How to manage your money effectively

Saving

Assess your needs

Take a step back first to see the big picture: You need to decide what you want and what you need.

Ask yourself what things are truly important -- why you think you need something and what would change if you had it.

Set financial goals

Define short-term (one-year), mid-term (two-to-five-year) and long-term (more-than-five-year) goals.

Make sure your goals are SMART: specific, measurable, attainable, relevant and time-related.

Make a plan

Ask yourself where you want to be in five, 10 or 20 years.

Visualize steps to be taken in order to achieve those goals and put them in an order of importance.

Budgeting

Add up your income

Determine how much take-home pay you get on a regular basis.

Add all other sources you derive income from, for instance interest income on savings.

Estimate your expenses

Keep a detailed record of your spending.

Create spending categories to determine how much to budget in different areas and where you are able to cut expenditure in the event of a shortage of cash.

Figure out the difference

Keep records of your actual income and expenditure.

Go through it carefully to identify budget variations, meaning the differences between the amount you budgeted and what you actually spent within a certain time period.

Track, trim and target

Track your monthly expenditure to see if you need to trim your spending.

Target areas where trimming expenditure is more feasible (entertainment, lifestyle) than others (house payments, staple food). -- JP