Money management skills are required to improve your personal finance. You make a good amount of money but if you don’t know how to manage your money, you will never be able to manage your personal finance. Money management means using your money in a proper way. Money management skills will help you know how much money should you use for your necessities, wants, savings, and investments. Money management means managing your cashflow. Managing cashflow means managing your income and expenses.
In order to minimize your liabilities, first of all, you need to understand the different types of liabilities and how many liabilities you have for each category.
Liabilities are basically categorized into three types:
Current liabilities are short-term liabilities. Short-term liabilities are the liabilities that you should pay within one year. Some of the examples of short-term liabilities are payable interest, income, bills, bank account overdrafts, accrued expenses, short-term loans, etc. that are due and payable within one year.
Non-current liabilities are long-term liabilities. Long-term liabilities are the liabilities that you should pay after a year or more. Some examples of long-term liabilities are payable bonds, long-term notes, deferred tax liabilities, mortgages, capital leases, etc.
Contingent liabilities are liabilities that may be payable or non-payable according to the outcome. For example, you have a court case, and if you lose you will have to pay money (a liability), if you win, you don’t have to pay (no liability occurred).
Some liabilities cannot be avoided for example Contingent liabilities, however, some liabilities can be entirely avoided for example most of the liabilities under current liabilities and non-current liabilities can be entirely avoided if you work hard, make money, save money, pay your debt immediately, do not buy liabilities, and start buying assets or investing.
Do you know the best money management tip you need to follow?
Well, downsize your life?
Downsizing your life means cutting your unnecessary expenses and cutting your liabilities.
By cutting your unnecessary expenses you stop spending money on something that you absolutely don’t have to. For example, why do you have t go to bar and drink two bottles of beers every Friday? Beer does not do good to your body and you can other things to spice up your life instead of drinking beer.
Cutting your liabilities means you stop spending money on things that will increase your expenses. For example, a car will increase your liabilities as you need money to maintain your life. If you need a car in any case, why don’t switch to electric option because it is cheaper to maintain an electric car?
Downsizing your life also means getting rid of all unnecessary things. For example, you have two cars and you can sell one of them, or even sell both cars and buy a smaller car that can save you money.
Downsizing also means you unsubscribe from every subscription service you do not use much. For instance, do you really need to subscribe to Netflix and Amazon Prime at the same time?
You might be making a good amount of money from your current job and maintaining your lifestyle easily. But do you think you can continue to make good amount of money and maintain your lifestyle? You never know what will happen in the future, you might lose your job, you might experience pay cut, anything can happen. Therefore, you should never stay with a single income source.
The most important lesson you need to learn about money is learning how to manage your money through multiple income sources.
You can generate income through multiple sources, you can start investing, or you can start doing side hustle.
If you have money, you can start investing in stock market, real estate, equity, etc. These assets will not only built you a regular income but also build you a fortune when you sell your assets in few years time.
You can also start working on other things in your spare time. For instance, you can drive for Uber, or start selling on eBay, can do freelancing, offer handyman service, start your own online business or start an offline business. The scope is unlimited.
How you manage your money is as important as how much money you earn. Money management means managing your income and expenses.