Money Management

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Good money management requires that you get good information, learn how to use it, and exercise the discipline necessary to meet your long-term financial goals.

Money Management Explained

Managing your finances means understanding your income and expenses. It also means understanding the value of your assets and the cost of your liabilities. “Assets” are the things that you own that retain their value over time, and sometimes increase in value. For instance, your home is an asset because even though you are spending income on a mortgage today, you may be able to sell your home for a profit in the future.

On the other hand, “liabilities” are the opposite of assets. They are the things in life that cost you money but do not reward you with money in return. Liabilities drain your finances. It is best to keep your liabilities to a minimum while maximizing your assets.

Money Management Resources

The key to good money management is getting the information you need to understand your finances. For some people, this is simply a matter of looking at their paycheck to see what their income is and looking at their bills to see what their expenses are. However, once you determine your basic income and expenses, you should gather even more information to take control of your finances. For example, get a copy of your credit report to determine how creditors view your financial history. This will also allow you to see and remove any mistakes that may have been made. You should check your credit report at least twice a year for errors or fraud. To get your credit report, visit one of the three major credit bureaus:

You can also learn more about money management by visiting the following government websites:

Putting Your Knowledge to Use

Once you have consulted a number of resources and have learned more about money management, you will be ready to put some of the knowledge to good use. Here are a few tips to help you on your way:

  • Go to the bank and open up more than one kind of savings account. Use one account as a short-term emergency savings that you can access at a moments notice. Use another account, such as an IRA, for retirement savings. You may not withdraw money from this account for years, so it should have a higher interest rate and give you more money in the long run. Also, consider putting aside some money in a certificate of deposit. Such deposits are useful for money you may need in the not too distant future but will not be using at a moments notice.
  • Save for your child’s college expenses. Research options in your state. Many states allow parents to open up a college account that locks in today’s tuition for their child’s education in the future. You may also be able to pre-pay for your child's college education.
  • Revisit your insurance policies. These are often your first line of defense in an emergency. If your car or home is damaged, your insurance policy is the first document you will rely upon. Make certain your homeowners’ policy will cover natural disasters that strike your region. For instance, specify to your agent that you want flood insurance along with hurricane, storm or wind insurance. You may have to pay more for the added protection, but when your home is carried away by floodwaters, you will be thankful. Renters should not overlook renter's insurance. Newlyweds should be careful to insure precious stones. And don’t forget to look for discounts if you use anti-theft devices in your home or car.

 


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