Basic Rules of Money Management

Money management is extremely important to your financial well being. Improper management of money will lead to financial difficulties & bankruptcy. This simply means "spending more than what is earned". The two ways of increasing wealth is to either increase our income, or decrease our expenditure. 

“Are you playing safe with money?”.   

If not, here are some basic rules to help you get your money into good positive shape.

1.  Plan Your Finances

Plan for your families’ future, any major
purchases and periodic expenses.

2.  Protect Your Loved Ones

Have adequate life, health, disability and property insurances. Make sure to ensure you are adequately well protected. Buy insurance only for catastrophic losses. Don't insure against mishaps you can afford.

3.  Distinguish the Difference between Needs and Wants

Needs are basic necessity to sustain in our life — Shelter, food, clothing, transportation. A want is something you would like to have but could live without i.e., something that enhances your life style. Take care of your needs first. Money should be spent for wants only after needs have been met.

4.  Set Financial Goals

Determine short, mid and long-range financial goals. Evaluate your shortcomings and maintain/keep up your achievements to provide personal motivation

5.  Know Your Financial Situation

Determine your monthly living expenses, debt payments and periodic expenses. Also keep track of your Monthly Income. Determine your net worth. It must be positive to achieve real wealth.

6.  Develop a Realistic Budget & Stick to it

Follow your budget as closely as possible. Evaluate your budget: compare actual expenses with planned expenses. Learning to stay within your planning budget will help you develop better financial situations.

7.  Keep a Record of Daily Expenditures

Be aware of where your money is going. Use a spending diary to assist you in identifying areas adjustments need to be made.

8.  Don't Allow Expenses to Exceed Income

Start living within your means is nothing but spending less than what you earn & invest the difference. Avoid paying only the minimum on your credit card. Don't charge more every month than you are repaying to your creditors.

9.  Pay Yourself First - Save, Save, Save…

When you get paid, be disciplined that your first payment should go to savings of at least 10 to 20% of your income. Though you have lots of regular & irregular expenses, you can't afford NOT to save.

10. Apply Quick Debt Repayments

By applying 20% of your net income to your debts, you will eliminate it faster and free up cash that can be used to achieve your financial goals. The faster you pay off your debts, the lower your interest cost in many cases. A cash-only policy may help you get out of debt.

11. Pay on Time

Pay your Bills on time to maintain a good credit rating & avoid late fees

12. Use Credit Wisely

Don't let your credit control you. Use credit for safety, convenience and planned purchases. Develop a realistic budget to determine the total you can comfortably afford to purchase on credit. Don't allow your credit payments to exceed 20% of your net income. Instead of borrowing from one creditor to pay another, Please Change your high interest Creditor to low interest creditor.

Categories: Banking Basics, Importance of Money, Importance of Saving Money, Money Basics, Money Management, Playing Safe with Money, Rules of Managing Money, Saving Money, Tutorials