How to Manage Your Money
Do you wonder how your neighbor could spend a month in Bali last year? You know they have about the same income and expenses as you, but they seem to manage so much better. Management is the key. Many people cringe at the words “money management”. They think of multinational companies, and high finance, and professional accountants. Yet managing money is not only essential to your family’s well being, it is also part of the art of living.
Everybody can get some know-how about using money more wisely. With a little effort, you can chase the terror out of such subjects as interest rates, credit and collateral, life insurance premiums, and house closing charges. Then, with your newfound knowledge, you may find yourself handling family finances so well that there’s something left for life’s wonderful extras.
Fortunately, getting what you want for yourself and your family does not necessarily depend on how much you or your spouse makes. At every level of yearly income, you can find families that manage well and those that are miserable. Some families making $100,000 a year or more own expensive homes and two cars, but have trouble meeting their simple expenses. There are families with average income. Because of good management, they are buying their own home, are planning to send their children to college, and have laid a foundation for a secure retirement.
They know that good management does not simply mean staying out of debt. It means getting the most for your money, and stretching every dollar as far as it will go. It takes a lot of planning and self-discipline to shop and spend wisely. Most of your savings will be on the small side, too. But pennies can mount up to many dollars for a car, a vacation, or retirement security in the future. Besides, the hard work that goes into forming good spending habits has a reward beyond simply savings: it can give you great pleasure and satisfaction in knowing you’re making money your servant rather than your master.
Design your family budget to make life easier, and to let you spend more money on the things you most need and want. Many people can’t stick to formal budgets—that is, making an exact monthly allotment for all expenditure, based on present income and expected expenses. No matter how you plan or forecast for the future, something unexpected crops up.
Counselors suggest that all members of your family take part in budget planning— even the children—and that each person be given an allowance with no strings attached, no matter how small. Your budget can cover any period, but most families find that a year is the most convenient. In making your budget, figure out how much income you can expect during the budget period. Start with you and your husband’s take-home pay, and add whatever else is appropriate, such as interest on bank accounts, or dividends on stocks. If you can swing it, it’s best to let interest and dividends accumulate. Then you get interest on the interest, and you can reinvest the dividends.
The next step is establishing how much you will spend during this period—and this is where most budgets go wrong. It is easy to predict fixed expenses, like rent or mortgage payments, utilities, insurance premiums, and installment payments. It is not much harder to estimate grocery and entertainment costs. But it may be impossible to estimate medical care, and it’s a good idea to keep some cash aside for that purpose alone. To help you estimate the less fixed items, look back through old checkbooks, bills, or any other record you can find, and get an idea of what you spent on them in the past. In addition to regular expenses, add in large seasonal expenses, such as vacations and property taxes. Last, set down the amount you are saving for long-term goals. If the total of your expenses is the same, or close to, your estimated income, consider your budget balanced. If expenses are much more than income, you’ll have to cut somewhere. Perhaps adjusting can be as simple as buying cheaper cuts of meat, or using the car less often for short trips.
If you use the money you have to best advantage, you can do more to create the kind of lifestyle you want