Managing your money- Excerpts of the book "Finance for dad"

Cash management

Probably the most challenging aspect that a person has to deal with is the daily management of cash, which is not only cash, but also all the money in a bank account or in short term placement loans. We have all experienced how the salary seems to slip out of our hands without us noticing. Have you ever heard the expression, “I don’t know where my money went”?

One of the objectives of Personal Financial Planning is to eliminate that phrase from your vocabulary. You always have to know what you have done with your funds. In this part, we will be referring to our day-to-day transactions, those to which we pay less attention to since they are smaller amounts that we can handle with absolute confidence.

If our income covers expenses, we do not worry about a few cents here and there. At this point, I would like to recall a proverb that probably originates from ancient times:

“If we take care of the cents, the dollars will take care of themselves”

Whether our income is large or small, it is important to remember this saying at all times. Please do not misunderstand me; I am not suggesting you to turn into a miser. Absolutely not! You should continue being as generous as you have always been, however, you should keep an eye on your expenses.

Which tactics can be used to efficiently

manage money?

Among others, the following practices have shown to be effective:

Never spend more than what you earn. It sounds simple. It does not matter how high your income is, if you spend more than what you earn, you will always be in a situation of deficit and you won’t be able to save any money. An important practice is to manage money through a budget and stick to it.

If you have debts, pay them off as soon as possible. Do not accumulate them. If you use your credit card, pay the total balance. Interests are generally very high. 

Put aside a small quantity every month. Experts recommend saving, at least, 10% of your income. Open a savings account in a bank and establish an automatic system between your source of monetary provision and your bank, so that every month they transfer that quantity. Thus, you will get used to  not “having” the money.

Create a reserve fund for emergencies. Before thinking about the medium and long-term investments, you should establish a reserve for emergencies that covers -at least- six months of your budget.

Learn about financial investments. Read, take courses, attend seminars, talk to your banker, and do whatever it takes, but educate yourself as early as possible. Be prepared to have intelligent conversations and make wise decisions when talking with representatives of insurance companies, brokers, banks or any similar companies. Though the majority of them are ethical and honest people, there are some financial sharks that will not hesitate to take your savings away, if you are not ALERT.

Plan your financial goals. Prepare your personal plan in the same way that you prepare business plans.

Initiate your retirement fund as early as possible. Initiate your contribution to your company’s pension plan or establish an individual investment program exclusively for that purpose.

Do not leave your reserves idle; make them work for you. The only one that enjoys a bulky checking account is the bank.