Life can be chaotic. Regardless of age or career, you will always be bombarded by things to do and places to be. And often the last thing on your to-do list is getting financially organized. You may see it as a minor detail. A oh-that-would-be-nice-to-do-someday task.
Only when the check bounces or the credit card is denied that we are confronted with the importance of money management.
You can’t do much in this world without money. And if you want to enjoy life to the fullest, you need to make managing your finances a priority. Right now.
It’s one of those tasks that are often dreaded, like putting away dishes from the dishwasher, but once you force yourself to begin it takes a lot less time than expected.
So stop giving yourself excuses and sit down for 30 minutes to go through these six steps to manage your finances.
Infographic created by PSECU, a Pennsylvania credit union.
Money Management Tips
Here are a few more tips to help you successfully manage your finances:
- Use an app: There are several money management apps, like MINT, to help you easily keep track of your spending.
- Don’t be afraid of credit: Using a credit card for purchases (as long as you pay it back in full each month) can be great ways to build up your credit score and to earn cash rewards.
- Pay off debt: There is no magic fairy that forgives debt. So buckle down and just pay off your debt. Don’t assume it’s a better to invest your money in retirement vs. pay off debt. Yes, investments may have a higher interest rate but because your debt principal is probably much larger than your retirement principal, you may end up paying more in interest than in building up interest.
- Share your goals: Whether it’s telling a friend or having annual family finance meetings, it’s important to have some sort of accountability with your finance goals.
Why Good Money Management is Crucial to Build Wealth
Have you ever brewed your own kombucha? In order to start, you need a SCOBY (the mushroom-like culture of bacteria and yeast that ferments the tea) and some starter liquid from a previous batch. Once you have that you can make endless amounts of kombucha. After each batch, just reserve a portion of the kombucha liquid with a SCOBY to make more.
Brewing kombucha has a lot of the same principles as creating wealth. You can’t make more if you use up all you have. The basic formula behind wealth-building is to spend less than what you earn. Then place that leftover money in an environment that will produce more money for you. In order to do that, you need to have a budget or a financial plan.
As kombucha ferments it actually makes more SCOBYs, which means you could separate them out and then have several batches of kombucha brewing at once to give you even more kombucha. If you leave them in one jar, they will grow at a massive rate the longer they sit. It’s similar to compound interest. Place your starter money in an investment account and the longer you let it sit the more interest it produces.
Time is a critical ingredient in wealth (and kombucha). That’s why it’s important to begin now.
Check out Modest Money’s investment tips to learn more about how to get your money to work for you. If you feel overwhelmed by investment options and it prohibits you from taking the first step, at the very least set up a retirement account. The infographic above shows the significant difference when you invest your money in a 401(k) vs. just letting it sit in a savings account. The graph shows the difference over 15 years but your money increases dramatically the longer you let it sit.
Don’t let the clutter in life distract you from putting down good financial roots. If you take time today to establish your financial footing, you can have peace of mind that your wealth will grow.