Believed to be like a drug, money can be addictive. You tend to spend as much as you earn, often more quickly. Learning how to manage your money can help avoid the financial problems and even bankruptcy some people are facing.
No matter what your age or income, there are two basic rules that everyone needs to know. Those rules are firstly, only buy what you can afford, and secondly, pay your bills before spending on anything else.
Money Management Rule One
Although this sounds like a simple rule, it is seldom followed – only buy what you can afford. So often we don’t budget properly to find out exactly how much spare cash we actually have. A good guideline is to have at least six months living expenses safely put away, but just how do you calculate that?
Your living expenses are the bare necessities that you cannot do without, such as food, your mortgage or rent, electricity and water, car payments and fuel and so on. You will notice that there’s no room in there for that great jacket you saw last week, even if it is on sale, and no need to cater for expensive holidays either. When we talk about necessities, we assume that, if you should lose your job, you wouldn’t be splashing out on those things anyway.
At a time like this you must look carefully at services like your telephone and mobile, and eliminate all the extra services you signed up for but don’t really need. If you can do without it, consider cancelling your cable service as well, or at least cut down on the number of channels in your package. Read the fine print on your service contract before doing anything. Sometimes costly penalties may apply, and you need to avoid those if at all possible.
Other than the basic necessities, you also need to keep money aside for emergencies such as unforeseen healthcare bills, car repairs and home maintenance. You need to be able to have your health attended to, drive to and from work safely and live comfortably in your home, and these must be considered when saving money as well. Most important is not to waste your emergency money on luxuries or things you don’t really need.
Money Management Rule Two
The second money management rule is to pay your living expenses first, before anything else. If you take something and don’t pay for it, it’s theft. Not paying your bills equates to the same thing, although it may not be treated the same way.
We are bombarded daily with images of material things, and actively encouraged to ‘live up the Joneses’ and buy the latest and greatest. Unfortunately, doing so does not make us the greatest. Does anyone really care that someone managed to walk into a store and buy something, like we all do every day?
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