Personal Money Management Strategies to Create Wealth

'Time is more valuable than money. You can get more money, but you cannot get more time.' - Jim Rohn

Personal money management and time management are closely linked. The key to effective time management is focusing on action and figuring out what the best use of your time is in a given moment. To do this you have to have proper planning and organizational structures in place that make it easy for you to manage and decide what you are going to do right now. The problem with personal money management is that most people don't have these systems in place, which leads to poor time management.

Start with the end in mind

Most people don't have any goals when it comes to personal money management. The reason being is that they are not starting with the end in mind. At a very basic level you need to understand how you want to spend your money. This might be easier said than done. Really think about what's important to you. This isn't about other people, what the neighbors have or caving in to social pressures. It's about you and your personal money management goals.

There are thousands upon thousands of books out there on personal money management that focus on little day to day changes to save money, but what is the end goal? The 'latte factor,' a term coined by David Bach in his bestselling book 'The Automatic Millionaire,' is basically a personal money management technique where a person cuts out seemingly small, everyday expenses to save money in the long run. This is a good strategy, however, people often forget Mr. Bach's main point. The essence of the 'latte factor' is focusing on the end. Why don't we take a look at this in the form of a simple example:

I make $X per month
My fixed costs per month are $X
Which leaves me with $X left overWhat do I do with this left over money?

This entirely depends on what your goals and values are. Many people love to travel, but don't save for traveling. Start by realizing that travel is something that you highly value in life and start saving for it every month. Maybe you go on two trips a year that average $1,000/trip. Start putting away $83/mo and adjust as forecasted expenses for travel change. What if you're saying right now "Oh, well, I don't have that kind of money to save." This is where the 'latte factor' comes in. Now that you know what the end goal is, start finding ways to cut back on expenses that aren't of any value to you or are of some value to you, but they're preventing you from achieving something that has an even higher value to you.

For example, maybe you really enjoy going to Borders every week to buy a new book, but you really want to save money for travel and you value this even more. Fortunately, this is an easy fix. Start going to the library to get your books and use the money saved for travel! Do you go out for lunch everyday? Start packing your own lunch a few days a week to save some extra money.

What if you do love your $5/day, 30 ounce mug of whipped, caffeinated goodness? Good, then go for it! Keep in mind that the goal of personal money management is not to live in an isolated cave, horde all of your money and eat ramen noodles for every meal. Awesome, you're a billionaire by age 50!! Oh, but you had to sacrifice any sort of self-fulfillment and fun for 30 years to get there. Figure out what you want out of life and focus your personal money management strategy around that.

What's my ATM balance?

If this is how you track your money then let's just say you need a bit of work on your personal money management. I'm still unclear as to whether this is an isolated personal money management technique that 20-somethings use or a broader problem across all age groups.

Banks even seem to promote this kind of personal money management. I'll paint a picture from a recent national banking chain commercial. A pretty, 20-something woman gets her first pay check and runs to the bank to deposit it. It then cuts to scenes of her going out for dinner and drinks with friends, taking money out of the ATM and paying her bills. The commercial ends with her and a man in front of a movie theater kissing. Her phone interrupts the kiss to let her know she has money in the bank. Yippee, I have more money in the bank!! I can go to the movie and kiss my man. No need to worry about money - my bank is taking care of everything!!

So, what's the problem with this commercial? Well, to start, you are in big trouble if you require updates and text messages from your bank to figure out how much money you have. I want you to take a ninja approach to personal money management. This requires the following:

Define your goals

This is basically a continuation of beginning with the end in mind. Too many people are pre-occupied with what other people are spending their money on. Wow, look at the new BMW John purchased. The Nelson's sure have a huge house! How do Bill and Sue afford to go out for dinner and drinks every night?

Why do we care?

What other people are spending their money on should have no affect on our personal money management. Also, it's counterproductive and a complete waste of time to worry and pre-occupy ourselves with something that's completely out of our control. Instead, focus on your goals and develop ways to manage money that lead you to those goals. Start by asking yourself some basic questions on what you want out of life. Here are some starters.

What are my main interests? (e.g. travel, mountain climbing, charity work, sports cars, going out to new restaurants, partying, etc.)
Where do I want to be in five years? (e.g. do yo want to start your own business, do you want to cut back on work so that you can start a family, do you want to own a home)
Where do I want to be five plus years out? These are longer term goals, but you should think about them now (e.g. do you want to retire, or would you rather continue working on some limited basis? Do you plan to have kids and will you save for their schooling?)
What do I want out of my career? Maybe you're in a high-paying, but overly stressful job and you want to make a change, or maybe you realize that to get further in your current position you need an advanced degree.

I kind of think of this as the 10,000 foot view of your life. You should have some specific life plans in order to get the most out of your life and your personal money management strategy. Otherwise, you're not following the ninja approach to time management.

Develop an Action Plan

Ok, good, now you have a better idea of what you want out of your life. It's time to develop a personal money management strategy that will help you reach your goals. Taking the time to develop a budget is a must. Without this there is no possible way you can effectively manage your money and achieve your goals with certainty. We'll cover some budgeting techniques in this section including how to make a personal budget and envelope budgeting.

An important part of your action plan should include paying yourself first. Another problem with the banking commercial example I shared above is the selling point, which is the bank is helping you overcome your fear of not having enough money in your account by offering a service where you can receive text message alerts on your account balance. If you've paid yourself first and have a proper budget set up, you shouldn't have to worry about how much money is in your account - period.

Let me clarify what I mean by pay yourself first. Most people do the following: cash the paycheck, pay bills and other expenses and then take some portion of the leftover money to put into savings. A big problem is that many times there is no money leftover so nothing is saved. You need to change your thinking. The most important person in your life isn't your banker, your cable provider or your landlord - it's you! So, treat yourself as the most important person. When your check comes in, take whatever money that needs to be set aside for savings (travel, retirement, wedding, new home, schooling, etc.) and put it in a savings account.

A key to doing this effectively is automation. If your money is automatically transferred to a savings account every time you get your paycheck then you won't even see the transaction take place, so you won't miss it. A good example of this is your 401k. When you set aside a certain percentage of your pre-tax income to go into your 401k you don't see the deduction unless you examine your pay stub. All you see in your checking account is the net pay that is deposited. No action is required on your end. You can use the money you have in your account with the knowledge and peace of mind that you've already set aside a portion of your money for retirement. Most online banks should give you the ability to set up these automatic transfers and if they don't then I suggest you change banks. We'll discuss this more in this section.

Execute your Personal Money Management Plan

Once you have a plan in place for what you want out of life and you develop a proper action plan then all you need to do is execute. This is what being a time management ninja is all about. Don't let money rule your life and take away your time. Develop goals and action plans to make your money work for you so you can go on living the life you want to live. What are you waiting for - get started now!

Personal Money Management Strategies to Create Wealth

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