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7 principles of Money Management
7 principles of Money Management
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7 principles of Money Management

Money254
Njenga Hakeenah
May 17, 2021

When it comes to managing money, thousands of books have been written and millions of speeches given.  

Yet, we keep struggling with how to be financially successful not only in earning the money and keeping it but also making it work for us.

Universally, there are three basic (foundational) principles which can guide us into a lifetime of successfully enjoying what we have - whether much or little. These principles are;

  • Spending less than what we earn
  • Making the money you have work for you and;
  • Being prepared for the unexpected

Simply said, the principles are on living within our means, being the one in control of the money and having an emergency fund. But is it possible to achieve this by just waking up in the morning, making the money and having a pay cheque at the end of the month?

Without weighing ourselves down with heaps of financial tips, these three money management principles - which are a quick summary of the many books and articles written - should lead us in a good direction to making the most of what we have, no matter where we are financially. 

Spending Less

To start spending less that what one earns, it is good to consider:

1.   Creating a budget and revising it as often as possible

Creating a budget may seem like an obvious task but is not. For many people, the budget they have is usually in their mind and they do not have it on paper or in any other way.

To start you off on a personal finance success journey, it is good to think about having your income and expenses - covering both your needs and wants - written down so that you can have a clear picture of your finances.

You can have your budget on your phone as a list or you can even download one of the myriad apps available to help with your budgeting.

Having a budget enables you to see how much money you have, what you spend it on and how you can cut back on some of the frill expenditure which could be non-essential. 

On working towards spending less than you earn, you also need to think about:

2.  Managing your debt

Most people get into debt due to many different reasons.

While you cannot wish your debt away, the only way to be debt free is by paying off what you owe and the sooner you do this the better. Repaying your debts early means that you can save your money sooner. 

Depending on the debt size, one can choose to do a one-off payment or agree with the lender on the terms to do this. This will in the long term ensure that the debtor will be debt free and in the process have some money for saving.

Just like debt, emergencies can never wait when they hit. Thus, think about having a fall back plan in case of an emergency.

3.  Emergency plan

The reality is that if an emergency happens and you have no fall back plan, you will get in debt to deal with this emergency.

Sadly, emergencies are a part of life and if you are not prepared for them, they could cost you in terms of money and other resources.

As a money management principle, always prepare for emergency expenses by having an emergency fund by ensuring that all your necessary insurance coverages for most of the critical things in life are up to date.

An emergency fund helps you deal with any unexpected bills (expenses) that come your way.

Financial advisors say that the ideal emergency fund should have at least three to six months of living expenses but the reality is that it takes time to save that much. However with a budget, you are able to plan and have some money set aside to reach that ideal. 

To start off, you can open a savings account that gives you good interest and be depositing whatever you can as often as possible and ideally every month.

The other basic principle is making the money you have work for you and under this falls:

Making Money Work For You

4.  Building your credit

Whether you will need credit or not, your credit score has a significant impact on your finances and accessing them.

To help burnish your credit score, ensure that you avoid using too much of your available credit and pay what you owe as soon as possible.

Why does a credit score matter and how does this translate to your money working for you?

Well, if you fall on a hard time, your credit history will be handy in case you need to borrow. Utilise this to your advantage.

5.  Maximize your income

Maximizing your income is another way you can make your money work for you. Compounding your income is the best way to make more money and eventually save more money.

If you can have your money earning you more, then consider investing in ways that enable you to do this.

In employment, you can negotiate a raise, find a better-paying job, start freelancing or you can start a business on the side.

This way you can have your money work for you and you becoming its master.

6.  Set goals

How do you measure success?

It is almost to do this unless you set goals which enable you to see the milestones you have hit over time. Setting goals is also a great motivator which will help you continue on your financial wellbeing journey.

When it comes to money management, understand your motivating factor which could be early retirement, buying a home or just being stress free.

With this in mind, set measurable goals and work towards them making sure to keep logging your milestones which will show you if you are still on target.

Without goals, it would be hard to tell if you are succeeding or not when it comes to money management.

The foundational three principles which branch into many others - some of which we have looked at here - are good to consider when seeking to improve your personal financial wellbeing.

Once these key principles are under your belt, you can begin introducing others tailored to your targets and goals which could be anything from investment strategies to maintaining financial stability.


Njenga has over 8 years experience in multimedia and business journalism both as a writer, editor and producer. He has over 5 years of experience in radio broadcasting as a news reader, reporter and presenter. He is also a 2012 Earth Journalism Network-EJN Fellow.

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