Money Management Techniques Part 1

In the previous article, we talk about what your money management style is. With you understanding your style better, you will know how to tackle this money management issue.

In Sun Tzu's Art of War, it is said that " If you know the enemy and know yourself, your victory will not stand in doubt". So you have problems with money, you have to learn about your money before you will learn to master the art of managing money. Simple.

So what do I need to do?

Money Management Technique Part 1 : Know Your Financial Situation

You need to assess and determine your current financial position. Then will you be able to do detailed analysis on the areas that needs to be improved.

To determine your current financial situation, you will need to do the following :-

1. List all of your assets
   
2. List all of your liabilities
   
3. Calculate your total income
   
4. Calculate your expenses
   

1. List all of your assets

Further breakdown your list of assets into 4 categories :-

Cash & Liquid Assets

• Cash Savings
  
• Bonds, Term Deposits and Investment Certificates
  
• Money owed to you

Marketable Assets

• Mutual Funds
  
• Stocks/Shares
  
• Unit Trusts / ILPs
  
• Investment Properties
  
• Business Investments

Long Term Assets

• CPF-OA
  
• CPF-MA
  
• CPF-SA
  
• Life Insurance Policies (Cash Value)
  
• Savings Policies / Endowment

Personal Assets

• Residential Property
  
• Recreational Properties
  
• Vehicles
  
• Household furnishing and equipment
• Collectibles (art, jewelry, stamps, coins, etc

2. List all of your liabilities

There are only 2 sections in liabilities :-

Short-term debt

• Credit Cards
  
• Overdrafts
  
• Car Loan
  
• Unpaid Bills
  
• Taxes (property tax or income tax owing)
  
• Others
  

Long-term debt

• Home Mortgage
  
• Other Mortgage Loans
  
• Others

3. Calculate your total income

Net Income = Gross Income (include bonuses) - Employee's CPF Contribution

Total Income = Net Income + Other Income 

4. Calculate your expenses

Add up all your expenses from these categories :-

• Fixed expenses (loan repayments, insurance, savings)
  
• Personal (meals, transport)
  
• Family (groceries, utilities)
  
• Luxury (entertainment, vacations, country clubs)
  
• Others
  

Now that you have all these figures at hand, you will be able to know your Net Worth and your Cash Surplus.

Your Net Worth = Total Assets - Total Liabilities (sum of 1 - sum of 2)

Your Cash Surplus = Net Income - Total Expenses

Before you start thinking of ways to spend that cash surplus, hold that thought! Go to Money Management Technique Part 2 to find out what you should do with that money FIRST before anything else.

Happy Counting! You're one step closer to mastering your money. :)