Money management is a tricky subject. For many, the topic’s accompanied with a feeling of apprehension. Maybe you’ve put off saving for retirement for a bit too long. Or, perhaps you’re worried about not having an emergency savings cushion. Whatever your concerns may be, there’s no time like the present to get a handle on your finances. It’s best to get started – as soon as possible – on good financial habits. Luckily, we have 10 money management tips to get you started.
A financial advisor could help you create a financial plan for your wealth management needs and goals.
Tip #1: Know Your Money Priorities
Before budgeting, you need to determine your priorities. If you skip this crucial step, you won’t buy into your financial plan.
You need a focus to align your money goals with your money habits. That focus is what’s most important in your life, right now. Do you have credit card debt that makes your stomach churn just thinking about it? Paying that down might be your No. 1 priority.
Patrice Washington, a leading authority in personal finance, entrepreneurship and more, advises that money priorities align with your personal values. “The largest categories should reflect what matters most to you,” whether you value international travel or taking care of your body. Then you can cut back on other categories to “save at maximum capacity” for your true priorities.
Maybe it’s a wedding or a vacation you want to save for. Or, perhaps you want to establish an emergency fund so you’re not “up a creek without a paddle” when your car needs an engine overhaul or your pet needs surgery.
Whatever concerns you most, make that your priority, at least to start.
Tip #2: Determine Your Monthly Pay
As the saying goes, “what gets measured, gets managed.” How can you manage your money without knowing what you earn each month? If you don’t have a concrete number, determine your monthly income after taxes. This will be easier if you’re a salaried employee with a regular paycheck. Freelancers may have to estimate their monthly income.
Once you have a number, add in any extra side gig money. Maybe you babysit sporadically or have a blog that earns ad revenue, or you teach a weekly fitness class. Whatever extra income you earn, add it into your monthly take-home pay.
Tip #3: Track Where You Spend Your Money
Time to play detective with your own finances. In order to get the full picture of your spending habits, you’ll need to do some financial forensics on yourself. If it seems overwhelming, limit yourself to one month’s worth of expenses.
Pull out your credit card statements, housing and utility bills, bank statements including ATM withdrawals and any electronic payment records, such as Venmo or PayPal. Either open a spreadsheet or get out old fashioned paper and pen – it’s time to total your expenses.
It helps to categorize as you parse your spending. For example, you might label purchases as needs, wants or savings/debt. Or, you can get more detailed and add categories such as entertainment, food costs, travel and transportation. It’s up to you how much in the weeds you want to get.
After you compile expenses into one spot, total each category to see where the bulk of your money goes. You might be surprised at how much you spend eating out. Or, how high of a percentage your housing costs are compared to your income.
Tip #4: Have a Plan
Now that you know how much you earn, as well as how much you spend, it’s time to make a plan. The best financial plans align your priority (money management tip No. 1) with your spending habits.
Let’s say you’re a fitness buff. When you totaled your expenses, you found that in an average month, you spend money on a gym membership, yoga class card and new athletic gear. If that’s important to you, you won’t have to cut it out. But, in order to meet whatever priority you’ve set — let’s say it’s an emergency fund — you’ll need to cut expenses elsewhere. That could mean shopping at a discount grocery store or brown-bagging your lunch instead of ordering takeout with your coworkers.
To meet your financial goal, maybe you set up auto-deposit to a special “emergency fund” savings account. When your paycheck is deposited, that money disappears before you can count it as spending money.
Whether you pay for a budget program like YNAB, or prefer a simple Excel spreadsheet, that’s up to you.
Tip #5: Stick to the Plan
Once you pick a plan, give it a try for at least a month. You need that long to see if it works for you. Anything less, and you won’t see the benefit of keeping an eye on your finances.
So find a budget you want to try, get started and stay with it. It’s that simple. If you want, Washington recommends you “surround yourself with visual representations” of your goals. So if you’re saving for your next international trip, you can put up pictures of your dream trip to keep your goal fresh in your mind.
Tip #6: Expect Emergencies
Regardless of what your priority is, you’ll want to have some easily accessible liquid funds.
Maybe you’re focusing on paying down your student loans, and you’re not concerned with building a hefty emergency fund. That’s fine, you don’t absolutely have to save six months of expenses. But you should save for at least three.
You never know what might happen. You or a partner could lose a job, or have a medical emergency or any number of circumstances. Whether you like it or not, life happens.
Having money to deal with problems as they come up will help you feel more secure, and a little more prepared. Most emergencies add enough stress as it is. Take away an element of worry with a financial cushion.
How you put money away for emergencies is up to you. Maybe you funnel all of your side gig money to an account you only touch in an absolute emergency. Or, it’s where any birthday or any gift money goes. It could be as simple as a small, monthly auto-deposit. It’s up to you.
Tip #7: Save Early and Often
This rule holds true regardless of your current priority. The sooner you save, the sooner you can build interest. You don’t even need an investment account to start earning interest. Most of the best savings accounts generate interest, and those accounts are FDIC insured. That means you don’t have the risk of losing your money, as with a brokerage account.
This rule also applies to retirement. The sooner you start putting money away in an IRA or 401(k), the better. Even if you’re years away from retiring, you still need to consider the future. Your money stands to grow the most if you start as soon as possible.
Tip #8: Take Advantage of Free Money
You don’t want to overlook what assets are available to you. If your employer offers 401(k) matching, you should absolutely take advantage of the benefit. It’s free money.
Another place to look is your health insurance plan. Are you paying for glasses or contact out of pocket when some of those costs are covered through your plan? Maybe your job offers a discounted gym membership. Take advantage of all the benefits your job offers; you might save some serious cash.
Tip #9: Relook Your Debt
Take a look at your total debt (money management tip No. 2). Is there anything you can refinance for a lower rate? Maybe it’s transferring a balance to a credit card with lower interest. Or, it’s consolidating student loans. It’s worth combing through your debt with a fine tooth comb to see if you can find a way to save.
Tip #10: Find What Works – and Keep Doing It
Another common maxim that applies to money management is “if it’s not broke, don’t fix it.” Once you find a system that works, don’t get distracted by new apps or conflicting financial advice.
It’s tempting to try the next best thing, especially if it promises to be easier, simpler or faster. However, if you’re in a rhythm that works — you’re saving money, meeting financial goals and building security — keep chugging along. Your focus will pay off.
As financial expert Dave Ramsey says, “You will either manage money or the lack of it will always manage you.” The best way to build financial security is to get a grip on how and where you’re spending your income, and then make a plan — and stick to it! Of course, life can throw you off track sometimes, but that’s OK. As long as you get back on budget, a hiccup here or there won’t destroy your future financial success.
Tips for Making the Most of Your Money
- A financial advisor could help set you up for long-term financial success. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If your savings account isn’t earning you interest, you may want to compare interest rates. Here’s a roundup of the best interest rates in 2022.
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