10 Essential Money Management Tips
By: Karam Sandhu
#1 - TAKE CHARGE OF YOUR LIFE AND YOUR MONEY
By taking charge of your life and money, you have to not think of money as something you can just spend, but rather think about how you can make your money work best for you. It is essential to implement "financial planning," which is basically planning goals to reach a financially stable future. You can start financial planning with three steps:
1) Define your financial goals
2) Make plans to reach your financial goals
3) Take action until your goals become a reality
#2 - GET ORGANIZED
A key factor in money management is getting organized. As a student, I know that organized students tend to to better in school than those who are unorganized. The same concept applies in the financial world. The more organized you are, the easier it will be to access your financial files and documents, helping you to pay off your taxes, bills, etc., without any problems and on time. Keep records of everything you buy, especially when you use credit cards or checks because you have to be able to make sure that the bank or other organizations have not made any mistakes and charged you for things you have not purchased. Staying organized will help you to be able to successfully keep track of your financial life.
#3 - USE LOANS AS A LAST RESORT!!!
Loans can be very dangerous tools and should ALWAYS be used as a last resort. This is because loans are an investment into the future that will end up putting you in debt. After you take a loan from the bank, you will most likely be in debt to the bank for several years, constantly paying them back in monthly increments. By paying off your loans over time, you will end up paying a large sum of money in interest, therefore making the loan a major detriment to your financial life. When in college, it is very important to keep an eye out for scholarships or grants so that you can try to minimize the amount of debt you have coming out of college. This will help you to obtain a financially stable life from early on after college.
#4 - MAKE SCHOOL YOUR FIRST JOB
By having a job while you are in college, you are able to establish a very good work ethic and get a sample of what life after college is like. If you are working to pay for your own college tuition and making sure that your work does not interfere with your college work, you will learn how to successfully manage your time while establishing a good source of income for yourself. By paying for your own college tuition you will feel a sense of self-satisfactory and it shows that you are determined to graduate college with a degree, which will in turn help you to find higher paying jobs in the future. You will also be a step ahead of the rest of your peers because after college, you will already be familiar with the job hunting process, and therefore have an advantage in the working field.
#5 - COMPARE THE COST OF AN APARTMENT WITH THE COST OF A DORM
Although housing in dorms during your college years can be very expensive, sometimes living off campus in an apartment can be even more expensive and many college students do not realize this. When living in an apartment there are lots of extra expenses that have to be considered such as bills for heat, gas, water, electricity, wifi, etc. If you are considering living in an off campus apartment, you may want to ask roommates to share the cost of an apartment with you because when living with roommates, the cost of living in an apartment per person can be drastically reduced.
#6 - RESIST PEER PRESSURE
A common trap many people find themselves getting into is being pressured to spend money when they really cannot afford to spend money. To deal with this, it is important to write down your financial goals so you do not lose sight of what is most important in your financial life. When in college, it is important to remember that you are at college to earn a degree and help get you a job to meet your long term financial goals. You do not go to college to waste money. Therefore, you may want to attend free or low-cost college events such as dances, sporting events, etc. Keep track of all your expenses so that you do not spend over the money that you have allotted towards social life in your budget. If you really cannot afford to buy things with your money, you must be willing to say "NO" and resist the peer pressure. These little techniques can help you resist peer pressure and stop losing money that you cannot afford to lose.
#7 - SEPARATE NEEDS FROM WANTS
When saving money, it is crucial to understand the difference between "needs" and "wants." "Needs" are the things in life that you absolutely need to carry out everyday living. In contrast, "wants" are the things that would make life better and more luxurious, but not absolutely necessary. For example, every morning you like to drink coffee, thus making coffee a need. Drinking a $1 coffee from Dunkin Donuts will satisfy your need. However, buying a $4 coffee from Starbucks is a "want", because you do not necessarily need to pay the extra expense just because Starbucks is your favorite coffee shop. It is okay to occasionally purchase a "want" when it is absolutely necessary, but learning to establish the difference between "needs" and "wants" will help you to save lots of money because you will not be wasting money on things you do not need to have to carry out your everyday life.
#8 - CREATE A BUDGET AND STICK TO IT
Creating a budget for yourself is similar to writing yourself a financial map. A budget helps allow people to stay organized and completely monitor their financial life. When you write a budget, the budget should reflect your long term goals of the future. Before you write a budget, calculate your monthly and yearly salaries. Then, once you understand how much money you make each month, you set aside a specific amount of money toward each of the expenses you have to pay for each month, such as utility bills, housing bills, taxes, etc. With the remaining sum of money, you can first divide up the money among the "needs" in your life, such as food, electricity, transportation, etc. Then with whatever amount of money you have left, you can divide that money up among the "wants" in your life, such as a smartphone, car, etc., or you can begin to save your money. You do not want to create an unrealistic budget and your budget should help you create good habits.
#9 - LEARN THE POWER OF COMPOUNDING
If you learn to take advantage of compound interest at a young age, you could potentially make millions by retirement. Those who start saving their money in small increments at young ages guarantee themselves a large sum of money by the time they retire. This is because of compound interest. For example, if you save $10 in an account for retirement that earns 10% interest, after one year you will have made $1. Then after the second year you will earn interest on the $10 and the $1, and after several years this money can grow really fast into a large sum of money for you to take out of your savings account by the time you retire. It is important to remember that the longer you let your money gain compound interest in the account, the more significant the result will be, thus making it vital that you start to saving your money at a younger age, even if it is only small amounts of money.
#10 - NET WORTH IS NOT THE SAME AS SELF-WORTH!!!!!
Money is very important in life. Money is a tool that helps you get where you want to go in life. But in the grand scheme of life, MONEY IS NOT EVERYTHING!!!! Money cannot buy you friends, love, happiness, or enjoyment in life. If you are constantly worrying about not have enough money to meet you satisfaction, then you will never be happy in life. If you manage your money well and be smart when it comes to using money, you will be financially okay in life. It is very important to establish good values, have friends and family, and have a job you enjoy because being happy with your life will give you a feeling of self-satisfaction. You want to maintain a balance between money and the rest of your life because if you do not keep money in check, you may lose sight of the more important things in life such as your social relationships. If you keep money in check and are well rounded in the other aspects of your life, you are much more likely to live a happy life than if you were to constantly worry about your money all the time (do not let money dominate your life).