In its simplest terms, managing money is simply this:
Produce more than you consume, and then save the difference.
In order to survive over the winter, insects like bees perform this by storing extra honey and animals like squirrels store extra nuts.
Humans must also do likewise:
- Extra savings for emergencies and maintenance
- Extra savings for large purchases like vehicles, education, and vacations
- Extra savings for retirement
But you cannot save until you actively produce something for the marketplace. In order to consume more you must provide more; by acquiring more skills and experience that is worth more to other people. The money that you are able to save can also be invested so that it is producing money for you as well in the form of dividends and interest income. A result of consistently saving money in excess of your expenses is that: each time you get paid, you permanently increase your net worth. Continuing in this manner, month after month, is how you build financial stability, stay out of debt trouble, and build a bankroll that is earning an increasing amount of money for you as well.
So many people do not have basic squirrel money-management down. Instead, they
- Spend all their income, so they have no savings
- Spend beyond their income, building up debt
- Instead of increasing their income, they focus on distractions like tax tactics or coupons to save tiny amounts of money
Start with a solid foundation in squirrel money management first, and only then move on to more advanced financial concepts.