Every once in a while, a news item pops up describing some frugal person who managed to squirrel away a million dollars on a small income. These folks have a few things in common. They all took full responsibility for managing their money. They all learned how to enjoy the things in life that don’t cost money.
If you are looking to improve your money management skills, but don’t think of yourself as someone who has enough wealth to bother, think again. Almost everyone can benefit from taking more control and ownership of their finances. Here are some basic concepts to get you started, or to refresh your commitment to the skills you already practice.
Understand Your Spending
We live in a world where it is very easy to spend money. In fact, it can be challenging to find ways to spend your time that don’t involve shelling out some of your hard-earned cash. Shopping centers are free to stroll, but shopping costs Monday. Bars and restaurants, understandably, expect you to purchase something if you want to hang out there.
Most people overspend. Even people who are careful with their money typically acknowledge that they could do better when it comes to wasteful or unnecessary spending.
One of the reasons many people overspend is that they do not keep track of what they spend. They might have a rough idea, or spend based on how much is in their bank account, but that isn’t real understanding.
To really understand what you spend, you need to think of your expenses as different types. Things like rent, mortgage, electricity, and heat are one type of cost. Things like going to the movies or meeting your friends at happy hour are another. Every financial expert says you need to keep a budget. Budgets categorize different types of expenses and set goals or limits for those categories. That is the only way to know whether you are spending the way you should.
Understand Your Income
For some people, like folks who are paid a salary every two weeks, understanding your income is simple. For others, those who receive government benefits, those who are paid on commission or who earn bonuses, those who are paid hourly or based on gigs, understanding your income might require rolling up your sleeves and pulling out your calculator.
Especially if you are new to getting government benefits, such as Social Security, you really need to understand how the payments are made, when they come, and how much those payments will be for. For example, knowing the SSDI payment schedule for your payments can mean the difference between paying bills and bouncing checks.
If your income varies, or comes sporadically, make sure you map out when you tend to get paid and how much. Look for patterns. If you know when you typically get paid, you can plan to spend in alignment with when you have money. You can also use this opportunity to assess whether you need to make changes in your employment.
Check Your Ego
Often when you buy things you don’t need, it’s because you feel like they will make you cooler, give you higher status, or make you feel better about yourself. The reality is that what you own usually has very limited power to make you happier.
Take your ego out of the equation when making purchases. The rule of thumb is to invest in items that genuinely and definitely improve your quality of life, but to shop for bargains or skip it altogether otherwise.
Learn to be skeptical of big name, flashy labels. Stop to reconsider whether something used or second-hand would do just as good of a job. Think hard about whether you’ll regret passing up on the purchase entirely. If not, let it go. You can always buy it later if you do have regrets.
Treat Money Management Like a Gift
Treating your budget like a chore is a mistake and likely to lead you to abandon or neglect it. Getting started with setting up your budget might be a challenge, but once you have it going, it’s a pleasure to keep track of when you do it right. The money you save is a gift to yourself. It’s peace of mind, but also an immediate sense of real accomplishment.
Thinking of money management as self-care is a mental shift that pays off. Pour yourself your favorite drink, pull up your computer, and get ready to be reminded that you are capable of great things. Every month that you come away with a balanced budget and a little something extra in your savings is a fabulous accomplishment and gift to your future.
