What exactly is money management? It’s a plan for your money so you can get the most out of it. This plan generally involves budgeting and saving money, avoiding or reducing debt, and investing in your future.
If learning how to manage your money seems intimidating or stressful, take it step by step. Here are some money management tips to help you gain control and most importantly, peace of mind.
How to manage your money
1. Take an inventory of your finances
Money management is about more than making math work. It’s also about adjusting your thinking.
Take a mental inventory of your current position.
Are you constantly overspending?
Do you have enough in savings to survive an unexpected expense?
Do you live from check to check?
Are you overwhelmed by financial jargon?
Be honest with yourself about your weaknesses. You may have made a few missteps in the past, but you don’t need to continue down that path. Here’s how to manage your money now, as you prepare for the future.
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2. Make a money management plan
How do you put your plan into action?
Follow the steps below to create a plan that works for your finances.
Start with a budget
If you are not sure how to budget, start by choosing a system that you stick with. We like the 50/30/20 budget plan, which allocates 50% of your income for needs, 30% for wants, and 20% for savings and debt repayment. This 30/30/20 budget calculator divide your income into these categories.
Track your expenses
For follow-up costs, you can see exactly where your money is going. It can inspire you to adjust your spending habits to better align with your goals.
Be the CFO of your money
Find ways to spend more on the things you love and less on the things you don’t.
Find ways to save
As you pay more attention to your finances, chances are you will find opportunities to save. Here it is How to save moneyFrom changing daily habits to negotiating bills and making long-term changes.
Ideally, over time, saving money will become part of your lifestyle. For more information on saving money with coupons, gifts, and DIY hacks, check out our guide to frugal life.
Use designated accounts for spending and savings
One way to make money management easier is to keep the money designated for bills and budgeted expenses separate from your emergency fund. This will reduce the temptation to dive into it for non-emergencies. Saving for a new home, vacation, or car? Save those funds in separate accounts so you can see progress toward each goal.
Make a plan to pay off the debt
A strategic approach to debt repayment will help you get to the debt-free finish line faster. We recommend tackling your most expensive debt, the accounts with the highest interest rates, first, while making minimal payments on the rest. Then work your way down through any lower interest rate debt until it’s paid off.
Develop good credit habits
Your credit can determine whether you are able to obtain loans and the rates you pay for them, as well as many other aspects of your financial life. A credit check can be part of obtaining a cell phone plan, an apartment, or auto insurance.
To stay on top of your score, focus on the two most important factors that influence it: payment history and credit utilization (how much of your credit limits you are using). Try to pay everything on time, because a single late payment can hurt your score and use less than 30% of your credit limits on each card and overall.
Invest in your financial future
Save money now, in a 401 (k) or IRAand let compound interest work its magic. The ultimate goal is long-term financial freedom and stability. Not sure how much you need to save? Try our retirement calculator.
3. Make the most of your savings
Money management goes beyond spending less than you earn. A true sign of financial prowess is saving enough to live comfortably in both the long and short term.
You can achieve this in four steps:
Start saving extra money to create an emergency fund. Ideally, you should have six months of living expenses at your disposal in case the unthinkable happens. If that seems too ambitious, start small. A $ 500 reserve is a great first goal.
Invest extra money for your future. Prepare for retirement by contributing to a 401 (k). If your company offers a match, contribute enough to get the most.
Pay the debt
Whether it’s a loan or an impending credit card bill, you probably have some debt obligations. Always make at least the minimum monthly payments so you don’t suffer damage to your credit score due to a late payment. If you have extra money for bills, pay off high-interest debt first.
Keep building that emergency fund, investing for retirement, and reducing debt.
4. Be persistent
Despite your good intentions, many people get off the financial bandwagon. Sticking to an overly restrictive budget can be suffocating. Navigating investment jargon can be confusing. But don’t be discouraged.
You didn’t get into the financial situation you’re in overnight, and you won’t get out of it overnight either. Give yourself time to learn and grow. With hard work and dedication, you can manage your money with confidence.