Money Management

Finding a System that Works for You

Financial experts will tell you that the key to successful money management is to understand how you’re spending your paycheck. However, it’s not enough to rely on your memory. You need to develop some sort of formal system for tracking your expenses.

The Envelope System

For many people, a cash-based envelope system is the most effective money management tool. With this system, you have envelopes for each of your fixed monthly bills—plus additional envelopes for discretionary spending categories such as:

• Eating out
• Entertainment
• Clothing, toiletries, and other personal care items
• Gifts for friends and family

With this system, it’s easy to see exactly where your money is going because you have a specific dollar amount placed in each envelope. When the money is gone, your spending needs to stop.

The envelope method of money management has been made popular by financial guru Dave Ramsey. To learn more about this method of tracking your spending, please visit his website.

Computer Software

If you’re passionate about technology, you may find it easier to manage your money by using a software program such as Quicken or Microsoft Money. These programs can help you create graphs and spreadsheets that track where your money is going each month. They can even be used with many online banking systems. If you also run a small home-based business, these programs will make it easy to prepare invoices and keep track of your tax-deductible expenses.

Tips for Better Money Management

Once you’ve decided what organizational system will work best for managing your money, keep in a mind a few basic tips that will help you make smart financial decisions.

• Understand where your money is going. When they look at their monthly bills, many people are shocked by the amount of money they spend on bank fees, cell phone service charges, and other expenses they don’t really understand. If you don’t know the purpose of a particular fee, call the company and ask if there is anything you can do to have the charge removed.
• Don’t be afraid to ask questions. For example, if you receive a bill from your doctor’s office that you think your health insurance should have paid, call the office and ask them to explain the charges. Mistakes are more common than you might think and it’s your job to catch these errors.
• Develop a good filing system for receipts and other important papers. Staying organized and avoiding the hassle of misplaced paperwork can often save you big bucks. For example, if your new refrigerator breaks while it’s still under warranty, you’ll probably need the receipt to get it fixed.
• Make comparison shopping a priority. Although most people will take the time to evaluate their options when buying cars and other big-ticket items, many people overlook the importance of comparison shopping on a day-to-day basis. Shopping around for the best deal is a great way to cut costs on everything from cleaning supplies to printer ink.
• Remember that even a small savings can help you get your finances under control. If you’re battling massive credit card debt, taking the time to clip coupons to save $10 or $20 on your grocery bill is a smart idea. Even though that extra cash may not look like much, it’s enough to put you on the path to financial freedom.

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