The basics of managing money effectively

Managing money is important because cash helps to solve many problems and open up opportunities for you. If you earn, it is guaranteed you have bills as well. Then you have to invest while trying to beat inflation; that is a lot to do.

Like you reading, I have struggled with managing money; everyone has. We struggle because we are human and thus irrational. Good money management starts with changing our behaviour towards spending and making better decisions with our money. So I want to share with you the money hacks I use in making prudent money management decisions.


Good  habits to adopt for managing money

First, identify all income sources and pay to the bank. Money management starts with ensuring you account for all income. Automate your income receipts. Pay salary directly to the bank account. If you earn passive income, don’t accept cash; instead, pay to the bank. If you make passive income from shares or bond holding, automate your dividends and coupon payments directly to your account, not your post office. You can have two collection bank accounts, one for active and another for passive income. All that is required is that you track where your income comes from. Pooling revenues is an essential first step. For technology, I use the Personal Capital® and Mint® to track my incomes and balance sheet.

Also Read: Side hustle to generate passive income

Next, pay yourself first (PYF). It is essential that your first spend out from your earnings should go to you. Thus select a minimum percentage of your earnings that goes towards your Emergency Fund and your investment portfolio.


Your emergency fund is three to six months of your non-discretionary expenses (expense not within your discretion to decide if to pay, e.g. rent). Contribute to this first. Maintain your emergency fund in cash or near cash; returns are not a significant factor here, but how quickly you can access your fund in an emergency. The following deduction under the Pay Yourself First is your contribution to your investment portfolio. Keep in mind that this is not the deduction taken at source from your Gross Income by your employer but the additional sum you wish to contribute to your portfolio.

Next, I pay my discretionary expenses. All other spendings within my direct control, including things like holidays and new shoes, are discretionary. This is where I can spend to my discretion, knowing I have met all necessary expenses. Even though the expenses are not automated, you must use a card, not cash, to track your spending categories.

In summary, if your income cannot cover your non-discretionary expenses, don’t borrow cash over the long term, as you may be falling into a debt trap. Instead, reassess your overall situation.


There is a tendency to be indisciplined with managing money, and it does not always work. It is advisable to use technology to manage your cash, avoid debt and track expenses. Technology keeps you honest and promotes better money management.

Also Read: Setting Goals To Improve Your Career



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