Although money cannot buy you happiness, it can bring a sense of security if you know how to manage your money correctly. Without a handle on money management, you may always feel like your life is one step away from a financial cliff.
In fact, 25% of Americans say they are constantly worried about money, and studies show that 37% of Americans would use a credit card, get a loan or ask someone they know, to cover a $1,000 financial crisis. You definitely want to avoid being in situations like this, which means you should learn to manage your money well.
When you manage finances well, life may not get easier, but you have more time to focus on important things in your life. Luckily, it is not too difficult to get your finances on track.
Let’s dive into how to manage your money the right way.
19 tips for how to manage your money the right way
Managing your finances does not have to be overwhelming. We've included some of the best ways to manage money in an easy way. Simply implement these money management tips one at a time to take control of your finances.
1. Set up the right bank accounts
The right bank accounts are critical to your financial success because trying to manage your finances without the right bank accounts is similar to trying to take care of your car without the right parts. You’ll need to set up checking, saving, and investment accounts.
These are the building blocks of financial success. It is important to get both a checking and savings account so that you can easily separate your spending cash from long-term savings.
Simply leaving your savings in your checking account makes it all too easy to accidentally spend your hard-earned savings.
2. Take stock of your current financial situation
Although it might be scary, you can’t learn money management or improve your situation unless you take stock of your current one. So you need to be brutally honest with yourself about any outstanding debt, student loans, or high expenses that are hurting your budget.
Celebrate your good financial choices, while also asking yourself, "how can I manage my money better?" Write everything down so that you can see the whole picture.
3. Make a plan for your money
Without a plan, it is extremely easy to find yourself short on money because it can make it easier to overspend. After all, the temptation to treat yourself is easy to embrace.
If you say yes to too many unnecessary costs, then you might be disappointed with your savings. In order to combat this, take some time to make a budget.
Plan out where you want to use your money. In addition to your everyday and monthly expenses like rent and car payments, think about your savings goals for the future. You also want to find a budgeting method that works for you because it will help you manage your money better.
4. Set the right financial goals when deciding how to manage your money
If you are getting serious about your money, then setting goals is one of the most important money management tips you can use! Creating financial goals will help you stay focused and motivated toward where you want to be financially.
There is no wrong answer, but you’ll need to take a minute to think about your plans and how money would factor into them. Once you have an idea of how money will play into your life, make clear and specific goals for your money.
5. Check in with your finances every day
You can’t make progress without knowing where you stand because you won't know where to start. Take five minutes every day to check in with your budget.
Are you overspending? What are your spending habits? Are you right on track?
It’s important to know because then you can make adjustments where necessary.
It might sound tedious to check into your financial situation every day. However, it doesn’t need to take a long time. Use an app or spreadsheet to quickly determine how you are doing financially and get back to your life.
6. Cut back on your expenses
As you start to learn money management, first take a look at your spending. Look for expenses that you are able to cut out of your monthly budget.
Even cutting an unnecessary expense of just $20 out of your budget can lead to a savings of $240 for the year.
Some simple ideas on things to cut out might include work lunches, a box subscription, or your cable package. Cutting your budget is one of the best money management tips you can use to make saving easier!
7. Take a look at your income
It might seem obvious, but it is important to understand exactly what you earn. So take a minute to determine your net income after taxes, not just your gross income. You’ll be more able to accurately budget with this number.
Another way to boost your income is to negotiate your salary. Don’t be afraid to approach your supervisor with data that supports your request for a raise. You never know what they may be able to offer.
8. Create a plan to pay off debt
Debt is a huge financial burden. Not only does it affect your current budget, but also your savings for the future.
Take your debt seriously and make it a priority to pay off as you ask, "how can I manage my money properly?"
Consider different debt repayment strategies and pick one that works best for you. Don’t let debt stand between you and your financial goals. Create a debt reduction plan to tackle it today.
9. Understand your credit score when learning how to manage your money
Your credit score is a three-digit number that can have a big impact on your finances. Lenders are willing to offer borrowers with good credit scores better loan terms and lower interest rates.
As you apply for large loans such as a mortgage, a small interest rate reduction can save you thousands of dollars.
Take action to improve your credit score. Start by pulling your credit report to check for any errors and use a credit monitoring service to prevent any future mistakes.
Other ways to improve your credit score include making on-time payments and keeping your credit utilization rate low.
A good credit-builder account can help you rebuild your credit and also help you avoid taking on new debt!
10. Build an emergency fund
Planning for unexpected expenses is the best way to manage your money! An emergency fund can be absolutely critical. Unfortunately, life throws large expenses your way when you least expect it.
Typically these emergency expenses are accompanied by unpleasant events such as a hospital visit or job loss. You never know when an emergency will appear in your life, but you can prepare for it by having extra money.
Make it a priority to put money into your emergency fund with each and every paycheck.
Many experts recommend saving three to six months of expenses in your emergency fund. However, this will depend on your risk tolerance. If you would feel better with more savings, then you can add more to your emergency fund.
Set up a separate savings account to store your emergency fund. Otherwise, it is too easy to spend these funds.
When an emergency strikes, you won’t have to worry about the financial side of the equation. Instead, you can focus on the emergency at hand. You’ll thank yourself later for taking this step.
11. Plan for large expenses
While some expenses are unpredictable, you can plan for other expenses months in advance. For example, you may need to pay for insurance at one time which may cost thousands of dollars.
Instead of scrambling to come up with the funds for that bill, create a sinking fund.
You can save each paycheck for these big bills to make sure you have enough to cover them. This is where budgeting comes in really handy. You’ll be able to add this sinking fund to your budget and never have to worry about big upcoming expenses again.
You can even use automatic transfers to put some of your earnings towards these large expenses without any extra effort.
12. Shop around for big purchases when discovering how to manage your money
When shopping for a big purchase, make sure to shop around. Although it will take an investment of time, you could stand to save thousands, and it will help you learn money management.
For example, when shopping for a car, you’ll need to look at multiple cars and compare quotes. Don’t just accept the first quote. Make sure that you are getting a good deal because the savings can add up fast!
13. Contribute to your retirement
Saving for retirement now can seem unnecessary. After all, you aren’t going to be retiring for decades. However, it is absolutely critical that you start saving for retirement as early as possible.
At the very least, you should start contributing to any employer-sponsored retirement plans. Make sure to take advantage of any matching funds offered by your employer.
If you aren’t lucky enough to receive matching funds, then consider contributing to a Roth IRA (Individual Retirement Account) instead. Make a contribution with each paycheck to hit your retirement savings goals each year.
14. Start investing (a big part of how to manage your money)
Learning to manage your money is great, but making it work for you is even better. If you plan to build long-term wealth, then investing is a key piece of that.
Investing over a long period of time can lead to amazing returns and is one of the best ways to manage money. You’ll be able to grow your money slowly as you invest more every year.
15. Compare insurance options
Insurance can be expensive, especially if you are properly insured. So be sure to check out your insurance options at least once a year.
You may be able to find a better deal on insurance just by looking at different providers.
While you are looking at insurance, take a minute to confirm you are adequately insured. In addition to the basics like healthcare and car insurance, consider renters insurance, homeowners insurance, life insurance, and disability insurance.
You might need to add additional policies to your insurance deck to enhance your protection. Be sure to determine what insurance you may need to get.
16. Find your reason
Staying on top of your finances and gaining money management skills will require some amount of time and effort. So at some point, you’ll probably feel like giving up or saying, "I don't want to manage my money anymore!" It is a completely natural feeling.
The best way to avoid personal finance burnout as you manage finances is to find your reason.
Why are you choosing to learn how to manage your money? Why are you taking action to put yourself in a better financial position?
A few common reasons include getting rid of oppressive debt, becoming financially independent, and spending more time on the things that light you up.
Whatever your reason, make sure you have one. Take a minute to understand your why. Go beyond simply wanting more money to understanding why you want more money.
17. Build up knowledge on how to manage your money better
The more you know about personal finances, the better. Seriously, more knowledge about personal finance will never hurt you. You can use any new information you learn to make adjustments to your personal finances.
Luckily, there are countless resources. Podcasts and books are two great sources of information.
One great book to start with was written by our very own founder, Bola Sokunbi: Clever Girl Finance: Ditch Debt, Save Money and Build Real Wealth.
Find resources that help you master your specific financial situation. Realize that others have walked before you; seek out similar stories. You may find helpful tips on ways to optimize your finances.
18. Find an accountability buddy
Just having someone that you can talk to about your finances is helpful. Our society has decided that talking about finances is almost taboo. You simply don’t talk about it in everyday conversation.
With an accountability buddy, the walls can come down. You are able to freely talk about your personal finances and share your struggles along the way. You might be surprised at just how much a buddy can help.
Not only will you be more likely to follow through, but also build a friendship at the same time.
19. Give back
As you start to get your finances under control, it is time to give back. Setting aside time or money to donate can help you make an impact wherever you want to. Make giving back one of your budget categories.
To properly manage finances means that you’ll be able to allocate more time and money to causes you care about.
Even if you are only able to help spread your newfound knowledge of personal finance, that could be a valuable gift to someone in need of a helping hand.
Take action and learn how to manage your money!
Learning the best ways to manage money does not need to be difficult, but you do need to get started. Don’t allow your finances to get out of control before you start to manage them seriously.
Being consistent in the little things is one of the best things to do to learn how to manage your money.
Make the choice to start managing your finances effectively today. Implement each of these money management tips over time. Don’t let yourself get overwhelmed; just take it one step at a time.
Remember, you absolutely can effectively manage your finances. It will just take a little bit of time and effort to get your money under control.