Money Management is a fundamental topic in any money book. Money management is not simply a process of allocating your available funds for life’s basic expenditures, get by, and if you’re lucky, save a little. It is both an art and a science of making your hard-earned money work for you, meaning, dispensing the amount does not necessarily mean it is the end of it as far as you are concerned.
In contrast to successfully getting by (no overdue debts and all your needs are met), the bottomline goal of money management is for an individual to grow his or her stash without failing on “outgoing” financial responsibilities (taxes, fees, mortgage, payments and bills), and accumulating some level of savings enough to fund a comfortable life in the future. In this regard, “savings” make the difference, as against simply “meeting” the needs, and is the operative word in money management. Any money book would always emphasize savings an important step and a tangible result of effective money management
Whether rich or poor or in-between, money management employs the same organizational concepts and practical steps to make it an effective tool in attaining a healthy quality of life. These include goal-setting (what do you want to gain through your money in the future); organization (managing your financial issues like needs and wants, regular and emergency expenditures, investments, and your money sources for fulfilling them); practical application (actually cutting back on spending, minimizing risks, and similar actions); working around a realistic budget; and the final step: saving money and making it grow.
A simple example of money management involves setting a goal to save $1,000 by year. First, determine the total amount of your “outgoing” and “incoming” money and balance them so that there should be an amount left after all payables are settled. From this “leftover” amount, you will draw emergency expenses, your “wants” fund, and the rest would be “disposable” or “savings” depending on how you use it.
From the “leftover,” you can work your way around to come up with a monthly allocation to raise your $1,000 goal a year. Is the leftover insufficient, just enough, or in excess of the monthly amount needed? If insufficient, you may opt to “eat up” on some items funded by the “left-over,” like your “wants” fund, to fund your “$1,000-by-yearend” project.