What is money management? It is the process of handling everything that is related to your finances. This includes tracking your income and expenses, budgeting, savings, spending, investing, and understanding your overall financial health.
Why money management is important?
To manage something is to plan, organize, implement, lead and monitor the resources that help you reach your goals. In this case, your resource is money and managing your money helps bring those goals into fruition.
In reality you are managing many aspects of your life on a regular basis without really thinking about it.
Ensuring that your family has what they need such as food, clothing, shelter, etc is home management. What would happen if you did not pay attention to this?
How about managing to get yourself to work each day? If routinely don’t show up on time, it is likely that you eventually would have no job.
Your finances should be treated the same. Money management is a necessary part of your life. It ranks right up there with managing your physical healthcare, mental health, work, family, your time and basic living requirements.
If you don’t think money is just as important as other aspects of your life then maybe check in with your money mindset to get a glimpse of why you believe this. I am not suggesting that money is “more” important, but face it we need money to live. It is an important part of our lives. So why not take some steps to manage it and give it some attention?
Effects of poor money management
Ignoring your financial situation may feel okay for the short term but if this becomes a pattern you will eventually feel negative consequences. Below are a few to consider.
1. Legal consequences
Legal consequences may become a reality if you have a habit of regularly missing your payments. Avoid unnecessary legal fees by creating a system to ensure your bills are paid on time.
2. High debt balances
Without a proper money management system it is easy to accumulate a lot of debt. It is probably also safe to assume that you have no plan to pay your debt off anytime soon.
3. Paying unnecessary fees
If you are in a habit of making payments late, it is likely you are paying late fees and extra interest charges. All of these fees add up overtime and can be avoided with a money management system.
4. Overspending
Overspending is not intentional. I don’t think anyone consciously says, “I want to overspend”. Overspending happens when you are not aware of how much spendable money you have. Money management keeps you on top of this and reduces the chances of overspending.
5. Physical and mental health
Anxiety and stress levels can go through the roof if you are in financial hardship or your finances are unorganized. Calls from bill collectors, the inability to pay your debts, the lack of savings or the overload of paperwork sitting on your table can negatively affect your health.
6. Relationships
Relationships can suffer if your money situation is not good. Stress and anxiety can lead to disagreements, blaming, sneaking, lying and other unhealthy behaviors. A money management system that you both agree on can help.
How money management can help
It really does not matter how much money you earn. If you don’t manage it well it is possible that you will have some of the same negative effects above. For example, you may have a ton of money in your bank account but if you are always paying your bills late then you are needlessly paying fees as well as negatively affecting your credit score.
Money management must be a priority. An effective system includes regular reviews, tracking your spending, creating budgets, reconciling your accounts, planning your bill payments, setting goals and reviewing your progress.
Your money management system does not need to be time consuming or overly elaborate. The most simple systems work just fine. The important thing to remember is to be consistent and aware of your money and your mindset.
Know what is in your bank account and what your spending habits are. Define your values and your dreams. Create goals that inspire and motivate you to take control and manage your money.
If you have any comments or questions, please reach out. I am happy to help!
Thanks for reading!
Stay balancded,
Jill