A lot has been said about wages never being enough, but are there money management tips for salary earners?
Being good with money is about more than just making ends meet. As a result, salary earners have been encouraged to adopt good financial skills.
Yes, spending your money recklessly impacts your credit score and the amount of debt you end up carrying.
If you are one of those who struggle with money management issues, living paycheck to paycheck, you have come to the right place.
What is money management?
In simple terms, money management refers to how you handle all of your finances, from budgeting to investing, to saving and setting goals.
Money management refers to the process of tracking and planning an individual or group’s use of money. In personal finance, money management includes budgeting, spending, saving, and investing.
In corporate finance, money management covers the raising and use of capital. A firm’s budgeting is mainly influenced by its business strategies.
Money management and personal finance
In reference to personal finance, money management is a broad concept. It refers to the strategies and techniques to determine the use of an individual’s income.
In personal finance, money management covers budgeting, spending, and saving or investing.
As a result of different ages, lifestyles, family structures, and many other factors, financial plans for individuals are different. However, the fundamental principles of budgeting can be commonly shared.
For example, one simple method of personal budgeting is the “50-20-30 Budget Rule.”\
This rule suggests that an individual spends 50% of their after-tax income on essential expenditures like rent, transportation, foodstuff, utilities, and so on.
30% of their income should be spent on the things that the person wants. It can include expenses on partying with friends, movie tickets, and vacations while the remaining 20% should be saved or invested for future financial goals.
Basic rules of money management
If you are a big spender, higher earnings won’t solve your problems until you learn to manage the money you have.
This is mostly because the more you earn, the larger your appetite.
However, by practising sound money management principles, you can always get what you want without stress.
Some basic rules of money management for salary earners include;
-
Understand needs
Your desires may be many but a good rule of money management requires you to limit your spending to your needs.
Your needs include essential items like food, clothing, and shelter. Good financial management helps you get the goodies when you can afford them.
-
Live On Less
Another good money management tip for salary earners is to live below your income. Your financial reality is the balance in your wallet and your bank accounts.
-
Keep emergency funds
This comes in handy when you are flat-out broke and need funds for an urgent need. This could be anything from a medical bill to home or car repairs.
Build up an emergency fund to handle unexpected bills. It is also advised that you build your savings enough to last three to six months of basic living expenses in the event that you go out of employment.
-
Make a budget
Make a list of your fixed and variable expenditures side by side with your income after tax. If your expenses are more than your income, you have cutting to do.
Making a monthly budget helps you spend within your limits. It also keeps you away from them.
Your budget should be detailed and include everything that takes money from as little as airtime to as basic as feeding.
Also, ensure you do not make the mistake of leaving the budget in your head as many do. Instead, write it down on a piece of paper or accountability software where you can track things easily.
-
Reduce expenses
Cut spending on large and small items to fund your goals. Find lower rent and trade in your vanity vehicle for a cheap car that runs well.
Carry your lunch from home. Eliminate ego from the equation and find bargains on used merchandise.
The aim is to stay meet financial goals, not impress people.
-
Save and invest
Others would say, pay yourself first. Whatever you call it, plan to save every month.
Saving a fixed amount monthly is a vital moment management tip for salary earners. One way to go about it is to automate monthly transfers to emergency savings, investment accounts, and retirement accounts.
-
Stay away from debt
Don’t let debt become a nightmare. Financial experts recommend keeping your debt at less than 20 percent of your net income. Mortgages can be kept under 40 percent.
In the situation where you have already taken out loans, list them, from the smallest to the largest.
Practice strict frugality to free up mega-cash and put extra money on the smallest debt each month while making minimum payments on the other debts.
-
Set and achieve goals
Set financial goals for the short and long term. Put them and a plan to meet them in writing. For example, save for a dream vacation, pay off the mortgage, save for retirement, and build wealth.
-
Practice giving
True wealth comes with the responsibility to share. Have fun with your money but don’t hug it all.
-
Have some restraints
When using your ATM card, it is good to know that there are limits. ATM cards are known to mostly cause you to spend far more than you budgeted.
Yes, they can be a lifesaver, and for grabbing easy cash, however, they can also contribute greatly to why you are always broke.
Basically, for your savings account, stay away from an ATM card as much as you can. Also, when you have to withdraw, always stick to the exact amount that you need.
Stay at an advantage
This may not come as a money management tip for salary earners, but as a saver, you are advised to have separate accounts.
Savers are often advised to open four different accounts for different purposes in order to maximize savings. These four accounts must have different features and satisfy different purposes;
The first account should represent your wants, which are things you do not necessarily need. Basically, from hangouts to shopping and satisfying cravings, only transfer the sum you budget for wants into this account.
This account is probably the most important as bills are compulsory. If you can, make it your salary account. It should hold money to sort out basic bills like housing, electricity, and feeding.
Emergencies are never expected, which is why they are called that. Basically, you can be having the time of your life one moment, and in dire need of cash the next. This is why it’s good to always have an emergency account, and it should be funded by a certain percentage of your total income.
This account should be for farfetched wants like vacations, purchasing a vehicle, or buying a car. Therefore, it exists to help you save on projects and other expensive trips that you may intend to go on.
Conclusion
Money management requires a lot of determination and discipline. However, your goals can be easily achieved if you pay attention to your spending habits and set targets that you stick to no matter what.
Search our list of providers now to find the right one to help you manage your salary.
