Importance of Money Management

Poor money management means pouring money down the drain.

Poor money management means pouring money down the drain.

Common sense--sticking to a monthly budget and living within your means--is part of money management. But it also takes study and effort. You have to learn how keep an eye out for bargains and know when to avoid a bad deal on a purchase. As you progress in your career and earn more money, understanding how to invest it wisely becomes important to reaching milestones such as having the down payment for a home.

Security

Being a good money manager allows you to accumulate savings. This gives you the security of knowing that you have the resources to deal with unexpected expenses--such things as the car breaking down, your dog destroying your new sofa while you were at work or your boss politely suggesting you should seek employment elsewhere. If you reviewed your expenditures for an entire year, you would see that unexpected expenses inevitably occur. Having savings available means you don’t have to use credit cards to pay for emergencies.

Take Advantage of Opportunities

From time to time we all encounter opportunities to make more money or have an interesting experience. A friend may alert you to an investment opportunity, or you may find a terrific deal on a once-in-a-lifetime vacation. It’s frustrating to not have the cash available to take advantage of these opportunities. People who have been successful at managing their money get to go to exciting events like the Masters Golf Tournament, while those who have mismanaged their money stay home and play miniature golf with their somewhat annoying relatives.

Pay Lower Interest Rates

Your credit score is one measure of your money-management skill. A high score means you have paid your bills on time and kept your total debt level relatively low. Achieving a high score has rewards that can help you keep more of what you earn because you will be charged lower interest rates for home mortgages, credit cards and auto loans--even insurance on your car. And, of course, you can brag about your high score at parties.

Reduce Stress and Conflict

Not being able to pay your bills by the due date, or finding you are always broke at some time during the month can lead to significant amounts of stress for a couple, resulting in conflict over financial objectives and spending habits. Pam Belluck reports in the New York Times of April 8, 2009, that mental-health experts say the stress of financial worries can cause people to become anxious, sad, unable to sleep--or even develop headaches and high blood pressure. Learning how to manage your finances so you have a surplus of funds can relieve this pressure and allow you to enjoy life with your partner rather than being in a constant state of worry about the future.

Earn More

As your incomes grow, your financial planning will not just involve budgeting so that all the expenses are covered each month, but also determining how to invest the surplus that accumulates above what you spend. Becoming knowledgeable about investment vehicles such as stocks and mutual funds can allow you to earn more on your investment funds than you could by leaving them in a savings account at the bank. Bear in mind that dog tracks or offshore casinos are not generally recognized as sound investment vehicles. The great thing about having investments is that while you are at work earning money, your investments are also working for you.

References

About the Author

Brian Hill is the author of four popular business and finance books: "The Making of a Bestseller," "Inside Secrets to Venture Capital," "Attracting Capital from Angels" and his latest book, published in 2013, "The Pocket Small Business Owner's Guide to Business Plans."

Photo Credits

  • money down the drain 2 image by Robert Young from Fotolia.com