Money management strategies for your business
Money management may not be the most exciting topic, but managing your money can have a huge positive impact on your life. It also doesn't have to take up a lot of your time. After some initial financial planning, the good money management habits you implement today will serve you for life. In addition, Ownr has plenty of resources to help you deal with accounting, bookkeeping, and more. Good money management strategies don't change with your income level, which means you can apply these tips to your business no matter where you are on your financial journey.
Capital management strategy:
What is money management?
The essence of money management is knowing and understanding your financial situation. It involves knowing how much money you get each month and how you spend it. Most people know their exact monthly income, but they have a less accurate understanding of their monthly spending.
Money management involves understanding both sides of the equation so that you are intentional and aware of your spending. It enables you to create a plan, so that you are confident about meeting your monthly needs while also working towards major financial goals, such as increasing retirement savings.
This does not mean that there is no room for fun or spontaneity. It simply gives you control of your bank balance at the end of each month, so you know plenty of room you have for frivolous spending and fun indulgences.
Why is money management important?
Everyone can benefit from improving their money management skills. Here are some of the main reasons why doing so is a priority.
Reduce financial stress:
Good management of personal finances can purposefully affect your quality of life by making personal finances less stressful. Credit card debt and the struggle to pay off the necessities of life can be a constant concern, and proper money management is an effective way to reduce this stress and achieve financial peace of mind.
Plan for the future:
If your approach to money is to spend everything you earn, you can find yourself without any savings in the future, even if you earn a good income. Whether you want to travel, buy a house, retire or make any other big purchases, proper money management gives you the power to create a realistic financial plan to achieve these goals. Then, when you make a financial decision, you can be confident that it derives from your actual financial situation.
Dealing with sudden expenses
Life can throw unexpected and costly surprises at us at any time. Injuries, illness, home renovations, and necessary repairs or replacements of expensive possessions such as appliances can derail our finances. Many families risk finding themselves in debt if unexpected expenses arise when they already have a negative cash flow. Money management can help you prepare for these unexpected financial hits. Your budget should include allocating money into an emergency fund.
Even if you have a big salary or are a successful entrepreneur, you can easily fail to accumulate wealth if you spend everything you earn. Money management gives you the power to grow your wealth.
Access to capital when you need it:
Proper money management can help improve your credit score, which can lead to more favorable loan options if you ever need to borrow money for big expenses, such as a mortgage or business loan.
How do you manage your money better?
To see the benefits of better money management in your life, start implementing the following changes:
1- Set a budget:
In business and personal finance, budgeting is key to a sound financial management strategy. Your budget should include all of your current income and all of your recurring debts and expenses. We'll cover everything to include in your budget below.
2- Track your spending:
To understand where your money is going as well as recurring expenses like rent and utilities, keep track of all your receipts. The easiest way to do this is to use a budgeting app like Mint. You might be surprised to find out some of your biggest expenses at the end of the first month of tracking. The coffee and pastry habit can be stressful, but figuring out the impact of these small regular expenses is a good thing. It gives you the ability to change how you customize your spending.
3- Stick to your budget:
It is not enough to create a budget. You have to stick to it. Commit to checking weekly to record any payments and expenses, and for upcoming expenses.
4- Leave room for unbudgeted spending
As a general rule, every budget should have some money left over for unplanned spending. This gives you the flexibility to spend on more rewards here and there, so you won't feel too restricted.
5- Limit your credit card use:
If you are not someone with good money management skills, it is best to avoid using your credit card where possible. This limits the possibility of you spending more than you can afford. By sticking to your debit card, you will only spend the money you already have.
How to create a budget?
Your budget is the most important tool in your money management strategy. By spending a few hours setting one up, you'll be well on your way to improving your money management habits.
- Enter your monthly after-tax income.
- Make a note of each recurring monthly account that does not change from month to month. This includes rent or mortgage payments, utilities, debt payments, subscription services, and any other basic living expenses.
- Choose a financial strategy for the amount you want to save each month. Although there is no magic formula, a popular plan is the 50-30-20 rule, where approximately 50 percent of your income goes to meet your needs, 30 percent goes to your needs, and the remaining 20 percent goes toward savings. This may not be a manageable level for everyone, but it is a good starting point that you can modify to make it realistic for you.
- Track and categorize all your expenses. Major categories outside of basics like rent are food, clothing, and transportation. This will help you see how much you're spending in each of these categories, so you can see where you might need to reduce your spending to achieve the goal you set in Step Three.
- Keep track of expenses. This is the only way to make sure you agree with the budget. It may seem like it will take a lot of time, but once you get used to using an app, it becomes really very easy.
How do you pay off your debts?
If you keep debt, your budget should include a plan for how to pay it off. If you have more than one source of debt, consider using a debt consolidation service to combine them into one debt payment. Find the lowest possible interest rate available to you for this service. A credit advisory service can help you with this task.
Once you have a monthly payment plan, be sure to include it in your budget.
Another consideration when it comes to your debt is that it can affect your credit score. Remember that reducing your debt and keeping low credit card balances is a great way to get a positive credit score update, making it easier for you to borrow for major future purchases, like a home. If you are a sole proprietor, your personal credit factors into your ability to obtain credit for your business.
Saving for individual retirement:
It may seem like a far-fetched reality now, but starting a retirement fund as early as possible in your life will help you accumulate a comfortable amount to draw from when you don't get paid in retirement.
The monthly percentage you set aside for saving can go to a savings bank account that earns interest for this. You can also explore other investment options that provide higher returns on investment to help reach your long-term goal, such as investing in exchange-traded funds. The online calculator can help you set your savings goal which should be based on your retirement goal and your current financial situation. Avoid indulging your retirement savings account for anything other than absolute emergencies, and as the years go by you'll rest assured to see the number in your savings account grow.
At any income level, a person with good money management skills will have some traits in common. They are organized and have a solid understanding of their financial situation, contribute their savings every month, do their research before making large purchases, and avoid unnecessary expenses. By implementing these money management tips, you will be able to enjoy all the benefits of good money management practices no matter where you are in your career.