A fresh gaze towards money management

A fresh gaze towards money management

Why should we do money management?

If we consider in economic terms, resources are limited and desires are unlimited. Here we always need to have choice in allocation of resource. One general example for resource allocation is one person having Rs100 he needs to have food and also he wants to see a movie. Here he will make a choice between two of his desires and allocate the resource as per his requirement. He can have lunch in a good hotel and spend entire 100 rupee or He can go to movie continue his hungriness. Which is right option? Right option is always need to have option that is having lunch out of that money.  He can also think of that having lunch for Rs50 and use that balance 50 rupees to watch movie both of his desires full filled.

Is it a better option? We can also think of one more option that he can have lunch for Rs50 and keep the balance Rs50 for next day. Whatever he does it may be seems to be right on that moment but if we consider the option of a long term definitely he will go for last option.

Here we have to look one thing that limitation of resource that is Rs100 and more than one desire to full fill here he should consider the needs and wants. Needs are always very essential which is varies from person to person but wants are not need to have but nice to have. If we consider the above example the person need is to have lunch not watching movie. So proper money management helps in allocating resources between needs and wants, converting available limited resource to fulfill wants in the future which next to our need. Here we have to keep one thing in the mind, need and wants will varies from person to person based on their standard of living. For example owning an Innova car may be the want to person who is earning Rs15000 per month, but it may be need for the person who is a CEO a company earning Rs1crore per month. All these are technical explanation for need for a money management. But for a common man proper money management will give him different benefits. We will go to see further.

How money management will help us?

A wise money management can help us in the following ways

It helps us in paying our bills on right time. Its looks to be simple but very complicated some of us May or may not having the experience of paying bills late. This will attract late payment fees; sometimes it will be even more in the case of credit card bills. A wise money management will help us in the situation where we are not working and earnings were stopped for some time. So effect money management skills will help us away from the habit of shopping and wanted spending and spend the same saved money in the times of earning crisis. And Plan for short term and long term financial goals like buying car, flat, plan for higher education ect.,

What exactly money management means?

In the simple management terms money management emphasize on planning, organizing, directing, controlling and reviewing of income expenditure based on needs and want. If we still simplify above understanding money management means how to save, spend, and invest our money so that we and our family successfully work towards financial goals. By the above explanation its clear if one should plan for his long or short term goals and based on that he or she has to adjust his income, saving, spending investing.

What are the activities of money management?

Step 1: Tracking our spending is the first and for most activity of money management. Some of way of tracking the spending is that just list down how much money we are spending each day each week and each month and a year. This will helps us in having clear record over our spending how much we spend each day week or a month so that we can list out what are waste expenditure repeatedly we are doing what the heavy expenses we are incurring each day month and each year so that we follow them and cut those expenditure. Some of the ways of tracing expenditure are as Keep a notebook handy and write down everything you buy and every bill you pay. Keep all our receipts in an envelope or in tray. Create a computer file for entering your income and expenses.

Step 2: preparing a budget will be the next step in the intelligent money management. Budget A spending plan to help you forecast and control our expenses. For making of budget we need to figure out how much we spend each month and compare that amount to our take-home pay. Track our spending for a set period of time, like a month, in order to figure out how much money we spend. It will help us creating a quota of expenditure per month. If my average expenditure per month on the refreshment is Rs3000 I should not cross my limit of Rs3000 on refreshment at any time during year. Here my quota for refreshment me and my family is not more that Rs3000 per month. Some of the most relevant things which we have to included in the budget are Housing, Food (groceries, restaurants, snacks), Automobile (payments, gas, repairs, insurance, commuting expenses, Clothing & personal grooming, Utilities (electric, gas, water, cable,) credit card payments. student loan payment, insurance, child care entertainments( movies books ) medical bills. These are the most common expenses which we have to make provisions in our budget. Now we have to concern does my income covers my expenses. If yes then what are the way or reducing the expenses and save more. If  no how to reduce the expenses just a relook on the expenses quota and find out how to spend less or we have to figure out how to earn some extra money.

Step3: In the third step we have think the different ways of cutting the expenses some the ideal way of the cutting the expenses are within the possible limitations shop around and compare the price where ever we get less price just stick to those shops. Make a shopping list and stick to it for example if we plan to buy ten kegs of rice n few kegs of vegetable just we have to stick to the list and shop what we have listed. we have to stop eating out side during the lunch breaks for that we have bring the lunch bags so that we can avoid the eating out side which is good for health and wealth. As per our earlier discussion we should not shop recreations or should not tempt to buy recreations which are not need for us. That may be wants not needed for us for example buying good branded shirt in spite having good shirts in home. Using, public library for reading books and magazines. Walk instead of drive where whenever possible make it possible. After some of the way of cutting expenses her let we have small look on how we can earn some extra money. Such as part time weekend jobs. Starting some home based business. Rent out a room. Rent out outer space of car. If we time on thinking how to earn extra we will get still more creative ideas.

Step4: after planning of budget and expenses now the next step is setting some financial goals which will help us in continuously motivating us in money management. Some of the short term (1-2yeras) is buying a new car, getting a degree or planning a wedding and long term (5-10yeras) owning a home, starting a family, paying for college or retiring.

Step5: Saving and investments for achieving the financial goals. We should have our savings quota which we should not skip at any cost. Some the way of saving are creating one recurring deposit account which is not risky also will give us consistent returns with high liquidity. We can also have one Systematical investment plan which will help us in invest in indirect way of stock market will have risk and also provides greater returns. Investing in SIP will helps in both ways when stock market will goes up we get more returns and when markets comes down we will get more number of units but investing in SIP focus should be long term not less than 5 years.

Lets do money managment, for better tomorrow