How do you manage money?

Every day you make choices about how, where, and when you will spend your money . These choices can have a significant affect on your financial life . Do you spend a lot of money on credit card debt each month? Do you save money regularly? Do you treat yourself to things after a rough week at work?

Where does your money go?

If you don't keep track of your expenses , you don't know how you spend your money. When you know where your money goes, you feel more in control. Take time to think about your spending. Ask yourself:

• Do I have a good idea of how much I spend each week or month?
• Do I take care of the essentials first—such as food, utilities, rent, and medical insurance—before spending money on other things?
• Do I have a huge balance on my credit card(s)?
• Am I a savvy shopper?
• Do I save money regularly?
• Do I have three months of living expenses saved?
• Do I have specific goals I'm planning for financially?

Read on to find out how you might change the way you manage your money.

Changing the way you spend money

When assessing how you manage your money, you might want to change your spending and saving habits . Being able to better manage your money will help you prepare for the future.

Bad money management habits can sometimes be difficult to break. To tackle an undesirable habit, consider the following:

• What do I get out of it?
  If you spend a lot of money but save just a little, what do you get out of it? You get to enjoy stuff, whether it's one more pair of black shoes to add to the five pairs you already own or a new big-screen TV.
• What's the negative?
  If you go on a shopping spree and don't pay your electric bill, you gain temporary stuff but may lose an important service. If you don't save money, what could happen if an emergency arises? If you look at it this way, you may realize you're not making a good choice.
• Think before you spend.
  Each time you spend money, you are making a choice. Your choices should reflect your values and financial goals. Before spending, ask yourself, "Do I need it?", "Can I afford it?", and "What is this purchase really costing me?"
• Find a good habit.
  If you want to get rid of a bad habit related to money management, replace it with a good habit. For example, instead of overspending on designer clothes, start setting aside money for a down payment on a house or other goal. You must truly want to get rid of the bad habit, and you must practice and work at it in order to change.

Eight steps to better money management

As you work toward managing your money more effectively, keep these steps in mind:

1. Plan ahead . Write down your goals and objectives. It's important to be realistic. Will you more likely be able to afford a $200,000 house or one that costs $100,000 or less? Review your goals and objectives regularly to see if you are on track.

2. Create a budget . Make a plan for how you will spend and save money. Update it regularly, and evaluate your goals. Think about your financial situation, where you need to be, and determine how you're going to get there. (You'll learn more about creating a budget in the next lesson.)

3. Keep good records . It's difficult to get your finances under control if you don't understand the basics of good record-keeping. Keeping track of your bills, checks, and other financial transactions is important.

4. Stay insured . Purchase insurance to avoid being hit with a financial loss due to accident or illness. It's an important part of your financial plan.

5. Stay focused . You'll need patience and discipline to start your financial plan and follow through with it. Don't be tempted to overspend.

6. Save more . It's important to save money regularly so you can use it in the future. Begin by faithfully saving a small amount. If you are able to save enough money, you will be able to put some into investments, use it in emergencies, or use it to reach your goals.

7. Educate yourself . No one can protect you from your own bad judgment. Get the information you need to avoid financial trouble, and make thoughtful decisions that can improve your financial security.

8. Take time . Set aside time each month to work on your money management. Pick a time that works for you, such as early in the morning when everyone else is asleep or quiet time at night. You will find that it's time well spent.

Setting goals

Goal setting is an important part of success, whether you're aspiring to reach objectives at school, at work, or in your personal life. Aim too high, and you may get frustrated and give up. Aim too low, and you might not push yourself to reach your full potential.

Think about your financial goals and how you plan to reach them.

• What do you want your financial picture to look like in one year? In five years? In 10 years?
• Do you want to buy a car or house, start a business, or pay off debt?
• What do you need to change to reach your goals?
• How can you make the best use of your money?

Don't worry. You may not have all the answers now. The lessons in this course can help you clearly define your financial goals and help you take steps to achieve them.

To help you get started, use our Goals Worksheet .