Best Money Management Practices

Many people know how to make and spent money but few know the right way to manage money. Research shows that many Ugandans are terrible with managing their finances. Having a sound money management plan can be the light at the end of the tunnel for people trying to get their financial life in order.

Here are key steps to help you manage your money the right way

Detail Your Financial Goals

Take some time to write specific, long-term financial goals. You may want to take a month-long trip to Europe, buy an investment property, or retire early. All of these goals will affect how you plan your finances. For example, your goal to retire early is dependent on how well you save your money now. Other goals, including homeownership, starting a family, moving, or changing careers, will all be affected by how you manage your finances.

Once you have written down your financial goals, prioritize them. This organizational process ensures that you are paying the most attention to the ones that are of the highest importance to you. You can also list them in the order you want to achieve them, but a long-term goal like saving for retirement requires you to work towards it while also working on your other goals.

Make and Stick to a Budget

Your budget is one of the biggest tools that will help you succeed financially. Creating and sticking to a budget might seem a little tough to achieve at first but it pays off in the end. It allows you to create a spending plan so you can allocate your money in a way that will help you to reach your goals.

You can make your budget as high-level or detailed as you want, as long as it helps you reach your ultimate goal of spending less than you earn, paying off any debts, padding your emergency fund, and saving for the future.

A budget will also help you decide how to spend your money over the coming months and years. Without the plan, you might spend cash on things that seem important now, but don’t offer much in terms of enhancing your future. Many people get caught in this quagmire and get down on themselves for not reaching the financial milestones they want for their family and their own life.

Pay off Debt

Debt is a huge obstacle for many when it comes to reaching financial goals. That’s why you should make eliminating it a priority. Set up a debt elimination plan to help you pay it off more quickly. For example, while making minimum payments on all of your debt accounts, pay any extra money towards one debt at a time. After paying off one debt account, move all the money you were paying on the first debt to the next debt and continue from there, creating a debt-paydown “snowball effect”.

Once you are totally out of debt, commit to staying out of debt. Leaving credit cards at home may be a wise strategy.

Understand your income

Ask anyone off the top of their head to tell you how much they make a month and although they probably won’t tell you, internally they know. This is the difference between income and expenses, most people know their full monthly income but have less knowledge of their full monthly expenses.

Nonetheless, the point is to figure out your total expenses and subtract that from your total income for the month in question. Here is how the results should pan out:

• If you end up with a negative number this means you spent more than you made.  Actions to take? Reduce your spending and expenses until the total reaches zero.
• If you end up with a positive number this is good (high five!) and means you spent less you made.  Actions to take? You could increase your debt payments or increase your savings.

Once you understand your expenses and income and have a firm understanding of the money coming in and out of your life, it’s time to take some additional steps to best manage your money.

 Create an emergency fund

Save up an emergency fund to cover unexpected expenses, so you aren’t tempted to use a credit card to cover them. Its good to be prepared for the unplanned moments. Emergency funds are an important part of a healthy personal finance plan.

In almost all cases, you shouldn’t touch or take money out of the fund, rather, let it sit there earning interest. If you lose your job or an unfortunate or unexpected expense arises—such as your car breaking down or a tree falling on your roof—this is when you should tap into it.

Save 10 to 15 percent for retirement

I know it’s far off, but if you want to be sipping margaritas in Miami under a sun umbrella, the sooner you start saving for retirement, the better off you will be in your golden years.

First thing should be to establish a savings target—one that tells you approximately how much you should set aside over time to meet your retirement goals that will allow you to live the sort of lifestyle you envision.