Tips for Managing Your Money

Being frugal and thrifty involves more than just looking for the best deals; it also takes careful planning and money management. If you want to truly understand where your money goes each month, you need to carefully track your earnings and spending. But you don’t need to be an accounting wiz to become an effective money manager. While tracking your finances takes time and a little effort, there really is no better way to manage your money, plan your budget, and control your spending.

What’s the best way to get started? There are literally hundreds of ways to track your finances, including:

• Keeping a ledger.
• Using personal money management software such as MS Money and Quicken.
• Recording spending and earnings using an online service.

No matter what method you choose, the key to success to be consistent. By tracking your money effectively, you’ll be one step closer to controlling where your money goes each and every month.

Step 1 - Track Regular Expenses

The first step of any effective money management plan is to make a list of all the normal expenses for each month. These costs are usually simply part of living, but recording how much you spend each month on these items can be an eye-opener. While you probably can’t eliminate these expenses, understanding how much of your yearly income goes toward covering them might inspire you to look for new ways to save.

Some typical regular expenses include:

• Mortgage or rent
• Groceries
• Car payment
• Gas or transportation
• Utilities
• Insurance
• Clothing
• Entertainment

Step 2 - Track Non-regular Expenses

Inevitably, things just happen. Your dog gets sick and need emergency surgery, your car break down, or pipes burst and flood the house. The costs of these events can vary, but you should always take care to include them on your money management plan. By understanding how much of your yearly income goes toward paying for these situations, you’ll be better able to plan for the unavoidable in the future.

Step 3 - Identify Your Problem Areas

Any good money management plan will help you identify areas where you might be overspending. Make a list of all the areas where you would like to cut back. Maybe too much of your budget is going toward entertainment, or perhaps your paying too much for groceries. By focusing on areas of weakness, you’ll be better prepared to create a budget plan of action.

Step 4 - Set Money Management Goals

Goal setting is one of the most important steps in the budgeting process. Examples of good goals might be:

• “Cut my grocery bill by 20%.”
• “Look for insurance plans that offer better rates.”
• “Reduce my utility bill by 8%.”

Your goals should be specific, but achievable. By creating a goal that is within your reach, you’ll be more likely to stick to your budget and remain committed to living a more frugal lifestyle. Since you’ve been carefully tracking your expenses, the results of your efforts will be easy to see and celebrate.

Step 5 - Create a Specific Plan of Action

Just setting goals isn’t enough. Once you know what you want to accomplish, you need to come up with ways to actually achieve your goals. Make a list of specific steps you can take toward achieving your goals. For example, if your goal is to reduce your monthly spending on groceries, you might start using coupons, shopping for sale items, and switching to cheaper brands.

Being a thrifty shopper involves a lot more than buying off the sales racks and clipping coupons. In order to make the most of what you have, you need to have a solid understanding of exactly where your money goes each month. By tracking your expenses, identifying problem areas, setting goals, and taking steps toward reducing your spending, you can understand your spending habits and look for new ways to save.

Photo courtesy Steve Woods.