Is Your Money Sitting Pretty or Making You More Money? Here's How to Make Your Money Work for You (Part 1)
The subject of money will always be on the front burner in most conversations because of its significant role in our lives. No doubt, money is a needed tool to achieve your goal, but you need more than what you earn directly to achieve most of your goals. You will need your money to work for you. This means taking control of your finances, then using that control to improve your financial stability and security continuously.
We have shared some insights into how to make your money work for you in this article. However, note that no financial advice is one-size-fits-all. What might work for one person might need a slight adjustment to work for another. Hence, be sure to take your circumstances and needs into consideration and do what works for you.
Learn to Budget
The first step to any conversation about finance starts with budgeting. How much you earn, save, invest or spend all revolves around your budget. While some people do not see the need to be deliberate about this, some other people believe they have plans for their money without noting it down in a budget. The consequence of this belief is that you are not able to track financial wastage effectively.
Research has shown that those who attain financial stability have learnt to budget for everything. Budgeting helps you to track your economic history and projections easily.
Budgeting helps to understand where your money is coming from and creates a plan on how to spend it. For some persons with multiple income streams, budgeting helps track their primary income source and prioritize it effectively.
Note that budgeting is a continuous process; even after making a budget for the month, quarter or year, you will need to revisit to adjust to a new development constantly. However, this exercise puts you in control of your finances and not the other way round.
One of the golden rules of preserving money is to spend less than you earn, but without a budget, you cannot determine if you are spending more than you are making.
With a budget, you can:
- Identify wastage and bad financial habits
- Analyze your streams of income and create more streams
- Understand where your money is going and reduce your spending
- Pay off your debt and avoid creating new ones
- Prioritize spending on essential things
- Save and invest for the future
One of the golden rules of preserving money is to spend less than you earn, but without a budget, you cannot determine if you are spending more than you are making.
Keep an Emergency Fund
Any financial planning without an emergency fund comes with precarious and unpredictable realities. When you draw up a budget but omit an emergency fund, you will most likely find yourself in situations of being one step forward and three steps backwards in your financial journey. This means that without an emergency fund, you are exposed to incidents that will require financial demands you are not prepared for, causing you to respond with money meant for other purposes.
Surprises are inevitable and are scary when you do not prepare for them. For example, an unexpected vehicle repair, office asset breakdown, a job loss, a medical procedure, a natural disaster, or any other financial emergency can disrupt your plans leading to new or more debt and erasing any progress made so far.
Surprises are inevitable and are scary when you do not prepare for them.
Creating an emergency fund helps to protect and preserve money meant to work for you. And in the case where there is none or less emergency that requires your financial commitment, you can gradually move some percentage of the funds to fulfil other purposes.
While some experts recommend that you save the equivalent of three to six months' worth of income for an emergency, we advise you to avoid being trapped in a state of inertia if you don't have up to that amount for an emergency. Save every little bit you can save; little is better than none.
On the whole, we have established the importance of budgeting and having an emergency fund as the background to having your money work for you. We will take a deeper dive into practical ways of how to make your money work for you in the second part of this article.
ABOUT THE AUTHOR:
Ernest Ademola Ehigie is a Copywriter, Content Developer, Author, Brand Consultant, and Communications Manager with over 5 years in marketing communications. He has written several articles, policy documents, press releases, radio and TV adverts for businesses and organizations. He's the author of the book, "Why You Must Lead" and currently works as a content manager for Detail and Avedia, a leading retail and media consulting firm.