The majority of employed persons fear the prospect of retirement, mostly because they haven’t saved nearly enough to enable them to live out their senior days in peace. That isn’t to say that most people are simply stupid, unable to realize the importance of preparing for their financial futures.
Rather most people are terrible when it comes to money management issues. Any survey carried out in any random community is going to reveal that most employees do even have an emergency fund. Not only do they have more debt than they know what to do with, but a surprising number of people simply do not have a handle on their cash flow, at least not enough to ensure that they are spending less than they make every month.
And all this issues can be traced back to poor money management; those common money management mistakes people are prone to making, probably without knowing, including the following:
- A surprising number of people do not have as clear an idea as they should about the places their money goes every month. And if you do not know how much money you are spending, you cannot begin to manage your finances. Ask the average individual how much they spend in any given period of time, and they will probably draw a blank. Give them the chance to go through all their bills, including credit cards, and they might be surprised by the amounts of money they are spending. It is essential for every individual to thoroughly scrutinize their financial documents regularly to gain a proper measure of their spending habits.
- If you can determine how much money you are spending over a given period of time, you should be able to determine if you are spending your money appropriately. Unsurprisingly, a considerable portion of individuals spend more money in any given month than they earn. It is essential to cut back on expenditures you do not require, this including the cost of unnecessary subscriptions and expensive lunches. There is always somewhere that you can cut costs if you look hard enough.
- Even more surprising than all those individuals that do not measure their spending habits is the number of people who are living from paycheck to paycheck. If you do not have 8 months or more of necessary living expenses saved, you are in trouble. Emergency funds are crucial for any individual seeking to optimize their money management strategies.
- Most people believe that they are better off using any extra funds they acquire to make small payments to all their credit card debts, if only to maintain a sense of balance; however this practice couldn’t be more wrong. Rather, you would be better off utilizing all your extra money to pay a single debt with the highest interest rate and then making minimum payments on the remnants. If you can pay the balance of the largest debt off, you can turn your attention towards the next debt with the highest rate. And in the process you might be surprised by your ability to expediently pay off all your debts.
There is no singular approach for improving one’s money management capabilities in all situations; more often than not, common sense and a basic understanding of essential financial matters should enable one to efficiently maneuver the prevailing financial constraints.