The Beginner’s Guide to Managing Money

This beginner’s guide to managing money will show you steps to take that will enable you to take control of your money and your personal finances. In one way or another, money plays a role in virtually every aspect of our lives. Even when we are involved in an activity that doesn’t cost anything–enjoying a leisurely walk, spending time with friends or loved ones, or reading a book, for example–we still have to have the financial security to be able to spend our time doing something that is not earning us any money for the time we spend doing it.

Earnings, Cost of Living, and Inflation

In today’s world, most people’s salaries and earnings cannot keep up with the rising cost of just about everything. When we consider the inflation rate as well, our dollars have a hard time keeping up with the rising cost of living. When you add in the fact that we are surrounded by ways to spend our money–many of which are hard to resist!– it’s easy to see why so many people are working harder than ever to make a living yet have less and less financial security to show for their efforts. Since financial security is essential to having the opportunity and choices to live the life you want, taking steps toward achieving financial security will start you on your journey to a more fulfilling and prosperous life.

My Experience Managing Money

My own financial habits are guided by the sound yet simple principles I was taught in childhood, including the importance of delaying gratification in order to save for the long-term as well as the practice of paying myself first every month. When I started working in high school, I considered every purchase in terms of how long I had to work at my job to earn the money a purchase would require–a practice I continue to this day!

Attending a respected public university rather than a more expensive private one, along with working full time while attending college, enabled me to earn three degrees without incurring any debt, receiving salary increases that I invested as I furthered my professional qualifications. Along the way, I lived beneath my means, remaining in the same house I purchased in my 20s and paid off within 10 years, paying cash for my vehicles, and saving aggressively and investing prudently. After reaching the point where I felt I had more money than I could ever reasonably spend, I retired in order to have more time to devote to my interests, including helping other people achieve financial independence and security.

What Is Personal Finance and Money Management?

Regardless of whether you have a lot of money or just a little, you are the one who is ultimately in control of your financial habits. These financial habits include decision making at every step of the way, including planning how to pay down any debt you may have, setting aside money for planned purchases and emergencies, investing for the future, and making sure you have adequate insurance coverage to get you through life’s inevitable emergencies. Whether you feel like you are on the right track with managing your money, you feel overwhelmed by your circumstances, or you fall somewhere in between, you have to take the responsibility of educating yourself so you can chart the course your financial future will take.

How to Get Started with Managing Your Money

What do you need to do to get started managing your money and taking charge of your personal finances? The first step is to be honest with yourself and take a close look at the current state of your personal finances. After you know where your finances stand right now, you can set financial goals and develop an action plan that will help you to achieve your financial goals. From there, you can put your action plan in place, implement any needed changes, and continue to monitor the state of your finances as you make progress toward achieving your goals.

Common Questions/FAQ about Personal Finance and Managing Your Money

1. Why should you take control of your finances?

Earning money is hard work, yet spending money is so very easy. Time is a limited resource for all of us, since we only have 24 hours in a day and a limited number of days to enjoy living on this earth. We want to be in control of how we spend the time we have, and we want for our money to work for us, enabling us to live the type of lifestyle we want.

It’s great if you enjoy working and plan to never retire. However, you don’t want to have to work yourself to death just trying to earn enough money to stay afloat. It’s easy to accumulate a lot of debt relatively quickly without realizing just how deep in debt you are getting yourself. Yet going into debt in the present brings a lot of long-term consequences that compromise your future.

Taking control of your finances today will increase your peace of mind in the present as well as enable you to live the lifestyle you desire in the future.

2. What are the basics of personal finance?

The basics of personal finance include setting financial goals, determining your current net worth, examining your cash flow, managing debt, saving and investing, getting adequate insurance coverage, and planning for major life events. Without clear financial goals, it’s easy to live one day at a time, spending money without keeping an eye on your present and future financial well being.

Determining your net worth involves listing all of your assets as well as your financial obligations and debts and provides a starting point toward saving and investing for the future. Examining your cash flow is an important part of the process as well, since you have to know how and where you are spending money to be able to cut spending and increase saving.

As you gain control of your finances, you will want to save for different purposes as well as invest for the long term. Additionally, making sure you have adequate insurance coverage and plans in place for major life events such as births and deaths will go a long way toward securing your financial future.

3. Where do I start with personal finance?

Taking a close and honest look at where your finances are today is the first step in achieving your financial goals. Without a clear plan, you won’t make much progress in achieving your desired level of long-term financial stability.

Keeping in mind that time is one of our greatest as well as limited assets, setting short-term, mid-term, and long-term goals for your personal finances provides the best starting point for helping you progress toward your financial goals.

Examining your existing attitudes and behaviors with money provides an important starting point as well. Even though the basics of good financial practices seem simple, they aren’t always easy. In fact, many factors–including our past experiences and present environment–can work against us, sabotaging our plans for managing our money and achieving our goals.

For this reason, an awareness of our own attitudes and behaviors with money plays a vital role in helping us to take control of our spending, saving, investing, and paying down debt.

4. What is the best way to manage money?

You may have heard the old saying that when you fail to plan, you plan to fail. This old saying is especially applicable to personal finance and the way we manage our money. Without a clear overall plan and well-defined short-term, mid-term, and long-term financial goals, it’s all too easy to live paycheck to paycheck, spending all you earn and even more.

Instead, you’ll always want to pay yourself, setting aside money each month for savings as well as investing. As you set money aside, you will be able to watch your savings and investments grow, and the growth you see will help you get closer to achieving all of your short-term, mid-term, and long-term financial goals.

Additionally, tracking all of your expenditures–from your largest monthly financial obligation to the smallest–will enable you to see exactly where your money is going.

Knowing where your money is going is the first step in developing the awareness of your spending habits that you need to be able to pinpoint the expenses on which you need to cut back.

5. What should you not do with your money?

Although this sounds obvious, you don’t want to waste your money or incur debt by spending money on things that contribute little toward enhancing your overall quality of life or on things that will not last long enough for you to get your money’s worth out of them.

Most people who struggle to manage their finances lack a clear understanding of how, when, and why they are spending their money. Consequently, their money slips through their fingers or out of their wallet $5, $10, or $20 at a time.

It does not take many small expenditures before the total adds up to a large sum overall. You may have heard of personal finance expert David Bach’s book The Latte Factor, which uses the example of how spending $4 or $5 on a coffee every morning is a seemingly small expenditure that adds up to a large amount over time, a large amount that could better serve you by being saved or invested wisely.

Bach’s example of how small expenditures add up to large sums over time is especially powerful because these small expenditures can be a huge financial drain for most people.

6. How can I become rich?

First, remember that “rich” is a relative term, dependent on what you consider “rich” to be, your desired lifestyle and your basis for comparison. Becoming mega rich requires innovation, celebrity, or achieving something that will set you apart from almost everyone else in the world.

However, if you consider “rich” to mean that you have enough money to live a life of reasonable spending without worry, that you have enough of a financial cushion to choose the lifestyle you want, that you live free from financial worries–that type of “rich” is attainable if you are willing to exercise self-restraint and delay gratification in the present in exchange for a financially secure future.

Mindfulness and intentionality are essential elements of success in numerous areas of our life, and personal finance is no exception. As you consider your savings goals and investment options, be guided by your goals, patience, and prudence. If something sounds too good to be true, it usually is, and although the latest speculative craze may seem to offer the promise of fast and easy money, you can be sure that speculation likewise offers the possibility of losing all of your money just as quickly.

The keys to long-term financial prosperity include mindful saving and investing guided by patience, mindfulness, and sound financial stewardship along the way.

Tips for Success in Managing Your Money

The Last Thing You Need to Know about Personal Finance

Regardless of your situation, navigating the many avenues of your finances can seem overwhelming at first. For this reason, many people tend to put off tasks related to managing their finances, telling themselves that they will get to it one day when they have more time. Of course, most of these people never get around to taking any action.

Instead, these people drift through life without any clear financial plans, oftentimes living beyond their means, spending more than they have, and incurring debt. After reaching the time in their life when they would like to slow down, retire, and spend time doing the things they enjoy most, they find that taking it easy is not financially possible. This type of scenario is avoidable. No one needs to end up in circumstances like what I have described.

Instead, make the choice right now, today, at this minute, to take control of your finances. Start by taking an honest look at your where you stand with your money and go from there. You–and only you–can take control of your money for the present and the future.

Was this information helpful? What other topics would you like to read about in the future? Please let me know in the comments!