Effective money management needs you to invest time and effort to setup and maintain. However the more you invest in your money management the greater the return. Once you’ve completed your plan you just need to maintain and update it when things change. Generally speaking, the earlier in life you start managing your money the better, after all you don’t want to reach 70 and have no retirement plan in place.

Money management programs are designed to evaluate your wants and needs by answering four questions.

1. What are your financial goals and lifestyle requirements?
2. When do you want to achieve them?
3. What funds will you have available to meet your goals?
4. What risks are you prepared to take to reach your targets?

Money management in no way prevents you from spending money it just helps identify what you want to spend your money on and puts a framework in place that allows you to do exactly that.

For example an answer to question one might be “I would like to save £1500 a year to invest with, have 2 holidays a year, begin contributing to a private pension plan, move to into a bigger house, and get a second car for my spouse.” Or “I would like to clear my credit card bill, clear my store card bills, pay back my family and friends, start a pension scheme to retire when I’m 65, buy a better car, move to a nicer area and still afford a 2 weeks in the sun each year.”

When you answer question two you’re identifying time periods for each of your objectives for instance. “pay back my family and friends within 6 months, clear store and credit cards within a year, buy a new car within two years, move to nicer area within 5 years and retire at 70.”

Once you’ve decided on what you want to achieve and when you want to achieve it, you’ll then need to look at how you can achieve those goals. To do this you need to calculate what total incomings you’ll have and subtract all basic living costs. The amount left is the spare cash you have at your disposal to meet your financial objectives. Our budget planner should help you with this task.

If you can’t afford to meet your goals within your hoped time period then you’ll have to re prioritise your objectives or redefine your when you want to achieve them.

Once you’ve completed the plan its important to stick to it until something changes, and things will almost certainly change. Your income could rise or even fall and daily expenses might need to be adjusted. Plus your financial goals could change, the planned trip around the world might suddenly become a house with an extra bedroom for the expected newborn.

When these changes happen you need to update your plan and re prioritise instead of abandoning it. A money management plan should be maintained and updated as your circumstances and goals change.