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Are you managing your money effectively?

Last updated on: June 18, 2012 10:54 IST

Are you managing your money effectively?


Aditya Prasad,

Do you ever pause to think that you may be making more than enough but poor money management skills leads you to believe that there's never enough?

It is a pity that money management is not taught in schools. The very reason why we get educated is to be able to stand on our own feet and earn a livelihood not only for ourselves but for our loved ones. This simply boils down to making enough money, not just for survival but also to fulfill our dreams and goals. Do you ever pause to think that you may be making more than enough but poor money management skills leads you to believe that there's never enough?

Remember that good financial health often precedes good physical and mental health. Yet, for a lot of people, ensuring a healthy financial life often runs lowest on priority in the entire scheme of things.

So are you managing your money well? Let us look at some questions which will help you gauge if you are already there or if you have a long way to go.

Also read: 10 things your bank won't tell you!

The author is chief evangelist,

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Ask these questions:

1. Do you always worry that you may not have enough for the future?

2. Do you wonder how after working for so many years, you have very little to show for savings?

3. Do you have any idea where your money gets spent?

4. Do you tend to spend impulsively, especially on things you know you can do without?

5. Is there often an argument with spouse over money matters?

6. If you lose your job tomorrow, are you not confident that your savings will last you even for two months?

7. Do you feel as if you have got into a debt trap?

8. Do you feel overwhelmed at the idea of having to manage your finances and keep track of what is happening?

9. Do you shudder at the thought of how your family will survive in your absence?

10. Do you often blame your advisor for having suggested products which are unsuitable to you?

If the answer to most of the above questions is 'Yes' then it's time you take your financial situation seriously. The choice is in your hands, you could either shrug it off or you can decide to take action. Your choice would determine how your future shapes up with respect to money.

Also Read: How many credit cards should YOU own?

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Now let us look at some of things that you should do to attain the goal of a healthy financial life. Money management would broadly cover the following areas -- managing cash well, setting aside a contingency corpus, insuring your risks, investing in the right products, keep a tight control over your investments by periodically reviewing them.

Let us get into the specifics:

1. Keeping a budget is the first step in effectively managing your expenses. Allocate budgets to different heads of expense and see how you fair at the end of the month. For this, you need to track your expenses closely. Use online tools to make this simpler and convenient.

2. Re-learn the equation 'Income – Expenses = Savings'. In your life, make it 'Income – Savings = Expenses'. First save, and then spend. This will ensure that your savings are on track and your expenses are under control.

3. Set aside cash equalling 4-6 months expenses in liquid and safe instruments towards contingencies. This fund should be used only in case of any emergencies and should be maintained at all times.

4. Assess the need and quantum of life cover for self and medical cover for self and family. Try not to mix insurance with investments and stick to plain vanilla policies which meet your needs.

5. Do not invest in products on a whim; do your analysis and due diligence because it may always not be easy to exit out of bad investment choices.

6. Invest your savings keeping in mind your financial goals. Invest in products which you easily understand, else take the help of an advisor or planner. Do not accept recommendations unless you are completely convinced that it is right for you.

7. Maintain a separate file for your financial papers -- insurances, tax related documents and investment documents. Keep your folks informed about all financial matters.

8. Keep a track of your finances: As far as possible maintain your bank accounts and investments online. Also use online money management tools to keep a track of your all things relating to your finances. Bank accounts, credit cards, investments in equity, mutual funds, small savings, gold, etc., insurance policies, real estate holdings, almost everything within the purview of personal finance can be maintained and tracked online.

Effective money management is the key to lasting wealth.

If a little effort gives you the confidence and peace of mind with respect to your financial affairs, the effort definitely is worth it. A healthy financial life can be achieved if you control money and not if it controls you.

Also Read: Five ways to exit an insurance policy you don't need

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