In personal finance, money management is a step by step process. These steps includes budgeting, spending, saving and investing. The process of managing money may change with individuals due to different individual goals, risk, savings, spending habit, lifestyle and few other factors. However, the fundamental and basic principles can be commonly shared.

Managing your money require some basic knowledge of personal finance and investments. Knowledge makes it easy to handle the money matters.

Money management is a key to improve your financial situation. Let’s start with the first step which is budgeting.

Budgeting:

It is one of the best way to control you spending and to increase your savings. Creating budget is not at all hard. Allot a budget to major expenses or simply follow – “50-30-20 Budget Rule.” The 50-20-30 budget Rule suggests that an individual should spend 50% of their income on essential expenditures like home loan or rents, transportation, groceries, utilities etc. 30% of their income should be spent on the things like vacations, entrainment, eating out etc. and remaining 20% should be saved and invested for future financial goals.

Though one can always try to cut down on 30% expenses and increase their savings/investing.

Spending: 

Spending money is depends a lot on your habits and lifestyle you follow. Some people are spenders while some are savers. Tracking your spendings, eliminating unnecessary expenses, prioritizing your spendings is important. You can successfully manage money with budgeting and controlled spending. Inessential expenses do not add any value to an individual’s living standards. Better cut down on such expenses, save & invest for better future.

Saving:

Here is short story of MR. A

• Why Mr. ‘A’ ask others ‘how to save more money’?
• Mr. ‘A’ can count his limited money source(s), though can’t count his all the expenses.
• He can’t count his expenses, so he can’t find out where exactly his money is going.
• He can’t find out where his money is going, so he can’t do budgeting.
• He can’t do budgeting, hence he is unable to save.
• He is unable to save because he ignore his own money flows and ask others how to save the money.

Don’t be Mr.A. Understand your income & expenses, track them, cut down/postpone unnecessary expenses if possible, make budgets, save more.

Investing:

You have heard this often, but saying again- Savings is not enough, investing is important. That’s right because saving money, not going to help you with successful money management or to achieve financial independence. It’s investing which helps to grow/earn more money and get the financial independence.

Invest your savings, don’t just keep it in the bank account. Invest in equity, equity related instruments with some exposure to debt according to your risk, goal, duration, age taxes etc. to secure your financial future. But remember to keep your investments simple and according to your personal requirements.

Some additional tips for money management:

• Pay to yourself first- when you get your salary/income, transfer a fixed sum towards saving each month before spending. It’s always good to save before spending.
• Before making any big purchases take your time to review it. Find out if you can cancel it or postpone it or evaluate your purchase with alternate product option by comparing prices.
• Avoid use of credit cards for big/lavish buyings. One can save more rather than paying interest on the purchase by using credit card.
• Keep your ‘Basics’ in place before starting investments. Basics mean enough emergency fund, health cover and term plan.
• Keep your debt/ credit card usage low and manageable.
• If you have loan burden, then try to pay it off asap through your savings. Do not invest until you pay off your major loans.
• Try to increase your income sources through side hustles, renting, passive income, hobby classes, online teaching etc.

Note:- Above article based on one of my Quora Answer.