How To Create A Money Management Plan That Works

Managing finances with the expectation that we should be able to manage our money effectively. For many this can be hard work and extremely overwhelming, especially if you weren’t taught how to do it. However, creating a budget helps give you a complete understanding of your finances now and in the future. Budgeting won’t help you earn more money, but it will help you to manage the money you do have effectively.

Making and sticking to a budget is a key step towards getting a handle on your debt and working towards a savings goal, of any kind. Let’s say you want to set money aside for emergencies or you aspire to save up for a much larger goal like a car, down payment on a house, or retirement. Until you get a realistic picture of how much money you’re bringing in and where it’s going, it’s difficult to know whether you’ll have enough left over to put away.

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Track What You Spend

The idea behind tracking your spending is simple: every time you spend money, write it down or enter it into a budgeting tool or spreadsheet. Keep track of not just how much you spent, but what you paid for, the date and where you spent the money. This may help give you an idea of where your money is going and give you insight into your spending habits.

Here are a few tips for tracking your expenses:

Write it down. Keep a small notebook with you, and hand write every purchase you make. The Balance notes that this method can be helpful in keeping you aware of your spending habits throughout each day.
Use a budget worksheet or spreadsheet. This can be an easy way toorganize and tally your spending.
Use an app or online tracking tool. Forbes notes that some apps even connect to your bank account and provide regular updates on activity.
Collect your receipts. Keep your receipts and add the information to your tracker at the end of the day or week.

It helps you save

Saving money doesn’t always sound like a fun activity. Many of us want to enjoy life in the here and now without worrying about the cost. However, saving money can be hugely beneficial in the long run, and make life easier and more enjoyable further down the line.

A budget that includes money towards savings can help you buy your next big purchase when you can afford it. Often, this works out much cheaper than paying interest on a credit card or loan. It’s also incredibly satisfying seeing where your hard-earned money goes.

Similarly, a budget gives you the chance to build a nest egg for the future. Whether it’s for your retirement, your kids, or a future goal, a budget means some of what you earn is put aside for later. This also makes things far easier if you do run into unexpected costs, as you’ll have money saved to cover them.

Set a Budget

Once you’ve determined how you’re spending your money, it’s time to set priorities and establish a monthly budget. Start by figuring out your monthly income, minus taxes, says DaveRamsey.com. Subtract your regular bills, such as mortgage payments and utility bills, and quarterly or annual bills, such as insurance premiums. This will give you an idea of what you have left to spend on other needs, such as food, and discretionary items, such as entertainment. Consider how much you would like to save, as well.

Get Into a Routine

To help you stick to your budget, keep tracking your expenses. This will help you compare what you actually spend versus how you planned to spend it. Keep in mind that it may take a little while to settle into a system that works for you and helps you meet your goals.

To keep yourself focused on actively managing your spending (and saving), The Balance recommends:

Reviewing your budget. Going over your budget and expenses once a month for the first six months may help you adjust your original estimates and identify where you can cut some spending.
Balancing your checking account each month. Checking to see which transactions have cleared and which are still outstanding gives a more accurate picture of your current balance.
Setting new goals. If you’ve met your original goals or your finances have changed, set new goals for the month or year. For extra motivation, choose rewards for yourself once you meet those goals.
Cutting where you spend most. Try reducing your expenses in areas where you tend to spend the most. Small changes, like lowering your monthly grocery budget by a few dollars or switching to a less expensive cellphone plan, can add up over time.

Managing your money doesn’t have to be complex. Tracking your spending and prioritizing your expenses may help you get (and keep) your budget on track.

Getting started can be the hardest part, especially if your finances feel out of control, but these easy-to-follow steps are designed to help you create a budget that really works for you.

Step 1: Where does my money come from? The first place to start is getting a complete picture of where your money comes from. You may be self-employed, have multiple jobs or receive child support or government benefits — all of these sources should factor into what you have to make ends meet.
Step 2: Where does my money go? Equally important but the heaviest lift is logging your spending so you get a realistic picture of what your money, on an average month, is going to. Sort your spending by categories like utilities and housing to eating out and entertainment. If this feels overwhelming, start small and look at your expenses one week at a time by either reviewing your receipts or checking account. You could also start a daily log of your expenses so you’re making sure to capture those small expenses — like buying breakfast or lunch instead of bringing it with you — that add up over time.
Step 3: What are all my bills and when are they due? If you’re coming up short at the end of the month, it could be that the timing for your bills and income don’t match. Missing payments or not paying on time can also have larger impacts on your credit scores and overall financial well-being.
Step 4: Create your working budget. Once you’ve identified all of your income sources and started tracking your spending and when your bills are due, worksheet pulls everything together so you have a working and realistic budget.

Creating a budget will help you figure out if you have enough money to cover your expenses, while also having enough to save or spend on something extra you may want for yourself or your family. Be sure to update your budget if you experience a change in employment or your spending habits.

Sticking to a budget

Changing your money habits won’t happen overnight. Making – and sticking – with a budget takes effort, but here are a few important tips for being successful.

Create a tool that works for you. Be realistic and start looking at your finances one month at a time. Create a way that’s easy for you to track income and spending in real time, whether that’s a daily journal or putting receipts in a folder that you review at the end of each week.
Analyze your spending habits. This is an opportunity to take a comprehensive look at your spending, and it is also the easiest way to look for areas where you can cut back. If you know you’re prone to impulse spending, create a plan that’s doable to help you limit that spending.
Set a goal . Whether it’s small or large, it’s helpful to have an end goal and something you’re working towards. Also, rewarding yourself, even in small ways, can help you keep up with any progress you’ve made.
Develop a support system. Like sticking to an exercise routine, it’s easier when you’re surrounded by families and friends you can trust to offer you support, either by doing a budget with you or listening when you’re struggling.

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Set aside some uninterrupted time to start your budget.
Be honest with the figures when budgeting. Remember the little of things you spend money on, as it’s always these that add up.
Have all your bills, rent receipts/mortgage statements and payslips on hand so you can easily add in these details
Don’t forget to include items such as haircuts, manicures, play gym entrance fees, etc to your budget.
When starting to budget, it’s a good idea to keep receipts for everything. This is so you can get a really good idea of the actual money you are spending.
For little items paid for with cash where a receipt is not received, keep a notebook and pen in your handbag to keep track of these expenditures.
When the actual amounts have been put into the budget, don’t be too hard on yourself. It’s now time to look at where you are overspending and work on these areas.

Consider adding the following to your budget so you aren’t having to dip into your savings:

Incorporate contingency expenses into your budget for unexpected medical or car costs.
Household items that may need replacing such as washing machines, fridge, etc.
Purchases for birthday and Christmas gifts
Expenses for upcoming holiday

How to Create a Money Management Plan That Works