Money makes the world go round, and whether you have plenty of it or not quite enough, knowing how to manage your money properly can alleviate stress and improve your cash flow. Today most people use credit or debit cards to conduct the vast majority of their transactions. Despite the fact that we see cold, hard cash less often then we used to, understanding financial management techniques is a great way to make sure that you are managing your money rather than being controlled by it.
Track Your Spending
If you want to start managing your money better, the first step is to track exactly where your dollars are going. Most people pay their bills monthly, so it's helpful to look at one month at a time by listing all your set monthly expenses such as your rent or mortgage, car and other loan payments, memberships and subscriptions. Next, track your spending for a week to see exactly how much you're spending on things ranging from groceries to coffee trips. With a digital log of all your debit and credit card activities, there's no need to track receipts if you can review your purchases online. Still, many people like the accountability of writing down each purchase they make.
Make a Budget
Creating a budget is one of the most fundamental financial management techniques, and it's a valuable tool that helps you improve money management and cash flow. If you have tracked your spending, you know how much you're spending in different areas. To make a budget, list your monthly income and all your expenses, along with the amount allocated to each category. If you have more expenses then income, determine which expenses you may be able to cut back. If you have a surplus of income, designate that money for debt repayment or savings. Once your budget is in place, let it guide your spending, for example, before going out to dinner or buying new jeans, check if you have funds left in those areas of your budget.
If you want to make budgeting easier, you download a budgeting app to your laptop, tablet or phone. There are free and subscription budgeting apps, such as Everydollar, You Need a Budget and Mint. Then all you need to do is follow the prompts to enter your income. Afterward, you'll be asked to assign each dollar a job.
Consider The Envelope System
Even with a budget, some people find it difficult to manage their money when most transactions are conducted with the swipe of a card. After all, this makes it hard to picture the cash you're spending, and many people have overdraft plans that allow their purchases to go through even if they don't have the money in their accounts.
Because of this, some people who have tried other financial management techniques unsuccessfully choose a low-tech option: the cash envelope system. To follow this system you'll need a budget. Then, you withdraw the cash from each paycheck and put it into envelopes for various expenses. For example, if you've budgeted $200 per month for dining out, you place $200 in your "dining-out" envelope and tuck it away. Every time you go out to a restaurant, you pay for your meal with that cash, and when it's gone, it's gone.
Managing your money efficiently and improving your cash flow can be tricky, but developing a financial management strategy that works can help put you in control of your money, rather than the other way around.
Kelly Burch is a freelance journalist living in New Hampshire. Her writing on educational issues has appeared on Bright, The Washington Post, We Are Teachers and School Leaders Now.