Effective money management is the cornerstone of successful living. The vast majority of individuals understand that it is unsustainable to live beyond one’s means, yet many of us are routinely overdrawn every month. Maintaining a budget is the single most important tool for effective financial management. Broadly speaking, a budget lists expenses and incomes and it provides a broad framework for finishing the month in the black. Of course, it would be so much easier if wages and salaries increased at a faster rate than rent and expenses. The short and sweet of it is that cost-cutting is imperative if we are to set aside money every month for necessities, eventualities and future plans.

What is effective credit management?

Many people are of the opinion that only the superrich, or the super stingy are effective at managing their credit. Nothing could be further from the truth. Fortunately, there are myriad tips, tricks and tools that you can use to manage your credit effectively. Credit comes in many forms and it is important to identify it so that you know where your strengths and weaknesses are. Credit lines are available for personal and business usage. They encompass student loans, car loans, mortgages and credit cards. Any number of reasons can be cited for requiring credit facilities. That having been said, the goal is to manage credit so that it does not become a burden.

For many American families, credit cards are a daily necessity. We use them liberally, and provided we make regular payments the credit card providers routinely increase the limits. This begs the question: Are credit cards good or bad for average American households? When used in moderation, credit cards are a boon to households. They provide you with access to funding that you may not otherwise have during the month. When people live from paycheck to paycheck, it becomes increasingly difficult to pay for bits and pieces items during the week. This is especially true just before a paycheck has been received. It is highly recommended that families do their homework about which credit cards and credit facilities are best.

A budget helps you to optimize your income

There are all sorts of tools available to everyday folks to manage finances effectively. A simple app search reveals multiple options. When the outflow is greater than the inflow, a budget deficit ensues. Therefore, the goal is simply to manage your income, expenses and savings objectives. One such app known as You Need a Budget does precisely that. It uses an algorithm to determine what budget would work best for you given the numbers you have entered. Luckily, there are hundreds, perhaps thousands of similar tools you can use to manage your finances better. It’s amazing how much easier everything is when it is documented.

Some interesting data has emerged about how the average American spends their paycheck.  Average household income before taxes is approximately $63,784 and net take-home pay is $51,100. This is how the average American spent their cash in 2019:

  • $6,602 on food (including restaurants)
  • $9,004 in transportation
  • $5,528 on personal insurance and pensions
  • $1,604 on apparel and services
  • $17,148 on housing
  • $1.834 in cash contributions (child support, alimony, donations)
  • $3,631 on healthcare
  • $2,482 on entertainment
  • 3,267  on other expenditures

If we assume that at least some of the expenses are paid for by using credit, effective credit management becomes a central issue. With sticky wages, rising costs and less personal disposable income, effective money management is going to prove more important than ever before. A good place to start is a budget, followed by a credit aggregator and a strategic roadmap for financial success.