5 Must-Have Money Management Skills

Does the thought of checking your balance in your bank account give you a knot in the pit of your stomach? It is really important to get a better grip on  how you manage your finances. 

Learning this will go a long way to reduce your stress and help you achieve a lot more of your long-term objectives, like repaying your debts or saving up in preparation for your retirement. 

A good number of us learn how to manage money from their parents either actively or passively, at least while growing up. Whether they were/are spenders or savers or investors, surveys show that nearly 50% of parents miss opportunities to talk to their children about money and a quarter are very or extremely reluctant to do so. 

Further, the formal schooling system may not have equipped you well with personal financial management skills. But that does not mean you are unable to learn and practice them today. 

1. Make a budget and stick to it

Do you, at all times, know where your money goes? Do you keep track of your regular expenditures such as food (eating out), entertainment (of whatever form), clothes, travel etc? 

Many are rarely able to truly account for every amount spent within a month - literally the strategy is synonymous to praying that everything adds up. 

But it doesn’t have to be so for you. Being good with your money doesn’t require the greatest math skills in the world. It’s literally an addition and subtraction game that starts with a budget. 

A budget is an estimate of your expenditure over a certain period. Say, for example, you set aside Ksh5,000 for food, in a month. For every food purchase you make, note it down, against your budget. This way, you will know when you are almost depleting your budget, and slow down so you do not go overboard. This, done for every expenditure item. 

Tip: Go back through your bank/M-Pesa statements for the previous year and jot down how much was spent in every category. You might be surprised at how much money is "wasted" on items you were not even aware of.

READ ON>>Tips for living on a tight budget like a pro

2. Set financial goals that are ambitious

Sticking to your budget gives you great control with regard to your money. Adding ambitious financial goals gives you a sense of direction. Whether you intend to get out of debt, own a house, or plan for retirement. It is possible to act now and actualize your goals down the road.

Tip: Sit down and make a budget. You could meet with a financial adviser so that you can learn how best to use your money towards your strategic, longer-term goals. That set, have in mind that the real winners are only those who stick to their goals and vision. That doesn’t mean you can’t adjust along the way - as long as you have the end you are working towards very clear. 

3. Build an emergency fund

You have your goal set. Good. While you work on this goal, you need to stack away some cash to cater for any unexpected expenses like medical bills or car repairs or sudden loss of your source of income - your emergency fund.

Looking for loans to pay for your emergencies may turn your momentary set-back into a long term setback. Setting up this fund will ensure that emergencies do not put you further into debt. An emergency fund will also give you peace of mind to bounce back financially if you lose a crucial source of income.

Tip: Set aside an amount equivalent to about 3 – 6 months’ worth of expenditure. Note that you don’t have to do this in one go, you can build the fund sequentially. With that quantity of money saved, you will be better placed to deal with most unexpected expenses that come your way. 

4. Be aware of your spending 

Before you go shopping at the supermarket, do you make a list? Do you check the prices for different brands?  Don't go through life “unconsciously”. You have got to track every single cent you spend. When people fail to do that, their money, mostly, tends to literally “evaporate”. 

Tip: It may take a bit of effort but ensure you make lists, examine the prices of different items at the stores where you shop. It will be worth it in the long run. And, it could make a BIG difference.

READ ON>> Haggling: How to bargain for the best deals in Kenya

5. Pay off Debt

Debt can be a huge obstacle for many people when it comes to achieving their financial goals. That is the reason you should make eliminating debts a priority. You could set up a debt elimination plan to help repay it quicker. For instance, while making the minimum payments on your debt account, you could pay any extra money towards clearing the debt. 

Once you clear any debt, commit yourself to staying away and out of debt. Also try the following tips:

• Sell unused or unwanted items you may have laying around your home. This will help to find extra money to add to your debt repayment plan.
• Seek a second job. It can help cross out your debt faster.

Note that being in debt is not necessarily a bad thing - loans can in fact help you achieve your longer-term financial goals if well-utilised and borrowed for the right reasons. It then follows that if you are seeking a loan, you may want to take time to get the best terms, lowest interest rates and repayment periods that do not burden you. 

At Money254, we understand the prevailing lack of transparency in the financial services industry and are working hard to provide you with verified information from financial service providers in Kenya to help you choose the right products. Check out our loan comparison tool here. 

WRAPPING UP

That parents, the schooling system or the environment did not teach us the best money management skills, is no reason to not start learning and practising these skills today. 

Even more, we may either have learned or developed not-so-good money skills along the way that we may need to unlearn - with urgency. 

With budgeting as the backbone of your financial life, get started today and you will be well on your way to developing all the other skills required to steer you to better financial health.