Money Management starts with a mindset.
So What exactly is Money?
Money is just a tool to sustain your day-to-day life, to put a roof on your head, to put food on your table and to buy some of the luxuries that you wish for.
Having a good amount of money will definitely give some freedom in choices.
But having money will not definitely be like a magic wand that will erase all your problems in your life.
People are still miserable with having great amounts of money.
So it’s just a tool to have freedom in choices.
So what will be the things that you need to manage money?
1.Budgeting
2.Your Spending Habits
3.Importance of Goals & Discipline
Budgeting is more of a psychological game than a numbers game. Numbers also play an important role but it is the mindset that matters. You need to set aside your monthly recurring expenses, set aside for some entertainment and some for investment. Now here the order plays a very important role.
Having Investments like Sip’s, RD’s etc on Autopilot Mode is very crucial in budgeting. Because having money left for investments at the end of the month can make us spend money on the products that we don’t need due to the Impulsive decisions and having no money left for investments.
You’re likely not to buy a product if you’ve to go through a tedious procedure of withdrawing your SIP’s money which will take some days eventually killing your desire for the product till the money arrives in your account.
Now there is no hard and fast rule of how much % of your income you should invest and spend, which will depend on your financial condition and financial responsibilities. Not having financial responsibilities can be a ticket to retire early if you invest a substantial amount of your income.
The best way is to segregate all your expenses and have an upper limit on them, this creates a barrier in your mind of how much you’ve to spend on that particular item.
Spending should only be done on products that you need and not want. For e.g: You probably don’t need that smartphone which you need to buy on monthly plans rather you should spend that money on things like quality food, your gym membership, comfortable shoes that will last long etc.
Spending money on quality products that will last you long will probably save you money in the long term and have mental peace rather than dealing with a product that fails on you in crucial times
Set Some Goals related to things that you wish to buy like buying a house, saving some money for a vacation, buying a car etc. But before buying a depreciating asset that needs constant maintenance you need to set aside some money for its maintenance before buying it. By doing this, that depreciating asset will not eat into your money from your regular income and disrupt your monthly recurring expenses.
Now to achieve some of the goals you need to be disciplined. Consider SIP’s as an EMI for your future self. For E.g.
- Investing just 3000 and by increasing 10% every year will leave you with a respectable corpus for retirement.
Some Tips:
- Learn what you need and what you want.
- Start health insurance and term insurance from your first paycheck. Life is very uncertain the least we can do is manage our financial risk in those tough times.
- Have an Emergency Fund for 6–9 Months. Covid-19 has probably taught us why an emergency fund is necessary.
- Learn the power of compounding.
- Learn how to use Credit Cards for your own advantage.
- Have an abundance mindset rather than a scarcity one i.e. learn how to earn more if you are earning less or up-skill rather than compromising on the quality of lifestyle by spending less on important things that give you peace of mind.
- Don’t Rely on a single source of income have multiple streams of income.
Conclusion: Money management is all about managing your mindset about money.
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