Looking for an easy, more conducive way to organize and take control of your money? Though it may seem like an arduous task, yes, it is possible. A money management plan breaks your money down into percentages and categories which gives you more flexibility to achieve and maintain your financial goals — especially when your lifestyle varies season to season or even month by month. Knowing how much you have to spend in total for the month will allow you to make easier, smarter decisions for your money because once the monthly allotment is gone, it’s gone!
When you’re ready to start your money management journey I highly recommend the 50/30/20 money management system: 50% of your monthly earnings is allocated to your living essentials, 30% is allocated to flexible spending and 20% is allocated towards your financial goals.
Living essentials include your basic necessities such as mortgage/rent, car note, insurance payments and utilities. Flexible spending covers everything from food and transportation to those lovely trips to ‘insert any store that you go in for two items and leave with ten.’ This would also include any last minute expenditures that come up such as gifts for birthdays and weddings. And then finally, financial goals include saving, investing and waving bye to debt.
The percentages should be adjusted based on your living essentials. If you live in an area with a high cost of living then spending 50% on living essentials is likely unrealistic. When you spend more than 50% then you have to decide if the extra funds will come from flexible spending or your financial goals. On the other hand, if you spend less than 50% on your living essentials then you should allocate more funds to your financial goals.
Managing your money based on percentages opposed to being confined to a set number will boost your confidence and excitement as you begin to consistently achieve your goals month after month. It’s much easier to keep going because let’s be honest, managing money can be difficult. Have you ever felt like there’s more month left than money? Or had a “blowing money fast” weekend and woke up Monday morning full of regret? It takes too much time to bounce back from those sentiments so make it easier on yourself. If you know you have $1,000 to spend for the month and plan accordingly, you can have all the fun you want and be reasonable at the same time.
The ultimate goal is to make smarter, healthier financial decisions and automation is an important component of your financial life. It creates a habit of consistently managing your money. Have you ever been so caught up with life that you forgot to pay a bill on time? Or completely missed an entire billing cycle and didn’t realize until you saw a late fee? Setting up autopay for all eligible accounts is the best thing you can do for yourself financially. Autopay helps you put your mind at ease and improve your fiscal responsibility at the same time.
Automation also allows you to stay on track with your debt repayment goals as there’s no room for you to negotiate with yourself and your debt.
You may hear people say autopay is a bad idea because your account can be overcharged or bills that fluctuate such as utilities can wreak havoc on your account if you’re not prepared for the overage. The truth is that once was a possibility but times have changed. Any account that is on autopay provides advance notice of the amount and date the funds will be debited. If you ever need to make changes you will certainly have time to do so.
Also, I highly suggest you mark the due date of your bills on your calendar and set it to recur monthly. Every financial decision that you don’t have to think about gives you a clear mind to approach the other decisions that you have to make.
When it comes to budgets they’re very restrictive and take a different toll on your mindset. There isn’t much room for flexibility in your spending. Your amounts are set item by item and you are expected to stay within range of those limits. Some people need that level of structure and discipline but if you air on the side of freedom and flexibility, adopt a money management plan as soon as you can.