The Importance of Saving Money and its Role in Wealth Management

The Essence of Money Management

Basics of Wealth Management Money is like a kid. It is incapable of managing itself – think of how your kids would have turned out if they were allowed to make their own decisions without your guidance or discipline. Money is the same way. You have to apply structure and discipline to how it is managed and tend to it regularly. Money Management goes beyond just knowledge and skills; it involves good practices incorporating the right attitude and habits.

In order to manage money properly, it is necessary you understand the basic principles of management first and then you can add more knowledge in each area.

Initially, Financial literacy could be difficult, but like all learning, the more you know, the easier it becomes. Money Management builds Financial fitness, which is a good habit, just as physical fitness. Below are some effective and efficient money management principles.

How to Save Money

Spend less than you earn. This principle is at the core of all good money management. This singular principle can make you or break you financially. It is how people who do not get a fat paycheck at the end of every month can achieve their life goals anyway. Spending less than you earn enables you to save. Moreover, what you save can be invested. This principle makes you not worry about money because you have enough savings to pay the bills every month and handle any emergencies if any arise. Persons who always spend more than they earn go further into debt and thus increase their stress level when it is time to pay the bills. This principle also applies to the wealthy because if they live beyond their means, they will eventually lose their riches, and the poor ones who behave likewise will never escape poverty. If you spend more than you earn, you are asking for trouble. Rather than building wealth, you are digging deeper into debt. 

Investing and Budgeting

Invest wisely. It would help if you did more than simply earn money to stand a chance at becoming wealthy. Most importantly, you must hold onto the money you earn and grow it. You grow it by buying assets (things that generate money for you) and not liabilities (things that take away money from your pocket). You need to invest your money in things that offer the potential for profitable returns through; Interest and dividends from stocks, bonds, real estate, or other assets. It is also important to stay away from get-rich-quick schemes as they are risky and have a very short lifespan.

Budgeting your expenditures, You cannot manage your money properly until you understand what you are doing with it. It is necessary that you track your spending and see where your money is currently going; some tools can help with this. Once you can track how you spend your money, you will have a better chance and be more knowledgeable about setting a realistic budget. Many people abandon the process of budgeting because they make unrealistic budgets that only reflect wishful thinking, and when they blow up the budget, they get discouraged.

Remember, whenever you create a budget, it can change to align itself with your monthly income, expenses, and goals.  The biggest financial challenge for many people is saving for retirement. This is the largest amount of money they will have to save in their lifetime. Saving periodically over a long period is the only way to achieve this. However, saving early in your career makes the task less daunting and more achievable. Also, saving early in one’s career allows you to take full advantage of the power of compound interest. You have to start now if you want to make saving for retirement a whole lot easier if you have not yet. You are probably coming up with millions of excuses as to why you should not start now—but the truth is, there will always be an excuse. There will never be a “best time” to start retirement savings. You will always have to do it against competing priorities. 

Planning Ahead and Safeguarding Your Finances

Earn more money. Earning more money solves many issues. Adding part-time freelance work to your day job can help bring in some money, which could be used to meet your everyday needs. This allows you to save more money from your day job. Always Pay in Cash A mantra I love about money management is, “If you cannot pay for it in cash, you cannot afford it.” Living by the mantra is the best way to avoid drowning yourself in credit card debt. Do not make large purchases until you have the money; this will benefit you more in the long run than spending money you do not have.

Use credit cards with caution. Remembering that credit cards are not the same as cash is always important. Because of their high-interest rates and fees, people can easily get into trouble with credit card debt. Endeavor to use credit cards only when necessary and as little as possible, and make sure you always pay the balance each month. If it ever gets to the point where you can only afford to pay the minimum monthly payment on a credit card, you are in financial trouble and should re-evaluate your situation. If you cannot pay off your cards every month, then any extra money you have paid the minimum monthly payment on the credit card should be paid to the highest interest rate card first.

Ensure you are properly insured; this protects you from unexpected events in your life: a car accident, fire outbreak, buglers, and even death. Insurance is essential to money management as it helps curtail unbudgeted expenses from unexpected events.

References

1. Brooks, N., & Williams, L. (2018). Understanding Financial Literacy: From Basics to Mastery. New York: Greenleaf Publishing.
2. Carter, S. P. (2019). Savings and Investments: Pathways to Financial Independence. San Francisco: Wealth Builders Editions.
3. Duncan, H., & Evans, E. (2020). Budgeting for Success: Realizing Financial Goals through Discipline. Chicago: Fiscal Publishers.
4. Hopkins, T. (2018). The Mantras of Money Management. Seattle: Financial Insights Press.
5. Lawson, J. (2019). Credit Wisdom: Navigating Card Debts and Financial Health. Toronto: North Star Publishing.

Did you like this example?

249

13