Personal Finance 102: What is Money Management?

Never spend your money before you have it. – Thomas Jefferson


The ability to handle our personal finance and manage our money is probably one of the important skills that only few people possess.  Majority of working adults focuses their time on how to generate money, may it be through job employment or operating business.  Commonly, many sacrifices their time, relationships and health in order to work harder and earn more money.

But why is it that despite our dedication to work hard and earn high salary paychecks or business earnings, we still end up penniless and struggling with financial crisis?  How come we still don’t have enough money?  Is it because we didn’t work hard enough nor didn’t we receive well-compensated salary paychecks and business earnings?  Or is it our lack of ability to effectively manage our money and personal finance that’s causing our financial struggles?

When I was young, I used to think that money was the most important thing in life.  Now that I am old, I know it is. – Oscar Wilde

Growing up, I was always told that money is not important, it can’t buy you happiness and it is the root of all evil.  My family was very religious Roman Catholics, actually, most of my fellowmen in my country are very religious.  I personally think that their belief about money is influenced by the religion.

When I was getting older and around my high school years, our family struggled with money and financial problems.  In order to continue my school education, I’ve had to join a non-profit organization and attain educational scholarship so that I can continue with private schooling.

Back then, my parents both lost their jobs and didn’t have enough savings even after almost 20 years in employment.  When they lost their job, they could no longer afford to send us to expensive private schools.  However, my mom believes in the value of good education, this is why she looked for ways to send us to private schools.

Fortunately, when I was already in college, my mom was able to get a job.  However, her salary wasn’t financially rewarding compared to her previous job, so getting by college was still financially hard.  Later on I’ve found out that my mom sacrificed her own health so she can provide and send us to school.  She skips her meals, she doesn’t eat lunch and in-between snacks so she can save up her meal expenses.  To save even more, she walks 5km from our house to her office, and then vice versa.  No wonder why back then she was so thin and weighs only 77 pounds.

Seeing how my mother sacrifices because of money, I’ve started to believe that money is important; lack of it is the root of evil and suffering.  People will do anything to have money, including sacrificing their own life just to acquire a little of it.

Since my mother didn’t believe that money was important, she wasn’t able to manage it well when it was still there.  And as a result, she had to sacrifice her time, health and happiness in order to sustain the financial need of our family.

I still get teary eyed when I think of how much suffering and sacrifices my mom had to go through because of money.  I feel grateful to have such a wonderful mom, and at the same time, her struggles became my inspiration to learn and understand how important money management is.

Money alone sets the world in motion. – Publilius Syrus

Money is just a piece of paper, yet it makes the world go round.  Nowadays, almost everything requires money.  From the food we eat, the electricity we use, phone bills, gasoline that transports us to places, the nice services in the restaurants, etc.  All these things require money.

Money is important.  Lack of it is the root of all evil.  Whoever says the opposite most probably lacks money and never experience the freedom of having money.  Money is not evil; it’s just a commodity that is a means to an end.  Having it gives you freedom; it allows you to live life without sacrificing the most important things, like time, health, relationship and happiness.  We often don’t realize that we sacrifice these important things by working too hard to earn some money.

I’ve personally learned the value of money by experiencing not having it and then having it.  And I’ve proved that what separates having from not having is proper money management.

Money can’t buy you happiness but neither do poverty. – Leo Roster

In the blog article, Personal Finance 101: Financial Freedom, we’ve talked about the importance of aiming for financial freedom.  That is the ability to acquire the lifestyle that you want without worrying on your finances because you have achieved financial stability and security.

In this article, we will talk about the first step to financial freedom, and that’s money management.

Money management is the management of financial resources for an individual or business.  It is the planning and proposed use of financial resources. The purpose is to ensure financial resources are placed in the appropriate place at the appropriate time. It is used to keep control over both income and expenses so that there is always income to pay for expenses.

What Differentiate Money Management versus Budgeting?

In budgeting, we allocate our income or earnings to our expenses, such as utility bills, meal and transportation allowances, shopping, credit card bills, travel expenses and donations.  It’s like when we receive money, all we do is pay other people first.  Our hard earned money benefits and make everyone else’s happy except ourselves.  This is why budgeting alone doesn’t make us financially rich and free since we don’t allocate money for our personal financial future.  And as such, we lose our freedom by going back to the repeating cycle of working hard to earn money.  This cycle doesn’t end until we reach old age and no longer capable of being productive or we got fired.  All throughout the years we live in this cycle of working hard and then paying other people first, we will forever struggle with financial problems and crisis.

In money management, on the other hand, we allocate our earnings not based on expenses but based on financial categories, such as investments, business and other expenses.  Unlike in budgeting where we pay other people first before we pay ourselves, in money management, we will pay ourselves first.  Our hard earned money will benefit us first before other people do.

To clearly illustrate the difference, let’s look at how Joe, who holds one regular working job, allocates his monthly salary:

As you can see, above illustration is an example of budgeting.  Joe’s monthly salary (earnings) is just enough to pay other people, such as the business owners and creditors, to compensate for his living expenses.

On the other hand, if Joe will create and follow a money management plan, this is what he will do:

As mentioned, budgeting focuses allocating your money to expenses by paying other people first while money management allocates your money not only to expenses but as well as investments, business and other relevant spending that will benefit your financial future success.  It is by paying yourself first with your hard work.

This ends our 2nd blog series on personal finance.  In the next blog series on personal finance, we will discuss the steps on how to create your own money management plan and what are the benefits of following a proper money management plan.

For a final note, remember:

There is no dignity quite so impressive and no independence quite so important, as living within your means. – Calvin Coolidge

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