While we seem to know how to use money, we sometimes forget the simple but effective principles of money management that help us feel more confident about our finances. Here are five fundamental money management principles that will help you manage the money you have and be very useful when you start living on your own.
Distinguish between needs and wants
To manage your budget responsibly and avoid running out of money for essential and essential purchases, you need to make a clear distinction between needs and wants. Financial needs are the expenses necessary for a family’s or individual’s subsistence. For example, rent or mortgage payments, food, transport, water, gas, electricity, and other services or goods are essential for everyday life.
Anything that is not essential for living is a matter of our wishes. These include entertainment, travel, various devices, treats, accessories. Well, for example, we certainly need one pair of trainers (or a variety of seasonal shoes), but an extra pair of trainers of a different brand or color already want and not a need.
Of course, we have to afford to satisfy our wants too, but such spending has to be weighed up, and our wishes should not come at the expense of our basic needs.
Spend less than you earn
One of the fundamental principles of money management for financial and emotional peace of mind is to spend less than you earn (or otherwise receive). The difference should be set aside for savings. It is recommended to set aside 10-20% of your income for savings.
Once you have set aside money for savings, it is essential not to spend it and think about your purchases to not have to borrow from your savings. These savings will be a good financial buffer for the unexpected or a more significant investment.
However, there are times when it is worth using your savings. This is the case of investing or, in other words, putting your money to work. Funding will not only protect your savings from depreciation but will also help you achieve your long-term financial goals. Everything about investment is here, you can read more about why you should start investing early here.
Track what you spend
It’s not only essential to spend less than you earn, but also to keep track of your spending. Knowing clearly how much we spend and what we spend it on is sound and sustainable financial behavior. It is beneficial if you are struggling to save money. Even small unnecessary daily expenses can turn into significant sums at the end of the month, so by taking stock of what you spend and how much you spend, you can find room for savings.
It is easier to record your own money using a card and it’s better always try to pay for things by card. Not only will you be able to keep track of your balance, but you’ll also know exactly where your money is going.
Shop safely online
If you shop online, make sure you register your card in the online shopping safety program you can find in your online bank. Remember that scammers can sometimes pop up on the internet, luring you in with desirable fraudulent promotions and exclusive offers. Several signs can help you identify fake e-shops:
False advertisements on social media luring you with unrealistic discounts of 80-90% or even up to 10 times lower prices.
Most fraudulent websites do not start with https:// and do not have a padlock next to the address field in the web browser.
Most of the time, the fictitious online shops display prices in euros or US dollars. Once the card details have been provided, and the order has been confirmed, the fraudsters can use the card details they have just received for their fraudulent order, so the transaction description does not match the merchant's name, the currency of payment is different, and the amount of the transaction may also be added.If you see any ambiguity in your bank statements, never be afraid to check with your parents or call your bank.
Rely on cold reason rather than emotion
This principle of financial management summarises a number of those discussed earlier. Relying on common sense rather than emotions will help you avoid at least a few financial mistakes. A rational assessment of the situation can help avoid being taken in by scammers, and it will also help when trying to distinguish between needs and wants.
So it is vital to use common sense, whether it is when you go to the shops to buy your daily groceries when you are confronted with price discounts, or when you see and suddenly want to make a bigger purchase.
Always consider how an expenditure will affect your budget and the risks of spontaneously wanting to spend more. Perhaps a few euros spent impulsively today will take you further away from your long-term savings goal and your dream of a bigger purchase.
