The fundamental principle of money management is: ‘Spend only what you earn, save from your earnings’. It encourages a spirit of living within one’s means and save for the future. However, many of us are unable to follow this simple financial principle in our own lives. Being responsible with our own income and spending it judiciously is the key to good cash management.
Follow these tips to maximize your personal cash management outlook:
1. Pay your bills first. For most of us, our expenses are all lumped together in a mishmash that actually drains more resources than it saves. There are different categories of spends: bills, rent, outdoor expenses, groceries, entertainment, etc. It is vital to maintain expenses in a descending order of importance. Start by paying all your bills and rent, followed by setting aside your monthly savings. Next, allocate money to grocery shopping. This way, you will know your different expense heads.
2. Let your bank handle your extra money. If you leave surplus money lying about, you are likely to spend it. Instead, divert your surplus funds ( earned from a salary raise, bonus, gift from relatives, etc. ) into investments or fixed deposits at your bank. If you are certain about not spending the money outright, you can place it in your savings bank account.
3. Spend only what you have. Many people recklessly splurge on clothes, shoes, electronic appliances at the start of the month using their credit cards. This results in the credit card being maxed out even before the month is up. Using a credit card to shop means that you are borrowing money to spend ( a big mistake ). Use a debit card to shop and allocate a fixed sum of money for shopping, not your entire income.
4. Save diligently. Only you are responsible for your financial future, and money will not miraculously appear when you need it. Saving a fixed sum of money from your income every month is an important cash management principle, irrespective of your expenses or emergency spends in some months. Over a period of time, you will have accumulated a healthy corpus of money in the bank, which you can invest in short term bonds or in PPF or FDs to augment the money.
5. Do not borrow unless necessary, and without a plan. You might be in urgent need of money but be sure to borrow only when you are certain of repaying the money. This applies to taking home loans, business loans or private loans from friends. Your repayment plan must be based on actual, not on hazy ‘I will pay it back somehow’ plans.