Every so often, someone brings up the old debate about whether men or women are better with money (or whether it depends entirely on the individual). The debate is often a bit of fun, but it does raise a serious question. How do you define and/or measure how well someone manages their money. Here are a few thoughts.
How well they know their bank balance
It might be too much to expect someone to remember their bank balance to the last penny, but is it fair to say that someone who actively manages their spending should always have a good idea of how much they have in their current account? Alternatively, have we all become so used to the ability to look at our balance on our phones that we no longer feel the need to remember it?
How many impulse purchases they make
This may seem an obvious one, but, again, it raises interesting questions about how you measure it. For example, if two people have a significantly different level of income, but make identical impulse purchases, is it fair to say that one is better with their money than the other because it has less impact on their finances overall?
Similarly, do you assess the impact of impulse purchases by their number or their value or a combination of both? For example, if you have two people in an identical financial situation and one person makes 10 impulse purchases of £1 each and another makes one impulse purchase of £10, is one or the other better with their money or are they both the same?
How much they can save and invest
This one would have to be judged on percentages, but even here there would be complications. For example, two people could make very different lifestyle choices which would impact how much they could save and invest. This wouldn’t necessarily mean that one was better or worse with money than the other, just that wouldn’t necessarily make one better or worse with money than the other. It would just mean that they had different priorities.
How well they can budget
This is another interesting one. The ability to budget is indisputably essential to being able to manage your finances. At the same time, how easy it is in practice often depends largely on what kind of lifestyle you lead and, in particular, what kind of work you do, or, more accurately, how you get paid.
If you are on a fixed monthly income, then you know exactly what you will receive from one month to the next. This means that it should be relatively easy for you to budget. Even then, however, you might struggle if a significant, unexpected expense comes your way. That’s why it’s so important to have a cash cushion and appropriate insurance.
On the other hand, if your pay varies from month to month, then you might find it a whole lot harder to manage your money, especially in the lean months. Again, this cannot be taken to imply that one person is better or worse at budgeting than the other, just that they have different lifestyles.
So what does it all mean?
Perhaps the most important lesson to take away is that there’s no “one-size-fits-all” approach to managing money. Everyone is an individual and needs to make the decisions which are right for them in their situation. What works for other people may be useful as inspiration and guidance, but shouldn’t necessarily be taken as a hard-and-fast rule.
In fact, there’s arguably only one hard-and-fast rule of money-management and that’s to take all decisions mindfully, or, at least, all important decisions mindfully. Let’s be honest, we all make the occasional impulse buy!