Everybody needs to know how to manage money and to make it grow. Knowing what to do with your money helps you manage your income and expenses throughout your life.
Entire sectors of the economy are dedicated to separating you from your hard-earned cash. Knowing how and when you get your money and where you spend it is the foundation of financial planning.
A budget, or a money plan, tracks the money you make versus the money you spend.
If you’re not on your own, your parents may cover most of your expenses. But if you have a job, they might expect you to contribute toward your phone bill, car payments and insurance, not to mention concert or movie tickets.
You create a budget by estimating how much money you’ll make each month and how much you’ll spend. It’s a great way to avoid running out of money when you need it most.
Best of all, a budget will show you how long it will take to save for a big-ticket item you really want.
Needs vs. wants
You NEED new shoes.
You WANT $175 shoes.
You NEED new clothes.
You WANT the $250 coat/jacket/dress that’s so hot and in style.
You NEED to get around.
You WANT a new sports car.
You NEED to eat.
You WANT to go out for every meal.
Rethinking your spending priorities means you can meet your needs without busting your bank account. Hunt around for bargains, comparison shop and learn to cook simple meals.
Every time you consider buying something, ask yourself, “Do I really NEED this?” If the answer is no, put the money in your savings.
Plan Your Goals
Your biggest financial goal is to have more money at the end of the month. One easy guide is to live off 80% of your income, allowing for 20% savings. (Many financial planners recommend a 70–30 split, so aim for that if you can.) You should make that savings automatic by using direct deposit to a separate savings account.
Financial goals can also include saving for a trip, concert or car. Take out a sheet of paper and list your short- and long-term goals, estimating how much money you can set aside per week or paycheck to meet them. You’ll get a better idea of how long it might take to finance your goals.