Monitoring income and expenses is a tedious process that requires patience and foresight. While it may be dull to balance your checkbook and ensure bills are being paid, the security provided from managing your money is priceless. By employing a few simple techniques you can make the process both easy and enjoyable.
When I first entered college, I found myself having to manage my first income along with a sizeable amount of bills--rent, groceries, cell phone and recreation money. I spent the first semester going out to eat, to the movies and buying unnecessary items. I soon found that I had blown my savings from my summer job. Instead of having a comfortable financial cushion, I was soon living off a meager income from a part-time campus job--let's just say ramen noodles became a fixture of my diet.
Unfortunately, I had not set up a balanced budget to ensure I was paying all my bills, saving money and allotting for "fun" money. I had overlooked one of the crucial steps for managing money: I did not set up a budget to know how much I was making or spending. It is important to sit down with your pay stubs, bills and receipts to determine how much money can be allotted for each item. In fact, this basic step is really half the battle to ensuring a sound money management strategy.
The repercussions of not having a balanced budget can often cause you actually to lose money. For instance, many banks charge overdraft fees when you buy an item and do not have sufficient funds. While in college, I often found myself not only with depleted bank account but also a hefty overdraft fee-usually around $35 dollars--after not closely monitoring my spending. It is hard to imagine now, but I was actually paying for my poor money management choices.
So, what are a few simple steps to balancing a budget? The first step you must do is actually total the money you receive monthly. Add the sum of all the income or support you receive--whether it is from a job, rental property or a relative. After figuring out your monthly income, next add up all your monthly bills-rent, mortgage, cell phone, water, gas, electricity etc. Once you have both of these numbers, subtract your total income from your expenses and what remains constitutes your surplus from each paycheck.
Now, many people decide to spend their surplus income on personal hobbies or entertainment. While it is certainly appropriate to spend a portion of your income on these items, it is not wise to spend all your extra money on dining, clothes or other luxury items. Instead, saving a portion or investing your money in a personal project allows you to invest in yourself and help you grow as a person. For example, I spent my summers while in college working for a landscape company, so I could invest in my education and myself. Although I had a lot of surplus money from the job--I lived with my parents during the summer and had almost no bills--I choose to invest and save for my education. This investment took years to pay off, and I had to sacrifice going out and having fun; however, the "nest egg" I saved over the summer helped me pay for college expenses and develop a better future.
Finally, it is important to not see money management or a budget as a hindrance to your life. Instead, it is important to view it as a necessary tool to ensure a successful future. When I save money now, I do not feel as if I am "sacrificing" for tomorrow; rather, I recognize that I am ensuring I will have a safety net later in life. By positioning saving money as a "precaution," it reframes it as a necessity and a much more essential part of my livelihood-rather than a burdensome sacrifice.
So, the next time you find yourself out of money at the end of the month or paying overdraft fees, reflect back on the techniques you are employing for managing money. Make sure you have developed a balanced budget, allotted "fun" money and are investing in your future. Whether you are a young professional or an individual nearing retirement, it is never too late to develop the skills necessary to managing money. Most importantly, do not think of budgeting money in detrimental manner. Rather than seeing it as a deterrent to your current life, view it as a necessary insurance policy to ensure a bright and secure future.
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