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How to Manage Your Money Effectively

By Charles Hopkins Published 09/19/2006 | Entrepreneur

Becoming truly wealthy requires two major components. Firstly, you have to be able to earn a fairly decent amount of money. While you always hear about people like chief executive officers, board members and dot com people bringing home seven digit paychecks, you can still become a millionaire even if you make less than fifty thousand dollars per year. You simply have to work quite a bit harder and become a better investor if you hope to do it. Secondly, and perhaps more important than the first component, is that you have to be able to manage your money properly. This second aspect is of the utmost importance if you ever hope to make over a million dollars in your lifetime. After all, if you are unable to manage your money, you will have to live from paycheck to paycheck no matter how much money you bring home from work each year.

As far as money management goes, the first thing you must understand is how much money to spend each and every month. After food and all of the other necessities such as taxes, water, electricity, telephone and all of your other monthly bills, you should still have some money left over from your paycheck. Now, as tempting as it may be, you will be better off in the long run if you can avoid spending all of the money you earn each and every month. Spending large amounts of money is one of the largest problems in America and if you can avoid falling into this trap you will have a much higher percentage of success if you hope to become a millionaire one day. So, instead of spending the rest of your paycheck, you should put it into a bank account, a money market fund, invest it into the stock market, purchase bonds or stash it away in a retirement account. You will thank yourself later for your actions now.

The second thing to remember when it comes to money management is to stay out of debt as much as you can. While it is probably impossible for you to pay off your home or your car in one fell swoop, you need to prevent racking up high interest debt if you hope to ever become a millionaire. Luckily enough, car payments and house payments fall into a low interest debt category. However, things like your credit card and any credit that may have been extended to you by a store like Best Buy or Macys can come with extremely high interest rates. You will want to pay off these interest rates as quickly as you can ;otherwise you will simply be throwing your money away. Why would you want to spend money simply trying to pay off your credit card interest rates when that money can be put to so many other and better uses? A great way to keep yourself from losing a lot of your money through credit card debt is to limit your monthly spending, only allow yourself to have one or two credit cards at the most and to try and obtain the lowest interest rates possible on the cards that you already have. With luck, you can become highly proficient at managing your money by just following these two simple rules.