It is often thought that the best form of money management is to save as much as possible and spend as little as possible. However, this is not always a recipe for happy living.
Basic money management is all about learning how to live on the money at your disposal. It takes into account your outgoings and your in-comings, and seeks to find a balance between to two. It is important for everyone to learn the basics of money management as early in life as possible, starting with pocket money as a child.
When children are given pocket money it is often the first amount of regular cash they receive. A small amount every week can soon add up. There is a temptation to spend the whole amount each week, as soon as it arrives. But most children quickly understand the deflation of realising they have no money left until the next pocket money day.
Harnessing this feeling of deflation and disappointment can be a useful lesson. Encouraging your child to spend some and save some of their weekly pocket money is a good start. This is a lesson they can apply later on when they become students or get their first job.
When you live at home with your parents, your outgoing are far less than when you have to support yourself. It is a good time to lay the foundations for your future, while you still have that parental safety net available to you. You can still go out with friends, buy a car, or shop for clothes. But you can also put some money aside for a deposit on your own home, a wedding, or simply as a rainy day fund.
Whether you are a child with limited pocket money, or an adult with a job or claiming benefits, you are likely to have a similar amount of money at your disposal each week or month. What do you do when that money isn’t enough? The first thing to do is to see if you can cut back your outgoings.
This is often where basic money management skills mean the difference between weathering a financial storm, or drowning in debt. If you don’t have enough money to cover your basic expenses, borrowing more is not going to help. Adding a loan repayment to your troubled finances simply means more burden in the long run.
Loans are generally for people who can afford them. This may seem strange, that someone who could afford the loan should be the one asking for it. Good money managers know that loans can be useful for large purchases such as a house, but are trouble when really you should be tightening your belt.
If you have cut back on your expenses but you still can’t make ends meet, then you either cut back some more or find another source of income. Selling or pawning items can help you through a crisis. Planning can help you avoid the crisis in the first place. Having a small amount of money put by for emergencies is always going to be a better option than taking on high-interest credit.
Basic money management relies on living within your means. This may not be the way you want to live, but until you win the lottery or get a promotion, it should be your top priority.