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3 Simple Keys to Managing Money Wisely

3 Simple Keys to Managing Money Wisely

Managing money wisely comes down to just a few simple steps.  If you follow these, you should be able to make the right money decisions that can help you pay off your debts and help you grow your savings accounts.  After all, the end goal of managing your money is being able to live a comfortable life, including not worrying about money during your retirement years.

It’s true that the three bits of advice we have today are simple.  They are very simple to understand.  What may not be that simple though, is applying these rules to your lifestyle.  You’ll have to be dedicated enough to stick to the rules, and you may have to make some lifestyle choices to get on track.  Here’s what we’re talking about:

Keep Your Money Organized

Rules to Help You Manage Money SmartBy this, I don’t mean organize the money in your wallet.  I mean, have some accountability for your finances.  Keep tabs on your financial transactions by organizing them using a financial worksheet.  Also, you should have a routine in place for paying your bills so that you don’t miss any payments.  Your checking account should be balanced.  And you should have some kind of financial plan in place so that you have well defined end goals to work toward.  You should also create a household budget that will help you understand how your money is being affected by the choices you make and what effects your lifestyle has on your savings rate.

Don’t Make a Big Money Mistake

Perhaps the smartest way you can manage your money is by not making any big money mistakes.  During my life I’ve made two big money mistakes.  Each one has set me back by five to ten years financially.  While it was easier to recover from the first one, it gets harder as you have less time left before retirement.  You can avoid money mistakes by following the other two rules and by doing thorough research before making any large financial decisions.  It’s amazing that most people spend more time planning their vacation each year then they spend managing their retirement accounts.  By researching all of your large financial decisions and looking at them with financial scrutiny instead of your emotions, you should be able to avoid big mistakes.  Both of my mistakes were emotionally related stock market mistakes, where I was completely caught off guard.

Stay Within Your Means

Many people believe that living within their means is being able to make payments on all of their living expenses, debts, and monthly bills.  This is not the case.  Many people go through life living paycheck to paycheck and never getting ahead.  Even people that make high salaries often fall into this trap.  The simple reason they fail is because they do not live within or below their means.

For example, let’s say you make $80,000, but you still have trouble keeping up with all of your bills and expenses.  You live a comfortable life but you don’t allow yourself to ever pay off your debts and save for retirement.  Your neighbor, on the other hand, makes $60,000 but they manage their money more wisely by buying used cars and don’t borrow money to buy other items.  If they don’t have money left after funding their retirement accounts, they find other ways to save money.  In other words, they live below their means.  Whereas you’d expect the family that makes significantly more to better off financially, it is the other way around.  You have been living above your means and borrowing from the future while your neighbor has been living within his means.  Over the course of a few decades, your neighbor will have a few hundred thousand dollars saved for retirement and you will likely still have none.

If you make $100,000, live like you make $50,000.  If you make $200,000, live like you make $75,000.  The more money you make, the more you should live below your means.  See any increases in income as a way to bolster your savings, not as a way to “afford” bigger and better stuff.  While I admit that it’s hard to live below your means if you make minimum wage, people still do it.  Unless you are already overburdened with debt, you can always make lifestyle changes that can help you get to this point financially.

What Others Have to Say About Managing Money Wisely

We found a decent post on Yahoo Voices that gives the following advice:

Set goals for monetary achievements

A person should set financial goals that are in line with the cash resource. The goals act as a ‘pull’ factor in manipulating the person to make efforts to accomplish these goals with the financial availability. It must be noted that even if a person saves a considerable lump-some in the bank, without a contingent of goals and objectives, this remains a non-performing resource. This amount can easily be squandered hence rendering the person bankrupt or financially unstable.

Develop personal financial plans

Financial plans form a benchmark from where personal objectives are realized. In the plan, goals are prioritized and the most important and urgent financial needs are accorded the necessary attention. The plans also aid in evaluating and establishing whether the cash available or income stream in place can meet these demands. If the amount at disposal is limited, the plan can be stretched out over along period to enable the person raise enough for the needs. Alternatively, one can weigh whether it’s imperative to apply for a loan to boost the available personal savings kit. It’s therefore, evident that financial plans are the building blocks for a sound money management.

You can read the rest at tips to manage money wisely, but basically two of the points they make are that it is important to make goals and plans.  A financial plan is really also a financial goal, so they are both somewhat related.  These are both in agreement with the rules we discussed above.

Rob Berger at Dough Roller also wrote an interesting post about this topic.  Here is an excerpt from that post:

  • Save for emergencies:  Whether you save three months, six months, or even one month worth of living expenses, save for emergencies.  Otherwise, you’re living paycheck to paycheck, and there is nothing more liberating than realizing you can survive for some period of time without earned income.
  • Diversify your income:  I don’t care how much you make from your job, having a steady stream of additional income from another source is liberating.  I get my multiple streams of income by making money blogging and real estate investing.  There are many ways to earn a second income.  Just pick one and get rolling.
  • Buy a home and live in it a long time:  I know that with falling real estate prices, many now claim that renting is the way to go.  But long term ownership of real estate can build substantial wealth; renting never will.

You can read the rest at his money management guide.  He said the exact same thing that we touched on earlier in our article.  That while managing money is simple, it is not always easy to do.  He also lists seven other tips.

Do you have any money management ideas you’d like to share with our readers?  Leave us a comment below.

{ 1 comment… add one }
  • kayde May 7, 2012, 8:21 pm

    This are such great tips. It seems like common sense when you read them, but to most they never think about it. If you really want to there is usually areas where you can cut back on spending. You would be surprised at what you spend when you actually go through everything. I know I did this recently and was so surprised at how much I actually spend on food each month!


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