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A Guide to Sensible Money Management

Setting Financial Goals

One of the first steps in managing money successfully involves setting financial goals. These goals can include long and short term needs and wants. For example, saving for retirement is important, as is saving for more short-term goals such as a down payment for a new home.

These goals should also be specific and measurable. "Saving more" is a difficult goal to be accountable for. Specific goals like "saving $500 from every pay check" are easier to track and to see progress. Or saying that you want to be "financially free," isn't nearly as determinable as saying that you "intend to have $500,000 saved in an investment account within the next twenty years," or you "will pay off your car by the end of this year." And longer term or larger goals can then be further broken down into monthly, weekly, or even daily goals that will add up over time.

Using the goal of having $500,000 in an investment account within the next twenty years, you can easily break this down into yearly savings goals of $25,000, or monthly savings goals of just over $2,083. You can see here that while attaining $500,000 may seem like a difficult task, saving $2,083 per month makes it seem much more doable.

Goal Tracking

Tracking your goals is an essential element in successfully attaining them. This is because you can actually see your progress, which can be quite motivational and snowball into more and better habits

The Importance of Saving and Investing

Saving and investing is crucial to long-term financial success. Funds you save today may eventually need to be converted into a livable retirement income for the future or pay for other important items in the meantime like a primary home. It’s important to save as much as possible—and invest it wisely—during your working years to give yourself the best chance at a comfortable and sustainable income in retirement.

Investing wisely means far more than just simply picking stocks and hoping for the best. It means having a strategy designed to reach your long-term goals and the discipline to stick to it. And many people today are living 20 or more years in retirement, the money they have saved over the years will be needed to pay for living expenses, travel, and medical costs down the road.

Borrowing Wisely

Proper financial management doesn't stop with saving and investing. It also includes making wise decisions in the area of expenses. Borrowing is an area where it is essential to understand exactly how much borrowed funds are "costing" you.

Beware low, up-front "teaser" rates designed to lure borrowers in, only to have the rate increase over time.

There is also a difference between a loan's interest rate and its APR, or annual percentage rate. The APR represents the "effective" rate you’ll pay on a loan, taking into account other expenses such as one-time fees and other transaction related charges. Because of the "all-in" nature, APR’s are more directly comparable than interest rate quotes alone.

Borrowing to buy depreciating assets, such as cars or clothes, should be done carefully. And delaying gratification on small retail purchases can improve your mental and financial well-being.


Creating a basic income and expense plan can keep spending in check and may lead to more available discretionary funds. This works much in the same way when people lose weight simply by keeping a food log.

Getting started is simple. Start out by listing each expense and debt obligation that you are responsible for every month. (With expenses that may be due quarterly or annually, simply divide the total into an approximate monthly amount.) Providing you’re comfortable with giving up the information, there are some excellent website and computer programs that can help automate this by connecting to your bank account over the internet.

Items in this list may either be fixed or variable. For variable expenses, sampling a year or more worth of costs and using the average can be a means of smoothing for calculation purposes. For example, if you have an auto loan, it is likely that the amount due will be the same each month, whereas expenses such as utilities and food may differ from month to month. After you have recorded all of your expenses, add everything up in order to obtain a total.  Keep a log for a few months can help to capture more one-time expenses and give you a more precise idea of monthly budget needs. Don’t forget to include a responsible contribution to your savings account or emergency fund.

Once you have added all of your expenditures, make another list that includes all of your income sources. This could include wages from a job, monthly rental income from an investment property, income from an annuity, pensions, or investment interest and dividends.

Use your after-tax income, since this represents the amount that you actually have to put towards your expenses.

As with the expense list, if there are any income items that come in quarterly such as stock dividends or an anticipated bonus, divide the number into what the income would equate to on a monthly basis. Add up all of the sources to get your total amount of average monthly net income.

Determining the difference between total income and total expenses comes next. If your income amount is higher, great! It should be easy to stick to your budget, as you are bringing in more than you have going out. If, however, the expense total is more, then it may be time to re-allocate where some of your money is going.  Assess what is really necessary or determine if cheaper options are available. Remember, it’s best to contribute to your savings before any other expenses: Pay yourself first!

Who Can You Trust?

Many people opt to manage their savings and investments on their own, feeling that no financial advisor cares as much about their investment results as they do. In some cases, this is due to a previous negative experience with a financial advisor, but it may simply mean that they don't want to give up control. Yet most people would never consider not using a professional to diagnose medical conditions, complete auto repairs, or renovate their home, so why not do the same with your financial well-being?

Often, it only takes asking the right questions in order to find a financial advisor who is knowledgeable, professional, and trustworthy. And, by allowing an expert to manage your funds, you can keep a clearer focus on the other important areas of your life.

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