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A Detailed Guide On How To Manage Money Effectively

Are you struggling with your finances regardless of how much money you earn? Are you having a hard time knowing how to manage money effectively?

Whether you earn $2,000, $4,000 or $8,000 a month or more, you struggle to pay for your bills and barely have enough money to save.

Sometimes, you even think about asking for a raise, getting a second job or an extra freelance work so you could make ends meet. Then you realize there are people earning less than you that are doing much better with their finances than you are.

How could that be?

The reality is that it doesn’t really matter how much you earn. Managing money is a responsibility and if you can’t manage $1,000 effectively, you can’t expect to manage $1,000,000, either. You have to be able to handle the small ones first before you can take on bigger, more challenging tasks.

Why is it important to learn how to manage your money?

Think of money as a person.

If you treat someone poorly, you don’t give them the respect they deserve and you take them for granted, would that person stay? Chances are they won’t.

On the other hand, if you value a person, you take care of them. You do absolutely everything necessary to make them stay and keep them from leaving you.

I am not suggesting that you value money over friends or family. What I am saying is that it deserves your attention, time, and effort so you can improve your financial situation.

If you badly want to get out of debt or if you want to build a fortune and provide a better life for your family, you have to learn how to use money to your advantage instead of letting money take control over you.

How do millionaires handle their money?

According to T. Harv Eker, one thing that’s similar between all millionaires (and billionaires for that matter) is that they all manage their money very well.

With enough practice, anyone can master how to manage money effectively. I find that a simple yet valuable concept shared by T. Harv Eker in his book (The secrets of the Millionaire mind) is pretty helpful when it comes to keeping your finances in order. It’s called the jars concept and here’s how it works:

Whatever amount of money you earn (net, minus the tax), divide it into 6 jars or bank accounts if you like. I personally like using envelopes.

10% of your money goes to your FFA (financial freedom account)
10% to LTSS (long-term savings for spending)
10% to your educational account
55% to your utilities
10% to your fun account
5% to your give account

So, let’s say you earned $3,000 net for the month. This is how you should divide your money:

FFA – $300
Education – $300
LTSS – $300
Utilities – $1,650
Fun – $300
Give – $150

If you are married and you have a common bank account, you can combine your money and divide the total amount into the jars.

It doesn’t matter if one person is earning more than the other. Keep in mind that in a relationship, money is just one aspect.

The amount of money you’re budgeting is not important, too. What matters is that you get into the habit of managing your money. This way, as your capacity to earn money grows, so does the money that you put in the jars.