We all need to learn money management principles. Why? Because it will help us handle our finances better. We’ll know how to make the right decisions when it comes to our finances. No matter what situation we land into, we can navigate it so we can take advantage of it. Believe it or not, all situations can lead to a financial victory if you know the principles that will help you manage your finances well.
Learning these principles actually comes at a good time because a lot of people have been struggling with their finances for some time now. One of the signs is their inability to prepare for retirement. They haven’t saved enough because they either have too much debt or they are not earning enough.
In 2019, not even half of American workers feel prepared for retirement. In fact, of those between the ages of 45 to 59 years old, only 42% of them feel prepared to retire. These are the people who are a few years from retirement. Why is it that majority of this age bracket is not prepared?
This is only one area that can improve if you know the right money management principles to apply in your life. You can strengthen your finances and secure your future if you can apply the right principles. You’ll find that a lot of things about your life will change for the better if your finances are in good shape.
5 important money management principles
If you want to improve your finances so your debt will not join your retirement, where will you start? What are the money management principles that you need to learn and implement in your life?
Here are 5 that you can start with.
Organize your finances
Admittedly, not everyone is organized. There are just some people who don’t mind having a bit of chaos or mess in their lives. But if you think about it, this should not apply to your finances. You need to organize it. At least, you have to if you want to completely control your finances. The only way to control your finances is if you know everything about it. Like if you’re updated on your current financial situation, you’ll know how to use it properly. It’s easier to know that information if your finances are organized.
Spend less than you earn
Another principle that you should learn is to spend less than what you earn. Living within your means is okay. But it won’t give you enough room in your finances to improve it. Like if you’re trying to pay off your debts or save up for retirement. You need to spend a lot less than what you earn so you can do that. The lower you spend compared to your income, the more you can use the extra money to put yourself in a better financial position.
So while you are organizing your finances, take a look at what you spend on. Look at the expenses that you can cut back on. If there’s anything that’s just wasting your money, make a decision to stop spending on it. Use it to improve your finances instead.
Make your money work for you
With the extra money that you have freed from your monthly budget, choose an amount that you can use. This is the amount that can work for you. This is one of the money management principles that a lot of people don’t understand. They don’t know that you can make your money work for you.
For instance, you can invest some of your money on stocks that will grow in value over time. Or you can save up enough money to renovate a part of your house. Maybe you can convert the unused shed in your backyard into an Airbnb or a small house. You can have it rented so you can earn from it. That is how you make your money work for you.
Diversify your income
Once you’ve figured out how you can make your money work for you, you’ve just tapped two money management principles. The second one is diversifying your income. Every time you set up your money to work for you, that’s one source of income. The more sources of income you can set up, the more you make your finances crisis-proof. That means if you lose your job tomorrow, you still have other sources of income to rely on. That can make your future secure. And it will make things easier for you to set up your retirement so it will be a comfortable one.
Have enough emergency funds
The last of the money management principles that you should implement involves your emergency fund. It’s great that you’ve organized your finances and you’ve managed to make your money work for you and set up several sources of income. But you need to make sure nothing ruins what you just set up. One emergency can destroy that. This is why you need to be ready with an emergency fund. You have to save up for it. Your emergency fund can shield your finances from any unexpected event. You can keep paying off your debt or saving for retirement if you have this fund.
How money management keeps debt from your retirement
The money management principles mentioned are all meant to help you get rid of your debt so you can save up for your retirement. To motivate you to stick to these principles, here are the specific ways that it can help.
Full control over your finances
It was previously mentioned that being organized is one of the things that you need to learn. What that does is to give you full control over your finances. When your finances are organized, you know how much you’re earning. You also know where it’s being spent. These are the two important information you need to make smart decisions about your finances.
Financial stability even during a crisis
Money management principles can also help you find financial stability – even in the midst of a crisis. The diversity in your income and the emergency fund should shield you effectively. These two can keep your finances from being destroyed.
Freedom from debt
Since you have full control over your finances, you can find it easier to get out of debt. You can shift your finances so you end up with more money to use for debt payments. The more you pay off each month, the faster you can get out of debt. That will not just bring you to debt freedom, it will also help you save money in the process.
Faster road to retirement
With your debt out of the way, you can now exhaust all efforts to save up for your retirement. According to a survey, 2 out of 3 40-something Americans have less than $100,000 invested for their retirement. That means they have a lot of savings to fill up before they can retire comfortably. If you want to expedite the process, use the money management principles. These can really help you reach your goals faster. If you can do that, you can enjoy retirement earlier.