Money management: 4 tips to take control of your finances
What exactly is money management? It’s a plan for your money so you can get the most out of it. This plan usually involves budgeting and saving money, avoiding or reducing debt, and investing in your future.
If learning to manage your money seems daunting or stressful, take it step by step. Below are some money management tips to help you take control and, most importantly, gain peace of mind.
How to manage your money
1. Take stock of your finances
Money management isn’t just about doing the math. It’s also about adjusting your state of mind.
Take a mental inventory of your current position.
Are you constantly spending?
Do you have enough savings to survive an unexpected expense?
Are you living paycheck to paycheck?
Feeling overwhelmed by financial jargon?
Be honest with yourself about your weaknesses. You may have taken a few missteps in the past, but you don’t have to continue down this path. Here’s how to manage your money now, while preparing for the future.
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2. Build 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 will stick with. We love the 50/30/20 budget plan, which allocates 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment. This 50/30/20 budget calculator divides your income into these categories.
Track your expenses
Through expense tracking, you can see exactly where your money is going. This can prompt you to adjust your spending habits so that they better match your goals.
Easily track your expenses
Throw away your paper budget and sign up for NerdWallet to make it easier to manage your money.
Find ways to save
By paying more attention to your finances, you will likely find opportunities to save. Here 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. If you want to learn more about saving with coupons, gifts, and DIY tips, check out our guide to frugal life.
Use designated accounts for your spending and savings
One way to make money management easier is to keep the money designated for invoices and budgeted expenses separate from your emergency fund. This will reduce the temptation to dip into it for non-emergencies. Saving for a house, vacation or a new car? Store these funds in separate accounts so you can see progress towards each goal.
Make a plan to pay off the debt
A strategic approach to debt repayment will help you reach the debt-free finish line faster. We recommend that you tackle your most expensive debt first – the accounts with the highest interest rates – while making minimum payments on the rest. Then reduce any lower interest rate debt until it is fully paid off.
Develop good credit habits
Your credit can determine whether you are able to get loans and the rates you pay, as well as many other aspects of your financial life. A credit check can be part of getting a cell phone plan, apartment or car insurance.
To stay on top of your score, focus on the two main factors that influence it: payment history and use of credit (how many of your credit limits are you using). Try to pay everything on time, as a single missed payment can hurt your score and use less than 30% of your credit limits on each card and overall.
Invest in your financial future
Put some money aside now, in a 401 (k) or IRA, and let compound interest work its magic. The ultimate goal is long-term financial freedom and stability. Don’t know how much to save? Try our retirement calculator.
3. Make the most of your savings
Money management is about more than spending less than what you earn. A real sign of financial prowess is saving enough to live comfortably both long and short term.
You can achieve this in four steps:
Start saving extra money to build an emergency fund. Ideally, you should have six months of living expenses at your disposal in case the unthinkable happens. If that sounds too ambitious, start small. A reserve of $ 500 is a great first goal.
Invest extra money for your future. Prepare for retirement by contributing to a 401 (k). If your business offers a match, contribute enough to get the most.
Pay off the debt
Whether it’s a loan or an impending credit card bill, you are likely in debt. Always make at least the minimum monthly payments so as not to suffer credit damage due to late payment. If you have extra money for bills, pay off high interest debt first.
Continue to build that emergency fund, invest for your retirement, and reduce your debt.
4. Be persistent
Despite their good intentions, many people drop the financial train. Sticking to too restrictive a budget can be overwhelming. Navigating through investing lingo can be confusing. But don’t be discouraged.
You didn’t find yourself in the financial situation you find yourself in overnight, and neither will you get out of it overnight. Give yourself time to learn and grow. With hard work and dedication, you can manage your money with confidence.