Having and executing an efficient money management system is vital to attaining financial independence and creating wealth. If you live in a country with laws that encourage financial independence, following the steps below will work to help you create a more efficient money management system and a more abundant life.
Take Responsibility for You Financial Situation
Recognize that you created your current financial situation because of your choices and habits. Unless you are a child, a person literally just freed from bondage or a refugee you must accept that only you had the power to create your current situation and that only you have the power to change it. In the West, it’s only in the rarest of circumstances that this does not apply to a person. Until a person accepts this first step their ship will always be blown by the winds of habit and impulse. You must recognize that you are responsible for yourself.
Saving money is the single most important part of creating an efficient money management system. You must spend less than you earn and save the rest. Save one thousand dollars in an emergency fund immediately then shoot to save 3 to 6 months of expenses. Save 10% of your all income you make immediately before spending any of it. If you can’t afford to save 10%, save what you can, even as little as 1% to begin with and aim for 10%. Eventually after following these steps you should try to save as much as 50% of your monthly income. Save all money that comes to you unexpectedly aside from your regular income. This can include bonuses, gifted money, repayment of a loan and other cash that you have lived without.
Create a Budget
Dave Ramsey says “a budget is simply telling your money what to do rather than wondering where it went.” First allocate money for all your immediate necessities. First buy food and necessary clothing. Second pay the essential utilities; water, electricity etc. Next pay the house payment. Then pay off debt. Budget in some money for fun, but don’t go overboard. Since income and expenses can easily fluctuate from pay cycle to pay cycle, write out a new budget at the beginning of every month.
Develop Your Financial Vocabulary
It is amazing just how infrequently this step is ignored, but it is an integral aspect of money management. Many people might say develop you financial education, but “education” is a vague word that doesn’t tell a person where to start. That is why I say “develop you financial vocabulary.” Robert Kiyosaki, the author of the well known Rich Dad series of money making books states;
The difference between a rich person and poor person is that person’s vocabulary. You need to learn words such as producer price index, profits and Cash flow. In order for a person to become richer they need to increase their financial vocabulary.
This step can be started by acquiring a dictionary of financial terms, or doing a web search on the subject. Choose a term or phrase daily or weekly and use it as much as possible. This is a lot like learning a foreign language.
Along with this step you should increase your financial education in general. Read books about business and finance. Watch the business network. Peruse the business magazines at the local grocery store. Don’t waste time during commutes either. Listen to the Dave Ramsey Show or audio books about business and finance. Don’t be frustrated if this stuff is over your head at first. Repetition equals education.
Swear off debt from this day forward. Get a free credit report at; annualcreditreport.com. Next, as Dave Ramsey recommends list your debts in order from smallest to largest. Attack the first one on your list with intensity until it is paid off. Once the first debt is paid in full, proceed to the next one on your list and attack that one until it is paid. Do this with each increasing debt until the largest is paid off in full.
If your expenses outweigh your income, get a job. Work as many hours as possible. Investigate other financial opportunities. Explore your hobbies and passions to find a side project that could bring in additional income. Before being elected president, Donald Trump said that in the long run a person is likely to make more money by monetizing something he loves than by working in an industry that is already successful.
People tend to appreciate the value of a dollar when they use real dollars to pay for expenses. Debit cards and checks certainly have their uses. However, being handed a receipt that you tend not to scrutinize does not have the same impact as watching the dollars in your wallet dwindle. When it comes between handing a cashier actual dollars for a nonessential expense or holding on to your money for something more practical or important you are less likely to blow you dough on trivialities.
Another great aspect of using cash is that you are more likely to wind up with change. At the end of each day put your change in a change jar. By the end of the month, you can easily wind up with $20 or more in change. At the beginning of each month deposit the past month’s change into your savings along with the 10%-50% of your other income.
A six-pack of beer bought at your local supermarket can cost between 5 and 10 dollars. Six beers bought at the local pub can cost as much as 18 to 30 dollars, plus tips, cover charges, gas or taxi services. That’s quite a difference!
Among his studies with other millionaires throughout the Unites States, Thomas J. Stanley, author of “the Millionaire Next Door” and “The Millionaire Mind,” found that common behaviors of millionaires included entertaining family and friends at home rather than going to extravagant parties. Rather than spending their money on excessive consumables they chose to study or plan investments. While no healthy person would want to stay home all the time, going out less and entertaining at home while following the basic plan presented here can certainly have a positive impact of one’s finances.
Following the plan outlined above will undoubtedly increase your financial status. If you keep doing the same things you’ve always done, you can expect the same results you have always gotten. Step up, execute this plan and watch your wealth increase.