Money management is a broad term that involves and incorporates services and solutions across the entire investment industry. Managing one’s money has to do with how a person efficiently plans to make use of money available to him or her and ensure that the plan becomes practical and effective. Keeping in mind that poor management of money can lead to cycles of debt and financial strain, there are several ways of managing the usage of money, but the commonly known and talked about techniques are creating a budget. Other essential techniques include: tracking and improving your spending habits, creating an emergency fund, investing a part of money saved, planning on paying off existing debts and avoiding unnecessary debts.
Money management is about meeting expenses, setting aside money for emergencies, and saving. These enhance our ability to reasonably live within our means whether a budget exists or not. A family budget helps you spend and save wisely but most importantly the key to budgeting is spending less money than you earn. It’s also worth noting that creating a budget as mostly relied upon as the primary means of managing money can be unrealistic sometimes that is being either under-budgeted or over-budgeted as it may not necessarily reflect our true living expenses or needs. An example can be little expenses such as purchase of airtime and toiletries amongst others that add up to a big monthly drain which are not factored in creating a budget.
There are two basic dimensions in money management namely; wealth management and asset management. While asset management focuses on investments, wealth management is the highest form of financial planning. Asset management is the practice of increasing total wealth over time by acquiring, maintaining, and trading investments that have the potential to grow in value. The term wealth management is synonymous with asset management. Wealth management refers to overseeing all the financial aspects of a client’s assets, taxes, estate, cash flows, and all other possible uses of money. Wealth management thus encompasses asset management and takes a holistic view of the client’s finances.
Some wealth management services include customized asset allocation and management for some clients. Many asset management firms are also referred to as wealth management firms, as these services provided do not really differ. Asset management clients can range from regular people to nonprofit organizations and public or private companies both large and small. One of the commonly known and affordable asset or wealth management schemes especially in Ghana is the Mutual Fund.
Mutual funds are professionally managed investment funds that are operated by pooling money together from many investors. The money is used to purchase stocks, bonds and other securities. When investors buy shares in the fund, the mutual fund company pools that money to make investments on their behalf. A share represents a portion of the fund’s holdings. The benefits of Investing your money in a mutual funds scheme include:
- Professional or Expert Management
- Diversification of Investment Portfolio
- Low Costs
- Provides a better liquidity option
- High Returns Potential
- Well Regulated
Karen Heider, a well-known financial and wealth advisor said, “you have to know where your money goes”. This statement puts more importance on the need to evaluate how we make use of our money to enable us to make decisions or changes to our saving and spending habits. The best way to understand where your money is going is by tracking your income and expenses. Having figured out where your money goes, now categorize your spending (such as food, bills, giving, entertainment, etc.) This helps you identify which of your spending habits you can adjust, entirely change or take out. It is important to understand your own spending habits and money choices so you can decide where and how to make changes. Listing out expenses can make us feel aware and in-control.
Budgeting can help track your progress as you try to stick to it so your money is doing what you want it to. Having an emergency fund is one of the important strategies of managing money as the intention to establish this fund is a form of planning and managing the usage of money. An emergency fund is a financial safety reserved for meeting unexpected and unplanned expenses. The objective of this fund is to cushion one’s self in the event of unforeseen financial circumstance or distress. Common examples are medical bills, loss of income, major home repairs. Emergency funds vary but should typically have three to six months’ worth of your living expenses, because of its purpose, it is advisable to have emergency funds usually in demand deposit accounts or money market investment schemes where it’s easy to get access to these funds when needed.
In achieving one’s financial goals and also helping in money management, there are some measures that one needs to take in order to properly manage your money:
-Identify and categorize your financial goals: You need to be certain what your financial goals are. Is it to acquire an asset for retirement, marriage and family, education, giving, enjoyment or a combination of these? This will help you plan better.
-Decide on a time horizon to achieve your financial goal
-Select a suitable investment based on risk tolerance
-Monitor the progress of your financial goal
Evaluate the probability of reaching your financial target and making appropriate adjustments to your money management and investment options when necessary. There is always a tendency that as our income increases, our expenses or need to spend more also increases. There are a lot of people who experience an increase in their incomes but are just not that much better off. This is because they give themselves permission to spend more money.
Written by: George Frank Cleland
Head, Financial and Regulatory Reporting Unit –
Financial Control and Strategic Planning Department,