How Do Manage Your Money ?

I came across this interesting article that teaches you how to manage your money more efficiently. I usually only save whats left of my paycheck at the end of the month, however if you noticed, that isn’t actually called saving. Its because in one way or another I am gonna spend the money in some rubbish or junk. I believe many people is guilty of this too. Thats why the magical number in my bank statement is always not rising. Have you ever realized that no matter how much money you have in your pocket, it always seems to disappear?

This article teaches you to split your pay into different account and set a budget for each.

Compartmentalize Your Money

What my friend understood (and I didn’t) was that all money is not created equal. He gave every dollar a purpose from the minute he made it. I learned that if I was going to learn to keep more of my money, I would have to learn to compartmentalize it.

When each dollar has a purpose in its own compartment or category, it is free to pursue its intended goal. A good example is the difference between principal and interest in an investment. A person who doesn’t compartmentalize blends the two into one category: just plain money. Using this mentality, they might dip into the principal and diminish its power.

A savvy person knows that the principle is never to be touched. They might move the principle from one investment to another, but it will always remain invested. The interest, on the other hand, might be harvested as passive income, or reinvested. Principle and interests are two different types of money with different assigned values and barriers to access.

A Support System

Just seeing it this way is not enough. To really implement this type of mentality it is important to set up a system that makes it as easy as possible to know the barriers between the compartments. I suggest that the best way to do this is to open up five separate bank accounts, one for each major compartment. When I worked for tips, I had five separate envelopes that I put my money in so that there was no confusion as to where it belonged before it made it to the bank.

Here are the five categories that I suggest in order of importance.

1. Long Term Wealth
2. Minimum Spending Cash
3. Regular Monthly Expenses
4. Irregular Expenses
5. Fun Fund

It is possible to have many more compartments for your money, but I find that five is enough without getting too confusing (and driving your banker crazy). Money should flow into these compartments in this order as it is received. The absolute best way to accomplish this (if your company allows this), is to automatically split your check into these different accounts when it is deposited directly on payday.

The full article can be found at , hope you can learn something from it too.

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