If someone asked the question, “do you know where your money is?” how would you respond? Perhaps most people would say, “in the bank” and others would say, “in a safe at home.” Both answers are correct. However, this question goes beyond the physical location of your money. The ultimate goal of the question is to find out whether you are aware of your income and expenditures. Income means the money that you are receiving, or the money that is coming in. Expenditure means the money that you are spending, or the money that is going out. Good money management skills are what draws the stark distinction between the habits of the poor and the rich. While the rich spend the money wisely, the poor waste foolishly. With key money management habits however, you can go from living with a poor mindset, to a smart and luxurious mindset. So, what are these golden rules you say? Let’s start with savings.
1. Save Like Your Life Depends On It
It can be tough to allocate a few coins to your savings account every time you get an allowance. This is why building a savings account isn’t only limited to the amount of money you earn, but it also has everything to do with your day-to-day life choices. For example, it’ll behoove you to begin a daily habit of setting aside a set amount for a rainy day. Having savings affords you grace during times of emergency.
Let’s say that there is a new doll that you really want to buy, but it is out of your budget. If you put aside a specific amount from your allowance and discipline yourself to not spend it elsewhere, (like on icecream), soon enough, you will have the exact amount that you need.
As we go along this journey together, let’s use the example of the Smart Family on their path of financial awareness.
Joshua is 16 years old and has his eye on a shiny, red 2008 mustang convertible for $20,052. Joshua has a part time job in which he has already saved $1,300. His parents told him that the price of the car is more than they want to spend, so they’re willing to match whatever Joshua saves. Joshua wants this convertible within five months. What is the first thing Joshua should do? How is he going to get this car? Do you think he is being realistic? Respond in the comment section below.
2. Budget with Intention
Picture this. Have you ever asked your parents for an item, but they said that they couldn’t afford it? Yet later on, you see them spending that same money on something else? Infuriating, right? Well, it may appear like they are not being honest with you, but in actuality, your parents are making that decision based on a budget. A budget is a tool used to allocate money that you earn to pay for different items. Budgets are not meant for only adults– kids can also use budgets. For example, if you are given an allowance of $10 every week, you can set aside five dollars every week as savings, and spend the rest how you choose. You can divide this amount to cover as many items as you wish. Just remember, the key is to always live below your means. (Living below your means, means to spend less than you earn, not more than you earn).
3. Stop Comparing!
Even beyond money habits, one of the biggest challenges in life is to stop comparing. But it’s so easy, right? Everyone seems to have more than you. Wrong. You actually don’t know everyone’s story, so it’s best to keep your eyes on your journey and your journey alone. We live with the mindset that “if my friends have it, then I should have it too.” However, the reality is that we are all different and come from different families. Comparing yourself to others is the easiest way to fall in the trap of living above your means. It’s the quickest way to financial trouble. Next thing you know, you’re so focused on proving yourself to your friends, that you’re short on the money you were saving for that brand new *insert desired item here.* So, just chill out. Relax, focus on your budget, on your savings, and watch how you flourish. If you do this correctly, you’ll blow yourself away.
Once you master money management, you’ll actually realize that you are putting yourself in a better position than a lot of people–including your friends. Self-discipline is challenging to muster, but once you get it, both you and your bank account will be unrecognizable– in the best way.