Many people find “Money Management” an intimidating subject. Too many people shun learning the basics and muddle along until they run into problems, even ruin, crying “woe is me”, it was just too hard, I didn’t know. No more excuses, by taking time to read this article you will be on your way to financial security.

There are two basic keys. One is to understand the fundamentals. This will make sure you are not befuddled by the next snake oil salesman with the “can’t lose” proposition. Or with the salesman who is trying to entice you into satisfying wants you do not really need. The second key is to take responsibility. You must reach a stage of financial literacy where you feel confident in your financial choices.

The first fundamental is to not spend more than you make. One exception is where you invest with the expectation of making more in the future. The best example is taking a student loan to complete a course that you expect will get you a better paying job. But this exception still requires you to pay off that “good” debt with the increased earnings so that you break even over your planning cycle. If instead you use the higher income to buy the latest model car using “bad” debt, when your old one was still meeting your needs, then you are climbing on the debt treadmill that can be very hard to escape. Make the Rolling Stones your guide: “You can’t always get what you want, But if you try sometimes, well you might find, You get what you need”. Knowing the difference between a want and a need is the first step toward financial responsibility.

With the discipline of responsibility, you will soon find you have a little extra money to think about investing. Indeed, just as soon as that “good debt” is paid off, start paying yourself. Commit to putting 10% of what you make into your financial future. Going against our society’s trend to “instant gratification” will pay off for you when the magic of compound interest has made you independently wealthy. Now expect the snake oil salesmen who call themselves financial planners and investment consultants to be calling. They can make investing sound complicated with the wide array of financial products and their own lexicon of terms you never heard. Here is the secret. There are only two things you can do with your money. You can lend it, or you can buy a piece of the business.

Lending your money means using “fixed income” investments like bonds with a promised rate of fixed interest. Buying a piece of the business, beyond starting your own, is buying equities, shares in corporations either directly as an online trader or through funds. All the complicated investment schemes that will ever be pitched to you will be some variation or combination of lending or buying.

Which one will you do with your money? That depends on your risk tolerance versus your return objective. Fixed income investments are less volatile in value so pay less interest, say 5%. Equities will be more volatile with the markets so you expect to make a higher return over time, say 10% even sticking to blue chip stocks. Most people “diversify” by using a mix; even the conservative Canada Pension Plan invests 50% in equities. You might select more equities when you are younger and have a longer horizon, but switch to more fixed income investments as you approach retirement.

Let me conclude with another word on taking responsibility for your own money management. You cannot manage what you do not measure. This does not require penny-pinching to an artificial budget, but it does mean having a general budget that reflects your priorities (& needs) for housing, entertainment, travel and family. Then monthly, measure if in fact you are living close to your plan, and make adjustments to keep you on course. Simple.