money management

16 BEST MONEY MANAGEMENT TIPS YOU NEED TO FOLLOW

Money is a tool. Nothing more, nothing less.

And just like an app on your phone, if you don’t use it the right way and follow the steps, you will not get the results that you want.

It’s not how much you earn, it is what you do with the money that matters.

Creating a financial plan and sticking to it is an extremely important step on a way to a better financial future.

That’s very important to do as early as possible because if you can’t manage what you currently have, then there’s no point in trying to make more money.

Just think about it.

If you can’t save a few percent while earning $2000 a month, making ten times more won’t change your money habits.

Chances are you will still be spending everything you earned because this is what you’ve been doing your whole life.

But if you want to create a better financial future and learn how to manage your money like a pro (which I’m assuming you do, if you’re reading this), then you can’t just think of today.

You have to be prepared for emergency expenses any and think ahead for your future.

This might need sacrificing some instant gratification, but it is SO worth it.

Having a better sense of control over and confidence over your money not only will help you achieve your financial goals, but also allow you to have more time on pursuing your passions and things that really matter.

Here are a few steps that will help you start your journey with managing your money.

Table of Contents

1. Understand your current financial situation

The very first step in proper managing your personal finances is being aware of your current financial situation. You can’t move forward without knowing where you are.

Ask yourself a few questions:

  • Do you have enough money saved for an unexpected expense?
  • Do you live paycheck to paycheck?
  • Do you happen to overspend when you know you shouldn’t be?

Be completely honest with yourself about all your weaknesses. You don’t have to keep making the same mistakes that you used to.

Mastering your money is all about adjusting your mindset to it. As you start to take control of your money, not only you’ll be more responsible of where your spending money for, but your daily habits will change too.

2. Know your priorities.

Before you get started with setting your money management plan, you have to identify your priorities and main objectives that are going to be your motivation throughout a journey.

Ask yourself what’s important in your life, right now.

What is your priority? Vacation, a new car, building savings, etc?

Also, it’s really important to distinguish what you need to have now and what can be put off for later.

The amount of money that you spend on each category should reflect what matters for you the most, whether you value international travel, or taking care of your body, mind, and soul.

Knowing that you can then cut back on things that are not as that important for you and save at maximum capacity for your true priorities.

3. Start budgeting.

The goal of setting a budget is relatively simple.

You need to make sure that you don’t spend more than the amount you’ve set as a limit.

Budgeting is basically a way of sacrificing in some way in your life.

You need to realize that by spending as much as you earn and living your life that way it’s at the cost of your future.

When it comes to practice it may turn out a bit hard, given the spending habits that you might have.

While working on your budget, you need to decide what is realistic for you.

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Decide what your budget is and don’t exceed what that is.

The first step is to make a list of all your existing current expenses.

Go through your debit cards, debit cards, online banking statements, your receipts, and add all those transactions up. Create several categories for your expenses and add them to your list.

It would be even better if you go back a few months back with your calculations.

That way you’ll be able to see your spending pattern and what you tend to spend the most your money for.

Once you’ve done that, the second step is to estimate your monthly income.

Identify all sources of income that you have and add them up. These would include money from your job, business, investments, and other income streams.

You always need to make sure that your income is higher than your expenses. 

At the end of the day, this is what will allow you to save money for your goals, whether it’s saving money for vacation, investments, or retirement

If you see that your expenses are too high, then you’ve got to work on your budget again.

You need to decide how much you want to save every month and then look at ways that you can cut down and lower your expenses.

4. Use 50/30/20 rule.

If you’re still not sure what expenses are your priority and how much you should be saving, the 50/30/20 budgeting rule should be helpful for you.

The basic rule of it is to divide your monthly income after tax into three spending categories: needs, wants, and savings.

Here are the examples that each category should include:

  • 50%- needs (regularly expenses, housing, health insurance, utilities)
  • 30%- wants (something that you want, but can live without i.e. dining out, shopping, hobbies) you can live without but it improves your quality of life!
  • 20%- savings/ paying off debt (emergency fund, credit cards, student loans, retirements)

5. Track your expenses.

After setting up your budget, you have to be tracking your expenses regularly to ensure that you’re sticking to your budget goals.

Ideally, you would do it on a weekly basis, which means that every single week you’ll go through your credit card statement, your bank statements, and receipts and all your expenses up and put the numbers on your spreadsheet where you calculate your budget.

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By creating a habit of weekly tracking your expenses, you’re more likely to be successful with managing your money.

That way you prevent your procrastinating behavior that could be stopping you if you would do it monthly.

Another benefit of it is that you can have more control over your spendings.

Let’s say your monthly budget for entertainment is $200, and the first week you already spent $150 on it.

If you hadn’t tracked your spending weekly, you could’ve easily overlooked that and end up spending more on entertainment than your budget allows you.

Related: 13 THINGS TO STOP BUYING TO SAVE MONEY

6. Set up the right bank accounts.

Having the right bank accounts is a vital aspect of your success in managing your personal finances.

Without them, handling your money can be hard, if not impossible.

The basic foundation is going to be a checking account and saving account. It’s important to have both of the accounts so you can separate your spending cash from long term savings.

This way, you’ll reduce the temptation of using your saved money for non-emergencies and see the progress you’ve made towards saving for a specific goal.

7. Find ways to save money.

Once you have a clear understanding of where your money is going, you can more easily identify potential savings.

Regular saving money is going to help you protect you in the situation of a financial emergency. It will also help you cover bigger purchases, avoid debt, and reduce your financial stress caused by leaving from paycheck to paycheck.

Truthfully, reasons to save money are countless. And you should know better what is going to be your motivation.

Related: MONEY SAVING: 18 TIPS YOU’LL WISH YOU’D KNOWN SOONER

8. Pay off your debt.

Debt is a drain to your finances. So are the interests that go along with it.

Not only debt robs you of your money now, but it also steals from your future.

And even though we all know that debt is a huge problem, everyone still thinks that it’s an inseparable and normal part of life.

Many people end up paying back their debt twice when it comes to counting the amount of paid interests.

So, paying off your debt fast is another great way that can help you be more in control over your money, as you’ll save money on interest payments in the long run.

Ask your lender to increase your debt payments, even by a few dollars a month.

It will help you save money on monthly interest bill and clear your debt faster.

9. Save up for an emergency fund.

Once you are out of debt, you need to make sure that you’re prepared for any eventual spending that can come up.

Whether you like it or not, life happens, which is why you need to do everything to be financially prepared for any eventuality.

Regardless of your financial goals and priorities, having accessible cash on your bank account will help you feel more secure and deal with problems as they come up.

Ideally, you will want to have a minimum of 6 months of expenses in your emergency fund.

That’s in case something happens to your income and you need to cover expenses like food, rent, mortgage, utilities, etc.

If you want, you can even go further with it and save up money for 12 months, which will make you feel more comfortable.

If having savings of your 6 months expenses seems like a too distant plan, that’s fine. However, you should at least start with saving up to cover your 3 months of costs of living.

Related: 9 THE BEST HABITS OF PEOPLE WHO ARE NEVER BROKE YOU NEED TO FOLLOW

10. Use credit or debit cards.

Credit cards can be your friend, if you know how to use them wisely. It is much easier to track your expenses this way and also you can earn cash back travel rewards on things that you were already planning to buy.

Plus, using a credit card will help you build your credit score which is very important especially at a young age. The key is to pay off your balance in full at the end o f each month.

And if you have a problem with overspending while using a credit card, set a limit on your credit card.

11. Start Early.

Learning how to save and manage your money at a young age is one of the best things you can do for your future as you’ll be able to save more money comparing to those who decide to start in their thirties, forties, or even fifties.

The sooner you start saving, the sooner you can allocate your funds to your investments and become financially free.

Also, the earlier you start investing, the easier it will be for you to build wealth and benefit from growth over a longer period of time.

Regular investments that are made right from an early age lead to compounding returns, having huge benefits at the time of adult life and later retirement.

And even if you’re years away from retiring, you still need to think ahead and consider your future.

12. Save for Retirement.

At some point of your life, you may want to retire, and having money saved for that time will help you maintain the standard of living.

Without a retirement fund it could be hard, which is why the earlier you start saving, the better off you will be.

Photo by rupixen.com on Unsplash

And even if you have started saving money relatively late or you are yet to do so, it’s important to note that you are not alone in this.

There are certain steps that you should take that will help you increase your retirement savings. Want to know more? Learn 10 Tips to Help You Boost Your Retirement Savings – Whatever Your Age.

13. Plan for Large Expenses.

At some point of your life, you may want to retire, and having money saved for that time will help you maintain the standard of living.

Without a retirement fund it could be hard, which is why the earlier you start saving, the better off you will be.

And even if you have started saving money relatively late or you are yet to do so, it’s important to note that you are not alone in this.

There are certain steps that you should take that will help you increase your retirement savings. Want to know more?

14. Keep Learning.

The more you know about managing your money, the better. Honestly, more knowledge about personal finances will never hurt. Your level of understanding the fundamentals of budgeting, saving, and investing will impact every part of your life and can mean the difference between wealth and poverty.

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Photo by Milk-Tea on Unsplash

Luckily, there is tons of information out there you can learn from. Books, podcasts, and blogs are the best resources to deepen your knowledge and learn about new tools that can help you maximize the efficiency in managing your personal finances.

Find resources that best suit your needs and can help you master your specific financial situation and optimize your finances.

Seek out similar stories to yours to help you stay motivated. You can find really helpful tips on how to optimize your finances.

15. Start Investing.

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. You’ll be able to grow your money slowly as you invest more every year.

If you aren’t sure where to get started investing, then consider taking our free course. You’ll learn everything you need to know about investing your first dollar.

16. Maximize Your Tax Savings

Whether you received the tax refund you deserved, think you could have gotten back more last year, or you were impacted by the events that took place in 2020, here are six tips to help you maximize your tax refund this year.

-Take advantage of the tax benefits provided by coronavirus relief measures.

-Don't take the standard deduction if you can itemize.

-Claim your friend or relative you've been supporting.

-Take above-the-line deductions if eligible.

-Don't forget about refundable tax credits.

-Contribute to your retirement to get multiple benefits.

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