Effective Ways to Manage Money

by Bill on September 13, 2011

Use Sound Money Management Regardless of the Amount

The topic of money management is huge. There are just as many gurus touting sound money management as there are theories as to how to manage your money. The central point each of them try to make is having money when you need it.

The basic principle of money management is to have the money available when it is needed. The definition of the word budgeting. I’ll wait while you all moan and sigh. Just allow me to finish.

Okay, now, on with the blogging. Managing your money requires time, not lots of it when you get everything in place actually. Budgeting is basically having plans in place well before they are needed. A budgeting plan is simply the task of organizing timelines and resource allocation to be in sync with each other. Yeah, I know, much easier said than done. There is a ratio that, when applied, actually will work regardless of how much you have to work with.

Using the 3:3:4 Budgeting Ratio
Okay, first I can hear you all asking “what the heck is a 3:3:4 budgeting ratio?” it’s a fancy name for a simple division of resources. Stick to it and you will have not only enough to live off of, but also a little bit saved up and something to splurge on.

The first aspect of this money management system is that there are prerequisite facts already taken care of. This means the utilities are paid, the food is bought and the rent is sent out. The ratio deals with the money left over after paying for the absolute necessary items.

The breakdown of the ratio goes like this: 30 percent of the available money goes to the bank; 30 percent of the spending money goes to an investment or savings; the remaining 40 percent goes to something fun for you, your family or the house. You must allow the 40 percent for fun to counter-balance the other 60 percent being put aside for later and/or emergencies. If there is no reward for doing a task, the task becomes a burden and the meaning is lost.

Saving as Sound Money Management
Saving and investment are nearly the same thing when you pursue long-range money management. Setting money in the bank allows for an emergency fund should the need arise. Car or home repairs can occur without notice and often to the surprise of the recipient of the problem. Having an emergency savings account allows for at least some safety net when this occurs.

Investing as a Saving Alternative
Investments do not need to be stocks from Wall Street, nor do they need to have monetary returns. Paying for further education in a specialized field is an investment that can yield higher returns in the form of higher pay or promotions. Using money to make additions to your home is an investment in future use or resale value. Investing in an endeavor that may bring financial gain to you later is also possible. Hobbies that may become small home businesses are an example.

Regardless of where the money ends up finally, the end goal should be to place resources in the right place using a proportion you can financially tolerate. The trick is not to eliminate pleasure, but to manage resources so you can live comfortably no matter what your financial situation is currently. If things change, simply adjust the ratios accordingly, then readjust when improvements occur.

What ways do you have to manage money?

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