The Basics of Managing Your Money Part II
Once you understand the basics, you should determine what your financial priorities are. Every person’s situation is different, and it is foolish to follow a one-size fits all plan. For example, someone who can’t wait to retire shouldn’t be saving the same amount as someone who would like to stay in their job for the rest of their life, as their financial goals are totally different. To get a sense of your financial priorities, write down a list of the five most important things to you right now (like seeing movies and eating healthily), and the five most important things to you in the future (such as paying for college or retiring at 50). Once you’ve done this, look at your monthly income and decide how you can maximize your available income to support these goals.
If you fall short of being able to fund these goals, like most of us do, it’s time to ‘cut off the fat’ – and keep it off. Like most of us, budgets look and feel a lot better once they’ve been on a diet… and easily can go back to their old ways if they aren’t maintained. Cutting the fat out of a budget is actually quite easy. First, you’ll be surprised at how many things you spend money on and don’t use. (Do you really need the 8-DVD plan from Netflix?) Second, and more painfully, cut out the unnecessary expenses that you may use, but don’t contribute to your ten major financial goals. (Think over-zealous dry cleaning or expensive haircuts.) The good news is that you probably won’t miss these either, once they’re gone. If this still does not get you to within your income, you will need to postpone some of your long-term goals until you can get your finances in tighter order.
Once you have a sense of your financial goals and a workable monthly budget, you can start to think about saving for the long-term.
For questions email Nick at nick (AT) moneyinenglish (DOT) com with money questions.