Manage Your Money: Simple Habits to Grow Your Wealth

Money is supposed to enable life. Instead, our lives often become centred around money. How can you manage your money so it doesn’t manage you? By adopting simple habits, you will see your wealth grow over time. And the earlier you start, the better.

7 habits to manage your money

1. Save part of your earned income

Start with 10% if possible, though even 1% is better than nothing. You can increase the percentage once saving becomes a habit. Work it up to 20% after a year, 30% after another year and so on. Aim to save 50% if you can. This means that your hard-earned money is equally invested in your present and your future.

The key is to save your income the moment you get it, not whatever is left at the end of the month. Instead of spending first and saving what’s left, you must save first and only spend what’s left. 

I’ve found that whether I save 5% or 50%, whatever is left is never enough for what I want to spend on. The more I allow myself to spend, the more I spend. The obvious, though not easy, solution is to allow yourself to spend less. You’ll suffer just as much whether you save a little or a lot, so you may as well save a lot.

2. Reduce your expenses

When you force yourself to live on less, you’ll get really resourceful. Cancel subscriptions that don’t add much value to your life. Get rid of all credit cards with annual fees. Explore mobile phone plans that make more sense for your level of usage. Spend time with your family at home instead of going out. 

Of course, this is only temporary. The whole purpose of living frugally now is so that you’ll have fewer money worries in future. Most people will not do this because they cannot accept delayed gratification. But delayed gratification is the single most important attitude you’ll need to manage your money.

3. Don’t spend your savings

Many people save, only to dip into their savings when cashflow gets tight. Don’t. Whatever you do, don’t spend your savings. 

When I first started freelancing, I often had to borrow from myself. I took out some of my savings to tide me over, but always with a fixed date for paying myself back. And my loan period was usually just a few days. I made sure to pay myself back in total by the end of the month. 

4. Invest some of your savings

If you have no time or inclination to study how to invest your money, pay a professional to manage your money. I have a friend who hired a financial consultant and she’s very happy with the results. He saved her more money a year than his fees cost. Also, use a fee-based certified financial planner, not commission-based agents who call themselves financial planners.

You’ll have to decide which investment vehicle works best for you. Just don’t leave your money sitting in your bank account. With inflation factored in, the low interest on savings accounts means you’re actually losing money by doing that. Better to risk losing some in investments with a potential upside, than to definitely lose it by doing nothing.

5. Avoid liabilities

Use cash or debit cards only. Don’t use credit cards, unless you pay it off in full every month. No consumer loans. No cash advances. And definitely no borrowing from family or friends. Debt is generally a bad idea. Carelessly taking on consumer debt can undo all the good you’ve done in Steps 1 to 4 above.

The only debt that makes sense is a home mortgage. This is because it’s a form of enforced savings by which you build equity over time. And even then I prefer that someone else, a tenant, pays my mortgages on property. 

If you’re already stuck with consumer debt, pay off the debt with the highest interest first, not the one with the largest outstanding amount. Interest rates are effectively the price of money, and you want to get rid of the high-priced items first. 

6. Monitor your financial health

What gets measured, improves. Put all the above – income, expenses, savings, investments, liabilities – onto a single page. Excel spreadsheets are excellent for this. Update and review this page regularly. I update mine monthly and look at it almost daily. When you are acutely aware of the state of your finances, they will start to improve over time. Awareness is the key. Action will follow.

Some experts advocate setting yourself specific financial targets eg how much you want to earn by a certain time. I’ve found that general directions are good enough for me. I want to see my income, savings, and investments go up, and my liabilities and expenses go down. Keep it simple, like I do, or make elaborate plans. It’s up to you, but just know what’s happening with your money.

7. Allow yourself some luxuries

Being financially prudent is meant to make you wealthy, not miserable. Within boundaries, spend on nice things for yourself and others. Follow this exact order to manage your money:

  1. Put aside your savings for the month 
  2. Pay for the bills and other expenses
  3. Spend whatever is left

Manage your money, love your life

Get your finances under control. Then you won’t have to constantly worry about money. You can spend your life on the things that matter to you. It really is worth the effort.

If you’re serious about learning to manage your money, read at least one of the following books:

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