Learning to manage money is an essential skill in today's world. Most of us don't learn these skills in school. On the contrary, our money management skills usually come as a result of life experiences. But it doesn't necessarily have to be a trial-and-error learning process. Once you understand a few basic concepts of good money management, you'll be off to a great start.
The Definition of "Good at Managing Money"
Although there are countless different ways to define "good at managing money," there are a few constants involved in good money management, including how you budget, spend, save and invest your money. If you are able to pay all your bills on time, reduce and eventually eliminate your debt, set aside a certain amount of money each month in a savings account, have an emergency fund set aside in case of layoff or other unforeseen circumstances, contribute to a retirement plan on a regular basis and avoid spending money on purchases unless you can truly afford it, you can consider yourself good at managing money.
Generation Y and Money Management Skills
Generation Y, or those people born in the 1980s and 1990s, are actually much more savvy about money management than some members of the older generations give them credit for. According to Money Management International, generation Y is educated, more adept at saving money, less hesitant to change jobs if they'll benefit from it and more likely to take full advantage of the financial planning tools available on the Internet.
How Using Credit Cards Can Cause Problems with Money Management
Using a credit card to make purchases is fine if you're able to keep your spending within certain limits and pay off your card charges completely each month. But if you spend more using a credit card than you can afford to pay in cash, you're overspending. For many people, this can lead to serious credit card debt. That means that you'll be paying expensive credit card finance charges, which can run 20 percent or higher. Credit card spending can create a vicious cycle -- the more you spend, the higher your balance; the higher your balance, the higher your minimum payment; the higher your minimum payment, the harder it is to pay more than that each month. If you end up with a high balance and can only make minimum payments, it could take many years to pay off the debt.
How Much Should I Have Left Over After Mortgage and Bills?
Many financial experts agree that an old rule of thumb makes sense given the current economy. The 28/36 rule recommended that a maximum of 28 percent of a family's gross income be spent on housing and a maximum of 36 percent be spent on all debt. Following that rule, you should have 36 percent of your gross income left over after paying your mortgage and bills. While these numbers make sense financially, some money management experts believe in the "pay yourself first" method, in which you set aside a certain amount of money in short-term and long-term savings first, then pay your bills, rather than the reverse.
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