Quote of the Week: "Balancing your money is the key to having enough."~ Elizabeth Warren.
Everybody manages their money in one way or the other. If you have an income (even if it is pocket money) you will have to manage it. This article seeks to make you a better manager of your finances:-
Income & Expenses
The first step to becoming a good money manager is to understand the concept of prudent money management. There are so many ways to define it but simply put, the ultimate goal is to have your income exceed your expenses while meeting your basic needs. For example, it does not make any sense whatsoever to cut back on your expenses to generate a surplus if you are starving.
You will need to increase your income from time to time as expenses will always increase with time due to additional responsibilities and inflation. Sometimes you might find yourself overwhelmed by the bills and that is normal. If you are always overwhelmed by bills that is abnormal and you are likely to end up in debt to fill the gaps. You need to review your personal finance management strategy before debts drown you.
So, how can you be ‘smart’ when bills are piling up? The reflex action is to borrow money. Easy access to mobile credit today has made it too simple to get a small loan quickly. However, this is just a short term fix if you don’t remedy the problem of a mismatch between your income and expenses. You should aim at either increasing your income or cutting down on non-essential expenses.
As a general rule, always try to avoid ‘personal loans’ intended to finance a lifestyle. Instead, take up ‘development loans’ intended to increase your income in the future. Taking a loan to expand your biashara or buy a car to use in your business is okay. However, a loan to buy a car to use for weekend getaways is a definite no! Save for that instead.
Track all expenses. Especially the ‘small’ ones. That is where most of your money is lost. Benjamin Franklin even noted that a small leak will sink a great ship, hence the need to beware of little expenses. The best way to track expenses is by setting a budget and monitoring it routinely. It is difficult to factor in all your expenses in a budget. (It is possible but very inconveniencing and time limiting). Note down substantial expenses not included in the budget when they happen.
Conclusion: The take away here is that you should always keep your expenses below your income, in other words, try to live within your means. A budget is the tool to help you achieve this goal. A good budget factors not only the income and expenditure but also the savings, retirement savings, and ‘non priority’ expenses like entertainment bills. A budget is the best tool to help you manage your money better, and managing money is as simple as that.