Most of us aren’t really taught how to manage our money wisely in school. So we grow up doing the same things with money that we see our parents and friends doing. In some cases, this can be a good thing if your parents or friends had good spending habits. But for many people, their own parents or friends weren’t taught how to manage money properly, so there is a vicious cycle of improper money management. Here are 10 tips to manage your money wisely:
1. Spend less than you earn – This is the most obvious lesson when it comes to managing our money, but for some reason, most people don’t understand it. By spending less than you earn, you’ll be able to save money for your future and won’t have to rely on credit to get you through the tough months.
2. Operate on a monthly budget – Setting a monthly budget is a great way to track your spending and make sure you’re spending your money wisely. If you don’t know where your money is going each month, you’ll have no idea how to get ahead with your finances.
3. Create an emergency fund – An emergency fund is money you have set aside for emergency expenses that come up during the month. If you don’t have an emergency fund, you’ll be forced to use credit or other savings to pay for unexpected expenses. Having an emergency fund creates a financial safety net that you can count on.
4. Pay in cash – Cash is king and I still totally believe that. Having cash on hand can take you much further than paying for things with a credit card. Most people don’t pay off their credit cards every month, so something you thought would only cost you $100 could end up costing you double or triple once you factor in interest charges. Using spending cash to pay for things like entertainment helps ensure you stay within your budget because once the cash is gone, it’s gone! It forces you to spend your money wisely and think about what you’re buying.
5. Start saving for retirement early – Compound interest is a powerful tool once you understand it. If you start saving for retirement early, you’ll have the power of compounding on your side. A person who invests $5,000 at age 21 will have $120,000 more than the person who waits until age 39 to start investing (assuming an 8% interest rate). Start early to start building wealth for yourself.
6. Don’t waste money on food – The grocery bill and eating out are one of the biggest ways to waste money. Buying only prepared foods at the supermarket can be expensive. Spending double and triple on food that you could prepare yourself at home is not a smart way to spend your money. Learning how to cook meals at home from scratch can help you save money on your grocery bill each month.
7. Decide what is important to you – Spending your money wisely isn’t just about cutting out everything you love just to make sure you pay the bills. You need to decide what you want to keep in your budget and what you’re willing to give up to make sure you’re spending your money wisely.
8. Realize when you’ve made a mistake and stop – If you go through a period where you’ve spent too much money and you know you’re not spending it wisely, take a step back and watch your behavior. Everyone makes mistakes when it comes to money. This is how we learn. The most important thing to do is stop and get back to normal as soon as possible.
9. Buy generics when you can – Sometimes the brand just isn’t worth buying. Things like food and clothing have some sort of “generic” brand name associated with them. If you’re looking to spend your money wisely, buy generic or off-label medications when possible.
10. Use thrift stores, dollar stores or garage sales – There are treasures to be found in places like thrift stores and garage sales, all it takes is a little effort. Being wise with your money will allow other people to pay full price for items that you can then pick up for pennies on the dollar.
These tips to help you manage your money wisely are just some of the ways you can have a big impact on the way you manage your money. If you start paying attention to your clothing expenses, you will be surprised at what you find and how it is possible to start managing your money better.