Money Management – like any other asset
Money management can be difficult for people because money represents something very powerful, so right off the bat it's intimidating.
Consider that people kill for it, they go to prison for it, lives are ruined over it. People say it makes the world go around. Wow, now tell me something like that isn't intimidating when we're asked to manage it.
For me, there are two keys to managing money. First, we simply need to understand what it is and how it interfaces with our lives.
If you're unfamiliar with the money game, take this opportunity to scan through some of the basics.
Second, we need to see money as an asset or resource that needs to be managed. Like other physical assets and resources, money is obtained, used, maintained (preserved/conserved), protected and used to make more money.
So, if we simply handle it in a manner like other assets and resources, we ought to be able to be better money managers. Assuming of course that we know something about managing other assets and resources in the first place.
Here's an analogy with assets and resources that I hope will be helpful.
- Our first money management task is to get some regularly. Kind of like food or water as resources. You'll need to have some on a regular basis for a comfortable lifestyle, unless you're a dependent of others and your assets and resources are provided to you.
- Next, we'll want to have it in sufficient supply. A bite of a sandwich each day isn't enough of a resource input to keep us alive. A few dollars earned each day won't cut it either. We have to earn a reasonable amount to sustain ourselves.
- Another task is to use it wisely. We don't leave resources like water running or the lights on when we're not using them, so we wouldn't go about carelessly spending our money either. We'd be careful and conservative just like we do with other precious resources that have a limited supply. If we don't need something, we don't trade our money for it.
- Like food in storage, we're wise to keep some on hand so our life is more convenient and we're prepared for emergencies. Many call this walking around money and an emergency fund, but I just call it common sense. I don't go out to get food and water each time I need it. I don't go out and work each time I need money either.
- We protect our food resources by processing and refrigeration. So too with our money. It deserves protection and safe keeping in a bank, a safe or in a form of investment where we know it is cared for and properly managed.
- The neighbors come over to "borrow" a cup of sugar and fellow students "borrow" paper in class. You have resources that others would like to have for themselves. Money is the same way. There are lots of folks out there that keep asking for your money. Worse yet, they'll try to trick you out of your money. We need to be wise and strong with respect to holding onto our money that we have worked so hard for.
- Some of our assets can be put to work for us. Be it a truck or a lawnmower, they can be used to make money. You can rent or lease your lawnmower or truck to another in exchange for a percentage of the income they generate. They are a type of investment, especially if we use them in an enterprise to generate more income.
Our money can do the same in various forms of investment vehicles where we gain interest and dividends. If we get a cash advance, we see the other side of the coin. We pay fees and interest for the privilege of using money that belongs to someone else.
So, there you have my money management analogy. It isn't necessarily difficult to understand the basics, but I do recognize that there are many fine points that need to be addressed and practiced before anyone can be a money management expert.
The big problem with money management is keeping a cool head in light of the power that it represents. Lots of people are out to get some, and if you have a bunch, many of us will be working on you as best we can to relieve you of our fare share.
Money management is also complicated by it's durability. You can hang onto a big pile of money for years and years. It doesn't decay, rust, evaporate or spoil like other assets we might have. We're the ones that are tempted to "spoil" what we have.
Lastly, money management is complicated because of all the ways in which we can make it, spend it, lend it, borrow it, commit it, claim it and use it. Things like credit cards enable us to give ourselves a loan, and that can be nothing but trouble for the irresponsible among us.
The key to good money management is to first be a good steward of other assets and resources in our lives, and then recognize the parallels between assets, resources and money.
Done with Money Management, back to What is Frugality