- Elon Musk, Investor & Entrepreneur
Money management is essential for properly maintaining your finances with a realistic budget. Money management is a set of short and long-term financial goals that you must strive to complete in order to optimize your cash flow and benefit from the most profits. Money management requires a rough backbone of sticking to the essential ingredients for your lifestyle and eliminating any wasteful spending.
You do not have to strip yourself of personal or business luxuries in order to manage your money properly, but you will have to consider what expenses are necessary and stick to the most important options that have the potential for increasing your cash flow. Read further to learn more about mastering money management and providing the best financial plan for your desired lifestyle.
ASSESS YOUR NET WORTH
When you are starting to consider how to manage your money, you will want to know where you stand in your current financial situation. Two main factors determine how much money you are currently valued for: the things that you currently own and owe no money on also known as your assets, and the debts you owe for past services or products that you have a payment plan on known as liabilities. Ideally, you want to keep your assets high, and your liabilities low.
Your assets may include:
- Bank accounts
- Investment accounts
- Retirement Accounts
- Personal Property
Your liabilities may include:
- Credit card balances
- Student Loans
- Car Loans
- Other personal debts
You can determine your net worth by subtracting your assets from your liabilities. If the sum of your liabilities is greater than your assets, your net worth is negative, and you want to take this into account when determining where you stand financially at the current moment. With good money management skills, you will be able to successfully increase your assets over time and afford luxury features on your car and home while keeping your overall liability monthly cost low.
WORK TOWARDS SET GOALS
The most effective way to increase your net worth is by setting strict financial goals. Take your paycheck and break it down into percentages. There are many questions you may ask yourself when assessing your financial goals such as:
- How much money each week should be put away for taxes?
- What is the weekly expense of groceries?
- How much are you spending monthly on rent, utilities, cable, and internet?
- How much is my current car note each month?
- What are the additional monthly spending necessities to consider?
Once you have truthfully answered all of these preliminary questions, you will be able to see how much money you are likely to spend in a week, month, and year once calculated. Once you see how much money it will take for you to keep your current expenses covered to avoid costly late fees and exponential interest rates, you will be able to assess when is the right time for you to buy a new car or house that may add on to your assets. Consider investing in a big move like this when your assets need to be higher and your liabilities are relatively low.
ADJUST YOUR BUDGET
Once you have limited your expenses, invested in quality assets to improve your net worth, and calculated out how much your monthly expenses will be, you will see a surplus of money. The money that is left over will be called your budget. Your net worth and monthly expenses will need to be factored into the proposed budget you have.
Ideally, your budget should be a moving target, which means that as your assets and monthly expenses go down, your budget will go up. Say you have $100 left over each week after all of your necessary expenses are paid. This week, you can save $50 and spend $50 while staying on budget. Once you have built up more assets and lowered monthly expenses, you may see that your weekly surplus increase to, say, $200. Now you can save $100 and spend $100 effectively building your assets while still affording all of life’s luxuries you deserve.
SIMPLE WAYS TO IMPROVE MONEY MANAGEMENT
If you are looking for a few cut and dry ways to better your money management, consider taking these steps:
- Design an effective budget and stick to it
- Put limits on any surplus of money in your budget
- Keep up to date with your spending and check regularly
- Keep the use of costly internet or print subscription services low
- Save as much money as possible and coupon regularly
- Do not spend an excess amount of money on credit cards with costly interest
- Assess budget regularly and make changes as necessary
CORPORATE FINANCE AND MONEY MANAGEMENT
Managing a corporate budget will require a lot of calculation and planning, just as it does for your personal finance goals. The main difference is that budgeting for a company will be strictly shaped by business strategies rather than personal luxuries. The idea is to maximize the cash flow of the business and eliminate liabilities.
Money management for companies is complex, and can involve a number of the following:
- Managing debts owed and services rendered
- Managing commercial paper, bankers’ acceptances, stocks, bond, Treasury bills or other money market instruments
- Maintaining a stellar portfolio for new potential investors
- Developing a capital management plan
- Monitor future asset development and liability mitigation
As you can see, there is a lot that is involved in corporate money management, and there is no sure-fire way to manage your company’s assets and liabilities. A true corporate financial master will be able to invest in the right tools, services, and people to optimize the cash flow of their business and give them the most profits.
In conclusion, money management is a way to asses your financial situation by assessing your net worth, working towards set goals, adjusting your budget, and keeping track with your personal and corporate financial goals.
Now you know all of the information you need to know to get started on increasing your assets and lowering your liability costs. Manage your money like an expert, today!
Stay up to date
Want to know anything else?
We’re an open book so hit us up if we’ve missed anything here or if there’s something else you’d like to know.
Thought leaders & celebrities share their tactics for success on the Lisnic podcast by Lisa Teh & Nick Bell