5 Basic rules for successful Money management | Elamaran Selvam

Everyone makes money according to their job/business, but not everyone is good at managing the money they make. Buying a brand new iPhone on the very next day of launch may give you a richer look, but at the end of the month, it comes up with a 6-digit credit card bill and headaches. Check below the 5 basic rules to follow for successful money management and a healthy lifestyle. 

1. Understand your Needs

When it comes to the point of money, we make mistakes while choosing our wants and needs. In our daily life, one should first understand what they essentially need to run their life, followed by their next priority. If you ask someone how much money they earned last month, they will have an answer; but if you ask the same person how much they spent last month, the answer will be No. A successful money management practice lets you take complete ownership of your money.

If you have 3 bank accounts and if one of them is your salary account, you should know precisely how much amount of money should be transferred to other bank accounts such that to run your day-to-day expenses. You don't have to be a whiz at math to do this, all you need to know is, how much you spend on each essential items; this includes the money you spend monthly on food, groceries, rental, loans (if any), petrol/travel, and even day to day needs. Once you are clear on your needs, you are all set for successful money management.

2. Prepare a realistic budget

Once you become more familiar with your needs, a realistic budget helps you for the next level of money management. In simple terms, budgeting could be the sum of all your income and expense, which are expected for a defined period; most of us stick to a monthly period of budgeting, whereas maintaining a yearly budget helps further at meeting your long term goals. 

Your budget becomes useless when you don't stick to your plan, refer to it often throughout the month to guide you towards your spending decisions. There are different types of strategies available while budgeting, you can pick the most suitable one based on your needs. When you are a beginner at budgeting, try the 50/30/20 budget rule as below.

•  Spend 50% of your income on needs, such as house rent, groceries, medical bills, and insurance.
• 30% you can spend on expenses, such as shopping, clothing, mobile phones.
• 20% for your Savings like an emergency fund, buying a new car/bike, mutual funds.

It's never been an easy job to manage your money according to your budget, sometimes there are unexpected, and unavoidable spending could occur, so try to rebalance your budget and expense whenever it is required.

3. Set Your Financial Goals

A plan without a goal achieves nothing at the end of the day. When planning financial goals, try to set some realistic goals which are achievable within a specified time. Your goal could be anything, saving your money for your retirement, vacation, or buying your dream house.

While setting your financial goals, there are some basics which you should understand before diving deep into it. Either you set your goals or not, in your life, you will have cash flow by earning money. The main problem with these cash flows are, they will always be accompanied by an unwanted expense. Say for an example, you might receive your Annual bonus every year in June; If you have not planned this amount for a financial goal, then obviously, it would be spent on buying the latest offer in Amazon.

While setting up a goal, the possibility of achieving is mainly dependent on the time you allocate towards it. Financial goals under Money management is sectioned into four categories.

• Stepping stone goals - These goals could be set to complete within one or two days, or a maximum of one week like cutting down your daily expense on buying chocolates, trying to control the number of times you go for a movie in a month.

• Short term goals - These goals range at a period of three to six months to complete, and could be like setting yourself to stop using your credit card, saving 1000 rupees each month, etc. These short term goals always pave the way for Long term and Lifetime goals.

• Long term goals - These goals need a specific time limit from a period of 5 - 10 years to achieve them. They are always cumulative of a set of short term goals accompanied to form a long term goal. Let's say buying your dream car after 5 years could be a long term goal to achieve.

• Lifetime goal - These goals could be accomplished over a lifetime and could be a never-ending process too. Mostly they could be of personal goals like dropping your current carrier and switching to your passion, creating your own Organization, etc.

4. Control your expenses

The main problem with most of us is, we all plan to a greater extent, but we fail while sticking to our plans indeed. There is no point in making a budget, which anyways you don't follow, instead, try to control your expense wherever you feel not necessary. There are two possible scenarios where your plan fails; either your goals are unrealistic, or it is not accommodated for some unforeseen events.

When you are not sure what are your unnecessary spends; try to take a printout of all your last 3 months' statements. After fulfilling all your needs for the month, there could be some transactions that you would have did, keeping in mind you got some extra money to spend. That is the exact area where you need your focus and try to cut down your expense as much as possible. You may see a gradual increase in your savings once you start to control your unnecessary spending.

5. Save and Invest

The term saving and investing are like two sides of a coin, where first you have to start saving your money and later flip it investing for a better yield. You cannot satisfy all your needs with a single source of income and keep in mind inflation can occur at any time. Once you work hard and earn money, keeping it idle saving at your bank will do nothing but a small percentage of interest; instead, try investing them, let the money work for you, helping to achieve your financial goals.

When dealing with investments, you have to be very careful about where do you invest and should be aware of the market risks present. There are different types of investments available, and you have to choose your best option as per your needs and expected returns. The most common investments are bonds, FD, pension and retirement schemes, mutual funds, stocks, properties, and real estate. The average return on these investments is expected around 8-15% per year, which is far better than saving your money in a savings bank account.

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