Money management is the process of how you manage your household finances, including how you track your income and expenses, and set short and long-term financial goals.
Strong money management means having a budget, paying your bills on time, saving for your future, and taking steps to avoid or pay off debt. On the other hand, poor money management involves not having a budget, paying bills late, lacking savings, and only making minimum debt payments. However- poor money management isn’t a personal failing; it can stem from limited financial education, low income, or unexpected expenses that disrupt your plans.
Here we share practical money tips to help you improve your financial management skills, avoid debt, and work towards your goals.
1. Assess your financial situation
You can’t plan where you’re going until you know where you are. If you’re struggling with debt, it can be hard to confront your bills and bank statements, but it’s important to get a clear assessment of your financial situation. This is also a good time to think about your relationship with money. Are there any behaviors you need help with or want to overcome, such as gambling addiction, compulsive shopping, or high-risk investing?
2. Set SMART financial goals
Once you have a clear understanding of your finances, you can start to set financial goals. You can use the SMART framework to set clear and actionable goals. SMART stands for:
- Create well-defined goals – such as; “I want to save $300 per month in an emergency fund.”
- You can track your progress with numbers. For example, it’s easy to measure whether or not you saved $300 per month for your emergency fund.
- Is your goal attainable based on your current situation? Do you have $300 per month to save? If not, you’ll need to readjust your goal.
- Does your goal align with your priorities, capabilities, and resources? Are you able to commit to this goal at this time?
- Set a clear timeline to achieve your goal: “I will save $3,600 in an emergency fund in 12 months by setting aside $300 per month.”
3. Create a budget
Now that you’ve outlined your goals, you can use a budget to help achieve them. A budget is a plan for your money. It highlights how much money you have coming in (income) and how much is going out (expenses). If you have more expenses than income, you have a few options: try to cut any optional expenses like subscriptions or entertainment costs, or increase your income. See if you can take on more shifts at work, start a side-hustle, or speak to your boss about a raise.
4. Choose a debt repayment strategy
If one of your goals is to pay off debt, there are two popular debt repayment strategies – the debt snowball and the debt avalanche.
- Debt snowball. With this method, you make your minimum payments on all debts and focus on paying off your smallest debt first. Putting any extra payments on that if you can. Once you pay off your smallest debt, you move on to your next smallest, and so on. This method is best for people who need help staying motivated. Having a quick win early on in the debt repayment process can keep you focused.
- Debt avalanche. With the debt avalanche, you also make all your minimum payments, but you focus on paying off your highest interest debt first. Once you pay off the highest interest debt, you move to the one with the next highest interest, and so on. This method is best for people who want to minimize interest payments and save money.
5. Build an emergency fund
All it takes is one large unexpected expense to throw your budget off track. An emergency fund can help you avoid this situation. By setting aside money into a savings account each month, you can build a pool of cash that’s available to help in emergency situations. For example, if your furnace stops working in the middle of winter, you can turn to your emergency savings instead of racking up your credit card and taking on debt.
6. Grow your financial literacy
When it comes to your money, knowledge is power. The more you know and understand, the more control you can take over your financial situation. Whether you want to learn about personal finance management, budgeting, or bookkeeping, there are podcasts, websites, and books on every financial topic. If you want a more structured education, you can look at taking accounting courses or investing time in classes to learn more advanced subjects like how to grow your assets. As you learn, you can share money management tips with your children, friends, and family to help them increase their knowledge and understanding.
7. Speak to a professional
Whether you need assistance with budgeting, overspending, or paying off debt, there are financial professionals available to help. You can speak to a credit counsellor about budgeting or credit management, a financial counsellor about shopping or gambling addiction, or a Licensed Insolvency Trustee about debt relief solutions. You don’t have to struggle with your money issues alone.
Take Control of Your Finances and Become Debt-Free
If you’re currently stressed about money and struggling with debt, there is hope. Money management is a skill that you can learn and implement to change your financial situation. If you’re ready to take control of your finances but need help getting started, reach out to a Licensed Insolvency Trustee at Allan Marshall & Associates. Whether you want to learn how to create a budget or you’re looking for debt relief options to avoid Bankruptcy, our trusted LITs are here to help. For a free, no-obligation consultation, give us a call at 1-888-371-8900 or complete our online contact form.
