One does not have to be a financial genius to manage his money wisely. We only have to take certain basic principles into account.
It is true that, managing your money can get complex at times, but it basically comes down to answering 3 simple questions:
A) Where does all my money go?
B) How much can I keep?
C) What will it take to make the amount of money I keep be more than the amount I spend?
A. Start by knowing where you are financially—today
First, grab a snapshot of your debts and expenses. Look up what you owe on credit cards, home loans, student loans and other types of debt.
Then, for one solid month, write down every dollar you spend out of pocket. Think of it as keeping a personal money-management diary. Instead of your innermost secrets, you’ll be writing down every out-of-pocket expense from new clothes to candy bars. Here’s a sample spending journal that can get you started.
Also size up your fixed expenses. These include things like rent and car payments.
Then, categorize all your spending. For example, your categories might include groceries, transportation and housing.
Congratulations, you just performed a cost analysis.
B. Let’s get down to your personal finance basics: What do you want most, and how much money do you need to get it?
You need to save up for things you’ll buy soon, perhaps a used car or a new fridge. It’s not a bad idea to separate these short-term goals into “must-have” and “wish” lists. If your old fridge is kaput, a new one would be a must-have. That cool new gadget you’ve been eyeing? It probably belongs on your wish list.
You also need to plan for the future: Want to buy a house? Send kids to college? Retire someday?
Write down your longer-term financial goals and put them in order of how important they are to you. Then think about what it would take to actually achieve the goals at the top of your list. Not sure how much your goals might cost? You can find all kinds of estimating tools online, like this one to calculate how much you’ll need to retire.
Add up how much money you’ll need for your top short-term and long-range goals.
You just made a capital expenditures projection. (Are you sure you’ve never done this before?)
C. Take another look at your monthly spending
Go over every category and cut back as much as you can. Remember, every dollar you don’t spend now is another dollar toward the things you want most. Need a little inspiration? Watch this short video full of easy ways to save on everyday expenses.
Once you’re done, write down your new category-by-category spending totals.
Know what? You just built a budget for achieving your financial goals.
(Wait, maybe you are a financial guru.)
Extra credit: Jump-start your savings plan with 4 more personal finance tips
- Put money aside: Set up a savings account and ask your bank to set up automatic savings transfers every month
- Pay yourself first: Use direct deposit to move some of your paycheck straight into savings
- Establish an Learn more about our IRA and save for tax-deferred retirement savings
- If your workplace offers a 401(k) plan, take advantage of it
- Calculate how much money you’ll need to save for retirement by using the Merrill Edge retirement calculator
Source: US | Bank of America