Money management skill might be viewed at three levels. The lowest level would be poor management, when you have little idea of how much money or credit you have on a day-to-day basis. You spend as you wish and hope for the best. Clearly, this approach often leads to problems with unpaid bills and overextended credit – perhaps even bankruptcy or welfare.
The middle level of financial competence could be described as maintaining control over income and expenses, but with little planning for long-term expenses or unexpected emergencies. Nor is much attention given to optimizing return on investment for money earned or spent. You keep up with monthly bills and maintain a fairly positive credit score, but without any particularly brilliant financial results.
What is a Good Money Manager?
The highest level of money management skill, or what we might term a good money manager, is one who shrewdly evaluates current and future needs to follow a plan for financial success. You not only manage monthly expenses well, along with maintaining a high credit score, but you also have long-term financial goals and plans that will slowly but effectively bear fruit. Ideally, you have covered all the bases from your current monetary circumstances to expected future circumstances.
A good money manager not only lives for today, but plans wisely for the future. Short-term sacrifices lead to long-term gains. In many cases, small adjustments can make a huge difference. For example, banking annual pay raises and bonuses instead of spending more on the monthly budget puts extra funds that will never be missed into a secure savings plan, which can then not only grow over time, but also accumulate compounded interest to grow into a sizable nest egg.
You don’t have to be a financial wizard to work money magic. Basic skills include self-control on a budget so you spend within your means. You also keep an eye on the future and set aside a portion of income accordingly. This helps avoid unpleasant and costly future surprises. You may decide to make sacrifices now to grow financial reserves for later. In fact, a good money manager takes pride in watching a small savings account or investment grow substantially over time. Patience leads to profit at this financial skill level.
Rate your money management skills in one of these categories and decide if that’s where you want to stay. If not, start developing new strategies to become the kind of money manager you want to be.