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Money, it has been said, is addictive as any drug. As your income increases, so does your spending. Learning how to manage your money can help avoid the financial problems and even bankruptcy some people are facing.
Managing your money comes down to two very simple rules. The first rule is ‘don’t buy what you can’t afford.’ The second rule is ‘always pay your bills.’
The First Rule of Money
The first rule is really just common sense – buy what you need, not what you want, within the limits of what you can afford. So often we don’t budget properly to find out exactly how much spare cash we actually have. Many experts recommend having three to six months’ worth of expenses saved – but just how do you work out how much that should be?
Your living expenses are the bare necessities that you cannot do without, such as food, your mortgage or rent, electricity and water, car payments and fuel and so on. You will notice that there’s no room in there for that great jacket you saw last week, even if it is on sale, and no need to cater for expensive holidays either. When we talk about necessities, we assume that, if you should lose your job, you wouldn’t be splashing out on those things anyway.
Losing your job may mean having to do without the ‘optional extras’ like mobile internet services, call forwarding or redial on your land line. Television cable services are another area where considerable savings can be made by choosing a cheaper package. Read the fine print on your service contract before doing anything. Sometimes costly penalties may apply, and you need to avoid those if at all possible.
Other than the basic necessities, you also need to keep money aside for emergencies such as unforeseen healthcare bills, car repairs and home maintenance. Your health is necessary in order for you to continue working, your car gets you to and from work or interviews, and you can’t live in a damp, leaking home. These things must be taken care of as and when they arise. Emergency funds should never be wasted on things that you want but don’t need.
Rule Number Two
The second money management rule is to pay your living expenses first, before anything else. You are legally obliged to pay your bills. Although it is not handled the same way as shoplifting, not paying your utility bills is quite simply a form of theft – you have taken and used the electricity supplied to you without paying for it.
We are bombarded daily with images of material things, and actively encouraged to ‘live up the Joneses’ and buy the latest and greatest. Unfortunately, doing so does not make us the greatest. Does anyone really care that someone managed to walk into a store and buy something, like we all do every day?
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