Basic Money Management Strategy

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Top 10 Money Management Tips

Money management is a tricky subject. For many, the topic’s accompanied with a feeling of apprehension. Maybe you’ve put off saving for retirement for a bit too long. Or, perhaps you’re worried about not having an emergency savings cushion. Whatever your concerns may be, there’s no time like the present to get a handle on your finances. It’s best to get started – as soon as possible – on good financial habits. Luckily, we have 10 money management tips to get you started.

1. Know Your Money Priorities

Before budgeting, you need to determine your priorities. If you skip this crucial step, you won’t buy into your financial plan.

You need a focus to align your money goals with your money habits. That focus is what’s most important in your life, right now. Do you have credit card debt that makes your stomach churn just thinking about it? Paying that down might be your No. 1 priority.

Patrice Washington, a leading authority in personal finance, entrepreneurship and more, advises that money priorities align with your personal values. “The largest categories should reflect what matters most to you,” whether you value international travel or taking care of your body. Then you can cut back on other categories to “save at maximum capacity” for your true priorities.

Maybe it’s a wedding or a vacation you want to save for. Or, perhaps you want to establish an emergency fund so you’re not “up a creek without a paddle” when your car needs an engine overhaul or your pet needs surgery.

Whatever concerns you most, make that your priority, at least to start.

2. Determine Your Monthly Pay

As the saying goes, “what gets measured, gets managed.” How can you manage your money without knowing what you earn each month? If you don’t have a concrete number, determine your monthly income after taxes. This will be easier if you’re a salaried employee with a regular paycheck. Freelancers may have to estimate their monthly income.

Once you have a number, add in any extra side gig money. Maybe you babysit sporadically or have a blog that earns ad revenue, or you teach a weekly fitness class. Whatever extra income you earn, add it into your monthly take-home pay.

3. Track Where You Spend Your Money

Time to play detective with your own finances. In order to get the full picture of your spending habits, you’ll need to do some financial forensics on yourself. If it seems overwhelming, limit yourself to one month’s worth of expenses.

Pull out your credit card statements, housing and utility bills, bank statements including ATM withdrawals and any electronic payment records, such as Venmo or PayPal. Either open a spreadsheet or get out old fashioned paper and pen – it’s time to total your expenses.

It helps to categorize as you parse your spending. For example, you might label purchases as needs, wants or savings/debt. Or, you can get more detailed and add categories such as entertainment, food costs, travel and transportation. It’s up to you how much in the weeds you want to get.

After you compile expenses into one spot, total each category to see where the bulk of your money goes. You might be surprised at how much you spend eating out. Or, how high of a percentage your housing costs are compared to your income.

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4. Have a Plan – Any Plan

Now that you know how much you earn, as well as how much you spend, it’s time to make a plan. The best financial plans align your priority (money management tip No. 1) with your spending habits.

Let’s say you’re a fitness buff. When you totaled your expenses, you found that in an average month, you spend money on a gym membership, yoga class card and new athletic gear. If that’s important to you, you won’t have to cut it out. But, in order to meet whatever priority you’ve set — let’s say it’s an emergency fund — you’ll need to cut expenses elsewhere. That could mean shopping at a discount grocery store or brown-bagging your lunch instead of ordering takeout with your coworkers.

To meet your financial goal, maybe you set up auto-deposit to a special “emergency fund” savings account. When your paycheck is deposited, that money disappears before you can count it as spending money.

Whether you pay for a budget program like YNAB, or prefer a simple Excel spreadsheet, that’s up to you. This brings us to money management tip No. 5…

5. Stick to the Plan

Once you pick a plan, give it a try for at least a month. You need that long to see if it works for you. Anything less, and you won’t see the benefit of keeping an eye on your finances.

So find a budget you want to try, get started and stay with it. It’s that simple. If you want, Washington recommends you “surround yourself with visual representations” of your goals. So if you’re saving for your next international trip, you can put up pictures of your dream trip to keep your goal fresh in your mind.

6. Expect Emergencies

Regardless of what your priority is, you’ll want to have some easily accessible liquid funds.

Maybe you’re focusing on paying down your student loans, and you’re not concerned with building a hefty emergency fund. That’s fine, you don’t absolutely have to save six months of expenses. But you should save for at least three.

You never know what might happen. You or a partner could lose a job, or have a medical emergency or any number of circumstances. Whether you like it or not, life happens.

Having money to deal with problems as they come up will help you feel more secure, and a little more prepared. Most emergencies add enough stress as it is. Take away an element of worry with a financial cushion.

How you put money away for emergencies is up to you. Maybe you funnel all of your side gig money to an account you only touch in an absolute emergency. Or, it’s where any birthday or any gift money goes. It could be as simple as a small, monthly auto-deposit. It’s up to you.

7. Save Early and Often

This rule holds true regardless of your current priority. The sooner you save, the sooner you can build interest. You don’t even need an investment account to start earning interest. Most of the best savings accounts generate interest, and those accounts are FDIC insured. That means you don’t have the risk of losing your money, as with a brokerage account.

This rule also applies to retirement. The sooner you start putting money away in an IRA or 401(k), the better. Even if you’re years away from retiring, you still need to consider the future. Your money stands to grow the most if you start as soon as possible.

8. Take Advantage of Free Money

You don’t want to overlook what assets are available to you. If your employer offers 401(k) matching, you should absolutely take advantage of the benefit. It’s free money.

Another place to look is your health insurance plan. Are you paying for glasses or contact out of pocket when some of those costs are covered through your plan? Maybe your job offers a discounted gym membership. Take advantage of all the benefits your job offers; you might save some serious cash.

9. Relook Your Debt

Take a look at your total debt (money management tip No. 2). Is there anything you can refinance for a lower rate? Maybe it’s transferring a balance to a credit card with lower interest. Or, it’s consolidating student loans. It’s worth combing through your debt with a fine tooth comb to see if you can find a way to save.

10. Find What Works – And Keep Doing It

Another common maxim that applies to money management is “if it’s not broke, don’t fix it.” Once you find a system that works, don’t get distracted by new apps or conflicting financial advice.

It’s tempting to try the next best thing, especially if it promises to be easier, simpler or faster. However, if you’re in a rhythm that works — you’re saving money, meeting financial goals and building security — keep chugging along. Your focus will pay off.

Bottom Line

As financial expert Dave Ramsey says, “You will either manage money or the lack of it will always manage you.” The best way to build financial security is to get a grip on how and where you’re spending your income, and then make a plan — and stick to it! Of course, life can throw you off track sometimes, but that’s OK. As long as you get back on budget, a hiccup here or there won’t destroy your future financial success.

Money Management

Money management is a vital element of trading. When applied to a high risk, high return form of investing such as binary options, it becomes even more important. Here, we explain the basic concept of money management, before expanding on the subject further, and exploring wider money strategy.

Basics Of Money Management

Money management and risk control are key for successful trading. When I say key what I mean is that money management, as a form of risk control, is how you protect yourself from yourself, how you eliminate (to the extent you can) fear and greed, how you ensure you never wipe yourself out of the market and can always come back to trade again.

It is the process of managing your total investing capital. Most people will understand that risking the entire sum in one trade is a bad idea. Likewise, many people will understand why ‘portfolio’ management includes allocation and diversification elements. Similar principles apply when managing a binary options bankroll.

Beyond those more obvious benefits however, are the ways it provides more subtle help for traders. The ability to make decisions with more clarity, the security of knowing there will be money to trade with in future and the knowledge that growth will lead to further growth without any increased risk or planning.

There are many ways to do it. Money management – true money management – is a method to control risk while allowing you the freedom to trade, and for profitable positions to make as much money as they can.

Strategies

The most widely used method of money management is called the Percent Rule:

Percent Rule

The Percent Rule says that each and every trade is always X% of your account. Cautious traders may go as low as 1%. Riskier traders may go as high as 5%, but regardless the amount it is always the same. There are a couple of reasons why this system works so well, and why so many traders like to use it.

  • It takes the guesswork out of trade size and is crucial in terms of trading psychology. There is never a question of how much should this trade be or letting your emotions make decisions for you. A fearful trader may make a trade that is too small even when the signal is really good, an overly confident trader may make trades that are too big, even when the signals aren’t great. This method leaves your mind free and clear to focus on what is really important, the signals and how to trade them.
  • Using a percent rather than a set amount means that the size of your trade will grow, or shrink, with your account. This means that if you have a losing streak you will make successive smaller trades. No one trade ever large enough to wipe you out and no losing streak so bad it will wipe you out either. On the flipside, as your account grows so to will the % you trade so that your profits will grow too. An amount like 5% may seem small when you are trading $20 to make $36 but it’s no different than trading $2000 to make $3600, if that is what 5% of your account is.
  • The Percent Rule doesn’t so much boost confidence as removes an obstacle that may shake what confidence you already have. At the same time it keeps your account safe long enough to gain some experience, and by extension the confidence that comes with achieving a goal. When it comes to trading, confidence is what pays the bills, anyone can spot a signal but only a confident trader will trade it and be able to walk away without spilling a tear if it loses.

This is how it works. If your first deposit is $500 then a 5% trade size is $25. To keep things simple I would trade $25 until the account was $550, then the trade size ups to $27.5. If you lose then the account falls to $475 and you reduce your trade size. In this case that would be $23.75, if your broker doesn’t let you enter pennies into the trade amount then I would round down rather than up to err on the safe side.

When it comes to adjusting your trade size it is just as important to raise it as it is to lower it, you don’t want to cut yourself out of profits you should have made by trading only trading 3% or 4% of your account when you should have been trading 5%.

If you become emotional over losing money and decide to recoup those losses by trading larger and larger sizes (e.g., a Martingale-like strategy), you will inevitably crash and burn eventually and end up with nothing. Martingale strategies have permanently ended many trading careers.

You will find that many of the best traders in the world scoff at the Martingale concept and for good reason. They never turn out pretty and fundamentally restrict the maximum trade size you can make. For instance, the current maximum trade size on 24option is $20,000, but investing $1,000 per trade would be imprudent in that you wouldn’t be able to sustain more than four losses in a row before you would no longer be able to recover those losses (and be $31,000 in the hole assuming a simple double-up type of Martingale).

Systems

While it’s important to set personal rules (e.g., trade only with the trend, no more than three trades per day) and attainable short-term goals (e.g., achieve an ITM percentage of 60% or higher), which may differ from those of other traders, I feel a big mistake is to set a monetary goal that must be met by a certain date or, worse yet, every single day.

It is very difficult to become emotionally detached from your trading when certain profit goals are wrongly taking priority. I used profit goals when I first began trading, and I found that they were nothing but a distraction that led me to make bad trading decisions and losses I could have avoided.

Calculator

Calculating your risk in binary options is actually very easy. With the 5% rule, for every $1000 in your account you can afford to expose $50 at any single time. This means all trades are $50 until you begin to win or lose and have to make an adjustment. So, after reading this your first step is to identify and sign up with a broker that will allow you to place trades within the confines of your acceptable risk appetite.

The calculation needs to be based on your appetite for risk too. A 5% plan is fine, but is probably still at the higher end of the risk scale. A 1% per trade strategy will reduce risk even further. This might be helpful for those just starting out in binary options. As noted above however, the minimum trade size available with your broker, may dictate the smallest percentage you can trade with.

6 Simple Strategies for Better Money Management

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This story appears in the December 2020 issue of . Subscribe »

Smart money management is about more than understanding the math. That part is simple: Spend less than you earn, and invest early and often so compounding will make you rich when you’re old.

The numbers aren’t difficult, but the psychological and emotional hurdles that prevent most people from achieving their financial dreams are. It doesn’t have to be that way if you can stay on the right side of the mental issues surrounding your nest egg. Consider this list a mental reset button on your financial psyche.

There are no secrets. The basics of wealth building have been well-documented for centuries. Stop searching for shortcuts and secrets; focus instead on the simple things your parents and grandparents taught you, such as not to spend more money than you make. (If you need a place to start, pick up George S. Clason’s The Richest Man in Babylon, first published in 1926.)

Happiness comes from managing expectations. You won’t find contentment by working harder to buy more stuff, because there’s always more stuff to be had. Escaping the trap is simple: Learn to be satisfied with what you have.

You can have anything you want but not everything you want. Cut expenses ruthlessly on the things that don’t matter so you can spend lavishly on the things that do. Love antique airplanes? Great. Don’t care so much about cars? Don’t overspend there.

Automate everything. When it comes to saving and investing, you are your own worst enemy. So remove yourself from the equation. Automate your savings, bill payments and investments. You’ll save time and hassle–and be less inclined to impulsively spend your retirement savings on a hot tub.

Perfect is the enemy of good enough. Too often we fail to act because we’re searching for the absolute, surefire way to invest or save. We do nothing instead. But action cures fear, and a decent or simply good outcome is always better than nothing.

Don’t make excuses. Don’t blame the president, your ex or your business partners for your financial situation. Your circumstances might not be entirely your fault, but they are your responsibility.

Nobody cares more about your money than you do, so don’t wait for someone else to tell you how to save or invest or get out of debt. You have the guts and the brains to run your own business. Do the same with your checkbook.

Early Retirement Made Easy

If I can offer only one piece of advice, it is this: Increase your saving rate. Most financial gurus advise people to save 10 percent of their income. Dear reader, that’s not enough. You need to save 30 or 40 percent of your income–better yet, shoot for 50. Do that, and early retirement will suddenly become a reality, not only because of all the money you’re socking away, but because of the stripped-down, affordable lifestyle you’ll be living in order to save that much. Instead of needing $100,000 a year during retirement, you’ll need only $50,000 to cover expenses. Bingo: You just moved your retirement date up by a year.

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