MONEY HABITS
Compass
Learn smart money management
methods
Like many people, you may wonder if you’re being smart
enough with your money. Perhaps it’s time to take a closer
look at your finances.
While winning the lottery may seem like an attractive financial solution,
your chances of winning the big pot of gold are miniscule at best. It may be
better to start tracking exactly where your money is going each month, and
decide whether it is working for you or not.
One way to start is to consider your financial goals. What are your
immediate, short-term and longer-term financial goals? Would you like to
get out of debt? Purchase a new car or a home? Relocate? Save for a child’s
education? Once you’ve identified and prioritized your goals, you can
decide if you’ll need to make changes in how you’re managing money.
In this edition of Compass, we look at how you can:
• Get more out of your money every month by following a budget.
• Teach your children the value of managing money well.
• Build your long-term savings by using a few simple techniques.
Log on and learn! Look for Money Habits on the Magellan member website
under the Library/In the Spotlight section. There you’ll see tools that can
help you on your way to a sound financial future.
Teaching children how to
manage money
Teaching children smart money habits
when they’re young helps them
develop lifelong skills for handling
money responsibly. Consider these
tips.
Teach money and savings concepts
early. Introducing your children to
the responsible use of money can
start as early as preschool. A very
young child can learn to put coins in
a piggy bank.
Start an allowance. When kids are
a bit older, set up a small payment
for their regular help with a specific
chore or a list of chores. They’ll begin
to associate money with effort.
Reward children for saving. If they’ve
reached a money-saving goal within
a certain timeframe, enthusiastically
recognize their achievement.
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Help teens become money-savvy.
Teach them how to use and keep
track of a bank account, how to
handle credit cards responsibly, and
how to avoid debt.
Manage your spending
with a budget
A great way to get a handle on your finances is to develop
a budget. A basic budget can help you make more informed
choices about where your money goes. The following
elements can be part of your budgeting, whether you use
pencil and paper, spreadsheet or smartphone app.
Income
Total your average monthly income. This can include regular wages, plus
any side income, interest, child support, etc. If you share finances with a
partner, include that income.
Expenses
Start tracking every one of your expenses over the month. Total your fixed
bills such as rent or mortgage, credit card and car payments, and insurance.
Also record variable expenses like food, clothing, cellphone and other
utilities, gas, car registration and entertainment. Figure a monthly average.
(For annual expenses like car registration, divide by 12.)
The bottom line
Subtract your average expenses from your monthly income and you will
have a budget starting point. If the sum is below zero, it may be time to
reduce spending.
Addressing a shortfall
Consider cutting back on discretionary spending like dining out, cable
TV or other entertainment costs. If making subtle cuts doesn’t help, you
might reevaluate larger expenses such as where you live and the car you
drive. Increasing your income may also be a consideration, in addition to
establishing a debt consolidation plan.
Savings
Make your personal savings a top priority. Each month, strive to set aside at
least five percent of your net income for savings. This can help you handle
unexpected expenses, plus build a healthy retirement fund.
Ongoing tracking
Record your expenses each day, and check your budget regularly to keep
track of how much closer you are to reaching your financial goals.
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Tips for building your
savings
Adopt a saving—not spending—
mindset. When you’re about to buy
something, stop and identify your
real motivation for doing so. Do you
really need it today?
Set specific goals. Identify how you’d
like to eventually use your savings.
Target a savings total and a date for
achieving it.
Pay yourself. Set aside money to be
directed from each paycheck to a
savings account. Consider setting up
a split direct deposit so the money
goes to savings automatically.
Max out on retirement savings.
Contribute the maximum amount
possible per paycheck to your
employer’s a 401(k) plan, if available.
The employer matching contributions
and non-taxed status of these plans
are ideal. Individual retirement
accounts (IRAs) also offer tax
advantages.