Money is an important part of many aspects of our lives. It is important to teach kids about finances before they leave home. Part of the problem is that many adults do not know many of the dos and don’ts of personal money management
One of the most important things is to live within or below your means. This means not to spend more than you earn each month. The easiest way to live within in your means is to have a monthly budget each month. It is important to know how much money you have coming in each month and how much you have for expenses. Once you know how much money you have coming in, the first expenses to be subtracted are necessary expenses such as mortgage payment or rent, food expenses, utilities, child care and others. Once these are subtracted, you can see how much money is left over for other expenses and savings.
Some experts suggest to pay yourself first before paying other expenses. Many people think they will save what is left after other expenses, but in many cases you will find other ways to spend the money and not have any or very little left for savings. Set an amount that you will put into savings each month and then budget to spend what is left. If you make this amount automatically deducted from your account each month, it will not be as tempting to skip a month or two than if you would physically have to write a check or transfer the money.
You also need to know the difference between wants and needs. There are certain things you do need to purchase, but there may be less expensive options that will be just as good as the more expensive options.
We all know it is important to save money, but in many instances it may seem impossible. With the power of compound interest, the earlier you start saving, the less you will need to put away over time. Each year, the amount of interest you have earned is added to your savings amount. The interest for the next year is figured on the new amount, and the new balance also continues to compound from year to year.
Although it is important to save, it is important not to feel too restricted such as with dieting. If you feel too restricted you will likely get frustrated and quit. Similar to food, moderation is the key. You can spend money but be careful to watch for impulse purchases and unconscious spending. Think about items you are considering purchasing and determine if you really need them. A dollar or two here and there may not seem like a lot, but can add up over time.
There are many dos and don’ts of personal money management that people do not know about or choose not to practice.