No matter how business-oriented you are; no matter how much money you make every month, if you don't know how to manage money, you'll still end up broke. In fact, before entrepreneurship, people should learn proper personal financial management. That is where real discipline starts.
What does it mean to manage money?
To manage money is to be in control of your finances; to properly use them in a wise and controlled manner such as to get more and to get the things you desire out of life. If you take stock, you would be amazed at the amount of money that enters your hands in a year. Usually, most people can't account for what they do with the money. Financial management habits put you in charge and make you able not only to know where your money is going but also to determine where you want it to go and make it happen. Proper financial management habits also make you able to predict with greater accuracy where you will be financially in a year, two years, 5 years' time etc.
Why should one learn Financial Management?
○ To properly plan and achieve financial goals. ○ To eliminate wasteful spending and use your resources for things that prosper you. ○ To know at every moment, what you can and cannot afford (yet). ○ To be able to predict your financial future.
What Are the Steps to managing your finances?
- BUDGETING
The first step to financial management is budgeting. A budget here is simply money kept aside for a particular purpose. A financially prudent person always budgets for things before spending money on them. Do you wish to buy a new shoe, start a business, move to a new house etc.? Start by budgeting for it. Once money enters your hands, give it a purpose.
Have a piece of paper or a soft copy document or excel sheet where you write down your budgets. You must not have money before budgeting. As soon as you realize you need something, write it down. Find out the price and write it beside the item. If it is a business you desire to start even without having the money. Write it down and do your analyses to know the cost of starting the business. Once money enters your hand, immediately assign parts of it to your budgeted items. As long as you keep up with this, you will eventually have enough for each item. Then you can use the budgeted money for that purpose.
Budgeting is key to financial freedom. Without it, you're walking in the dark. You may meet a person wishing to sponsor your projects or wishing to help you in one way or another. If they ask you how much you need, that should not be the time for you to start thinking and analyzing. You should always know your needs beforehand. Budgeting is a great help in this area.
- EXPENSE TRACKING
Once you're good at budgeting, the next step is to learn to track your spending. You should know where your money is going. Some people consider this tedious but once you start doing it, it becomes the easiest thing in the world. Basically, write down every spending you make and categorize it. You may use a piece of paper but to make it easier, you may use an expense tracking app. There are tons of them on playstore and ios app store. Once you get into a habit of recording every expense you make, you can generate reports that show you your spending habits. This has the advantage of helping you make better spending decisions. You may be amazed at how much you're spending on transportation, junk food etc.
- KEEPING THE RIGHT COMPANY
It is very important to have the right friends. Those who are also serious about financial discipline. Financially irresponsible friends make it hard to be disciplined yourself. For example, if you know you can't afford eating out at expensive places, don't associate with those who do eat at such places. If you have drawn your budget for the month for example and it is really tight, you'll need more discipline to stick to it. That becomes very difficult if you keep friends who don't follow a budget as you do. They may tempt you to spend money on things you didn't plan for and that hurts your budget.
- DOCUMENTING
This has been touched on in the paragraph on budgeting above but it deserves to be expatiated upon. Any financially prosperous person has a habit of documenting things. Documenting their budgets and expenses as explained above. Documenting their thoughts. So even if you are thinking of budgeting on something but haven't settled on how to go about it, still document that. The habit of writing things down helps structure your thoughts and leads to better decision making. As mentioned in the budgeting section, you must not have money at hand before budgeting for things. Have a list of things you wish to do with money but don't have the money yet.
If 10 million FCFA enters your hands today. Do you have a plan on what you would do with it? If yes, then once opportunity meets preparation, you are bound to prosper.
. - Titus Yusinyu