You should have a good understanding of both your supply of money and your spending habits. Understanding where your money comes from is usually the easy part. For most people, a salary or pension is their primary source of money, but for others, it may come from contract work, business or rental endeavours, or investments.
Understanding where that money goes is another story. Most people are aware of the big expenses, such as mortgage or rent and car payments, but they have no idea how much they're spending on other things. These other things can often add up to cost more than the big-ticket items.
Everyone has different needs and different goals. A cash management strategy that works for you may not work for your neighbour. People have different ''money personalities''. For example:
What does money mean to you? Which of these three money personalities suits you best?
You enjoy putting money aside and seeing it grow over time. Habits include: setting financial goals, saving up for large purchases, avoiding debt and paying your bills on time. You rarely buy on impulse. Purchases are made after careful consideration; identifying the most appropriate product for the best price. Financial security is a priority.
Savers readily engage in the financial planning process.
Make the most of who you are: Saving is an admirable trait. However, good savers may not be good investors. Put your savings to work. Learn about investing. Invest with purpose. Take on appropriate risk to achieve your goals.
You enjoy spending money on things that make you or others feel good. Habits include: visible spending, impulse buying and a willingness to take on debt, including credit card debt. Your short-term wants may overshadow your long-term needs. You may be motivated to spend from a desire to be admired, to boost your self-esteem or to feel more accepted or loved by others.
Not wanting to be judged or examine their relationship with money may cause spenders to avoid engaging in the financial planning process.
Make the most of who you are: Ensuring that your money does what you really want it to do is the goal of this website. In addition to the materials covered on this website, there are many excellent sources of information that you can use to plan your cash management. Talk with friends and relatives, read the financial press, surf the Internet, and if necessary, use a credit counseling service.
You may have a spender or saver personality locked up deep inside, but day to day you avoid analyzing how you feel about money and you have no interest in managing it. Habits include: not thinking about money matters, not opening bills and not staying informed about your finances. Your employee benefits may be underutilized because you don't keep health care receipts or participate in a savings plan contribution matching program.
Avoiders do not readily engage in the financial planning process. This may be due to personally held beliefs about money, disinterest in the process itself or feelings of anxiety when faced with the complexities of planning. Many feel overwhelmed by their lack of knowledge, intimidated when faced with numbers or incompetent to make informed decisions. You can change your personality over time.
Make the most of who you are: Keep it simple. Automate bill payments and payroll deductions for savings. Start with setting one goal and creating a simple plan to achieve it. While cash management may seem to be a daunting subject, with a little work and commitment, most people will find that managing their money is not as hard as they thought it would be.
Find out. Take the Assess Your Money Management Skills test.