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An Excerpt from the book PERSONAL MONEY MANAGEMENT

For many families, the whole idea of managing money seems bothersome and almost hopeless. They believe that money management means living by a rigid set of do’s and don’ts, pinching pennies, and keeping a lot of records. Actually, managing your money has three simple aspects: deciding what you want your money to do for you; creating a workable spending plan, and following your plan with determination.

Are you losing the battle of the buck?The first step means making choices–deciding which of the things money can buy are more important to you than others. Most of the money we make has to be spent on essentials such as food, shelter, and clothing. Nevertheless, there are many choices we can make. For example, we can economize on food and housing in order to afford a better vacation or pursue a hobby. Your family may enjoy sports or the theatre more than a fancy automobile. Every family is different. Remember, the idea is to make your money do what you want it to do.

Creating a workable spending plan means translating your goals into a budget. How much for food, shelter, and other expenses each month. How much you need to put into a reserve fund for infrequent expenses such as car repairs or insurance. How much goes into savings. You need not compute these amounts down to the last penny. But you do need some kind of spending plan.

The last step is obvious but important. You must follow the plan you’ve created and avoid financial detours. You shouldn’t be completely inflexible because unexpected money needs–or changes in your overall plan–may arise. But you should be consistent and reasonably faithful to your budget.

While some pencil and paper work will be required in any money management plan,the bookkeeping needn’t be complicated at all. It can be as simple or as detailed as you wish to make it. You can start with rough estimates and refine your figures later on. The important thing is to have some records that show you’re following your plan.

Keep in mind that you’re not keeping books for a company. It’s not important that you account for every penny spent but that you control your spending and saving. The most important factor in any money management program is your determination to control your money so that you get the most out of your income.

Just about everyone agrees that they should be saving part of what they earn. But many fail to do so. They feel that the cost of living is too high, there are too many bills to pay, too many things they need to buy.

All of which may be true. But the simple fact remains that, no matter who you are or what your income is, you can save. First you have to decide that you want to save some of your money more than you want to spend it. Next you have to decide how much you can realistically put aside.

THE MISTAKE MILLIONS MAKE

Many people make the mistake of believing that if they can’t save a lot of money, it isn’t worth doing. They overlook the fact that even small amounts saved regularly will add up over a period of time. Suppose you saved just five percent of your income. You would save a full year’s salary in less than 20 years (actually quite a few years less because of the interest it would earn in a savings account). If that seems like a long time, remember we’re talking about a full year’s income! How much less time would it take you to save $1,000 or $500?

By comparison, what will you have to show for the money you didn’t save? Look back over the last few years and ask yourself what you would have missed if you had saved five or ten percent of your income. Anything tangible or really worthwhile? Anything that would give you as much satisfaction as having that money in a savings account right now? Probably not.

Breaking the habit of spending all you make takes will power. But, as your savings grow, little by little, it becomes easier and easier. In fact, it becomes a pleasure. And, as you add to your savings, you’ll also be receiving interest that will help your savings grow even faster.

Isn’t it true that the things you really want most can only come through savings? Take a moment and make a mental list of the things worth saving for. Is there any sense in dreaming of a sudden windfall, an inheritance, or some other source of instant wealth? Of course not. You know what you have to do–start saving.

HOW TO SET UP YOUR PLAN

Money management should be a joint family effort. Every one old enough to spend money should be involved in the basic decisions of how the money will be spent. Who will do the bill paying, and who will keep the records. this is a good time to discuss personal allowances and other individual expenses. Let all family members participate, and they will be more inclined to cooperate.

You know that certain expenses are essential and others optional. You also know that some of your income should be set aside for savings. With this in mind, establish some priorities.

Set up a reserve fund for those once- or twice-a-year expenses so that you can budget for them throughout the year. For example, if you make two $300 life insurance payments each year, you should set aside $50 a month for insurance in your reserve fund.

Use the budget worksheet as a guide in setting up your budget. You know that by spending according to the amounts you’ve established, your money will go where you want it to go.

WHEN ALL DOESN’T GO ACCORDING TO PLAN

Don’t be surprised if your budget doesn’t work out perfectly all of the time. Expect the unexpected. Maybe this is the year you’ll be hit with an unusually large dental expense. Or next month an unexpected auto repair bill. Don’t let these emergencies shake your faith in your spending plan. Here’s where your savings can come to the rescue. Or, perhaps you’ll have a readjust your budget for the future. Maybe you’ll have to cut down on entertainment for awhile to spend more on something more essential. These adjustments are perfectly normal and should be expected. Make the adjustment and continue on from there. But stick to some kind of plan.

Avoid Money Management Mistakes

1. NO SPENDING PLAN.
The “where does the money go?” question frequently comes up because of spending on a day-to-day basis, without any sort of plan for taking care of needs and wants. Here’s where a money management program can help you spend your money wisely, to reach your goals.

First, set up priorities: know your regular expenses; determine what your goals are in relation to short-and long-range aims. Take critical look at your expenses and weed out those that don’t give real satisfaction.It’s not how much you earn, it’s what you do with your money.

2. NO CASH RESERVE. Financial experts recommend that every family have a cash reserve of at least 50 percent of their annual income. To acquire this means developing good saving habits and self-restraint in spending. There is a definite need to save so you have an emergency fund when unexpected expenses arise.

Knowing you have a safety margin of savings will also give you a feeling of security and greater peace of mind. And don’t forget a savings account enhances your credit standing.
3.TOO MUCH USE OF CREDIT. Using credit can be a real help or a trouble spot. depending upon how you use credit. The biggest problem usually is that families overextend themselves and become committed to larger payments than they can meet.

Credit terms differ, too. Shop carefully for credit–as carefully as you do for goods and services. Be sure time installments fit into your budget and don’t take on more than you can handle. Know the cost of credit terms. The real cost. Keep track of expenditures made with charge accounts or credit cards, so the bills won’t come as a big surprise to you. And pay on time to keep your credit rating solid.
4. NON-CONSTRUCTIVE USE OF WINDFALLS. You receive a tax refund, a bonus or raise, perhaps an inheritance. Most families are inclined to spend the extra money on luxuries they wouldn’t ordinarily consider. And poof, the money’s gone.

There are many ways to put “windfalls” to constructive use. Add pay raises to your savings before you get in the habit of spending the extra money. Use refunds or bonuses for needed large purchases, such as major appliances. You’ll also save paying out interest charges.

MONEY MANAGEMENT HELPERS

You’ll find the job of managing your money a whole lot easier if you make use of these helpers:

• Checking Account. Paying bills by check gives you a permanent record of the payments. You can simply go back over your check register or statement to find out how much you spent for various items in your budget. To make the job even easier, write a budget classification number or letter (for example. “F” for food) on the check register. Your records from previous years can be used in setting up your trial budget. They’ll tell you how much you have spent in the past for budgeted items.

• Savings Account. Use one or more savings accounts for your regular savings program and for putting money in reserve for future expenses. Many people prefer to put monthly contributions toward vacations, Christmas gifts, and other once-a-year expenses into separate savings accounts earmarked for these purposes.

• As far as your regular savings program is concerned, there is one rule to follow which will ensure success. PAY YOURSELF FIRST. Deposit whatever amount you budget for savings into your savings account every payday–before you have a chance to spend the money on other things. You’ll be amazed at how quickly your savings grow–and how little you miss not having the money to spend.

• Record Book. The forms in the back of Personal Money Management, provide you with a record keeping system that will be extremely helpful. First write in the budgeted amount for each category. Later on, with the help of your checkbook, write down the actual expenditures. You’ll be able to see at a glance how your actual expenditures compare with the amounts you budgeted.