Why Money Management Is a Very Important Life Skill
Money management shouldn’t be seen as a useful skill to have. It should be seen as a critical life skill that every adult should have. Let’s look at why money management is a very important life skill.
Mistakes Literally Cost You
If you don’t understand the price you pay as that pizza you charged on a credit card wracks up 20 percent a year in interest, you’ll pay several times the price for that large pepperoni pizza than you’d have paid with cash.
If you don’t understand various financial terms, you could end up locked into a loan with excessive fees and interest thinking it was a good deal. There are plenty of people who will recommend you buy whole life insurance and then suggest you borrow against it when term life insurance is a fraction of the cost but won’t create the temptation to borrow against your nest egg at the literal expense of your heirs. If you don’t recognize when products like cancer insurance are a rip-off, you’ll waste money paying for services that aren’t worth it.
Budgeting Is Critical to Your Financial Success
A budget isn’t a diet. It is a decision each month of where your money will go. Write out a budget giving every dollar you earn a purpose. Make sure you can pay your bills like the rent, utilities, taxes and childcare first. Then you can allocate money toward eating out and entertainment. This saves you from the disaster of spending money you need to pay essential expenses on luxuries. When you set a budget and limit what you spend in each category, you can decide whether you’ll cut back on kid activities to save for those braces or work overtime so you can afford that trip you want to take. If you create your first budget and find out that you’re spending more than you earn, you won’t waste time trying to save on household cleaners when the problem is the rent or car payment are more than you can afford.
As you track your expenses, you will know how much you spend in various categories and learn what others pay. Then you will know if you’re overspending on health insurance, childcare or utilities and can invest time trying to cut costs where you know they can be cut. Learn how to manage money, and you’ll literally spend less. And when you’re budgeting, you’ll be in the habit of putting money back for emergencies and retirement, including any new savings you achieve each month.
Becoming Debt Free Is Necessary for Peace of Mind
Becoming debt free is necessary to peace of mind. It has the side benefit of ensuring you’ll be able to retire. Once you’ve learned how to budget and live on less than you make, therefore not going deeper into debt, you can cut expenses, raise money and negotiate down debt so you can start aggressively paying it off. The short term benefits include reducing how many bills you get each month and knowing that your emergency fund will last longer if you’re unemployed. The long-term benefit is knowing that retirement savings will last longer because you don’t have to figure out how to pay student loan payments while living on a pension or Social Security.
A side benefit of learning to control your money and invest it with purpose is that you won’t treat tax refunds and other windfalls like lottery winnings, spend it frivolously, and then hate yourself years later for wasting it.
Investing for the Long Term Is Important
You can’t expect Social Security to support more than poverty in your old age. Pensions are disappearing. The dream of winning the lottery to pay for retirement is a delusion, especially given that the rare few who do win typically blow it within five years. The only way to know you won’t be living in poverty in retirement is to start saving and investing for retirement as soon as possible.
Paying down debt both frees up money for this purpose and lowers your financial needs in retirement. However, simply putting $100 back each month in your twenties gives the money time to grow. Just take the time to learn about investing so you don’t blow the money in risky ventures or day trading.
Money management should be seen as a life skill you need to succeed in life. Coasting by in life will cost you far more than proactive planning and self-discipline. And if you don’t plan for the future, you’ll spend your final years in poverty. Master this skill, and you will be financially secure and may become a millionaire.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2019 Tamara Wilhite