’t have control over their finances. They either spend extravagantly and max out their credit card or spend too little and waste their present for the sake of an imagined future. None of these is money management. True money management skills – when acquired – help you sleep calmly at night knowing your finances are perfectly in order.
Explore investment opportunities
For people living from paycheck to paycheck, investment is a lofty word. But people who have their finances under control, know that it’s not a distant dream. A dream for sure, but an achievable one. Investor,is a great example of hard work paying off to make his financial ‘dreams come true!’.
Earning money is an important aspect of money management. People who take money management seriously put extra emphasis on earning money. What better way to earn money than discovering new investment destinations and diving headlong? Money management encourages one to do that.
That being said, one must be able to discern true investment opportunities and not mistake them with get rich quick type scams. As mentioned already, mastering money management skills gives one the ability to spot the difference. Hence, those skills are essentials.
Tracking your money
There are plenty of software online – both free and paid – to help you in this endeavor. With those software, money management becomes as easy as taking a walk in the park.
Most people who fail at budgeting report their inability to track money. When all the earnings, no matter how small, and all the expenses, regardless of how large or small they are are tracked and listed in the monthly budget, one gets a 360° view of their financial lives. Tracking earnings and expenses is therefore important.
When you use custom software, you don’t have to create separate headings for your earnings and expenses as these are among the basic features of the software. By spending a little bit extra i.e. signing up for a premium plan, you can avail more robust features sorting income types and expense types, alert and notification on earnings and expenses, and more.
Early retirement, made possible
Early retirement is not a fad; it’s not humblebrag of a few lucky ones either. A lot of people are retiring early in their mid-40s thanks to their efficient money management skills.
Money management helps one set a savings target. We often set targets ourselves. The problem is, targets fixed by us are either unrealistic or too easy to achieve. When you inculcate money management, you learn to set achievable targets. Insights retrieved from monthly budget can make it easy.
Next is meeting those targets. At this point, a bit of self-control is advised. Even if your heart desires to splurge on expensive stuff, spend carefully. A diverse investment portfolio is more than necessary if you hope to retire early. Find a consultant and get ideas. However, don’t depend too much on them. Take their advice but don’t blindly follow those advice.
Handle credit better
A lot of people in the United States suffer from debt. The country’s cumulative debt is standing at an all time high of $21 trillion. Like many Americans, your finances look bleak unless you have a great credit score and are used to handle your credit card like a responsible adult.
Strategies around fixing your credit must start with evaluating your credit report. The score assigned on your credit report is called FICO score. A FICO score lower than 650 is bad. It limits your chances of getting a loan from a reputed lender. Additionally, you cannot bargain for a favorable premium rate with a low score.
Handling credit is all about improving your existing credit score and managing your card better. Money management skills prepare you for this.
Reap all the benefits
I sincerely hope that you become an expert at money management and reap all the benefits discussed here. That being said, money management is more like a habit. Like every other habit, sticking to it can greatly benefit you while deviating from it can be risky for you. So take time and make yourself firm and determined. And then start managing money.
James Paul is a personal finance blogger at Basic Finance Care which provides valuable insights about personal finance and money management.