How to Manage Your Money
Managing money isn’t easy – in fact, it’s likely one of the biggest financial and lifestyle challenges that you often face.
No matter your age or income, if you constantly feel as if you lack control over your finances, your spending is spiraling or you’re struggling to cover your monthly expenses despite having adequate income, these may all be signs that you need to learn how to manage money better.
If this is an area where you struggle, you’re not alone. The majority of Americans don’t have the tools or techniques in place to really know where their money is going, don’t have a complete picture of their income versus their expenses, and have very little savings or money set aside for retirement.
Many Americans also feel as if they have too much debt, yet they’re unsure of how to tackle it, and they often continue accumulating it rather than dealing with their existing issues.
Good money management skills can combat all these common, but troubling, issues.
Common Challenges to Managing Money Effectively
So, why is it so hard to learn how to manage money?
While the reasons may vary for each person, some typical hurdles people report experiencing in their quest for better financial management include:
Not having the skills or knowledge required to effectively manage your money:
It’s not difficult to learn, but it does take some financial know-how, and, unfortunately, this isn’t something a lot of people learn from an early age.
If they do learn money management skills, it often isn’t until they’re in their 30's or 40's, yet your 20's are one of the pivotal decades when you begin building a healthy financial future.
You may even think you’re making sound choices only to find out later they weren’t the most advantageous – for example, putting all your money into a low-interest savings account as opposed to choosing an opportunity with a higher return.
Challenges faced when taking a long-term view of your finances:
So many people – particularly those who don’t have the best management skills – may only look at the short-term, which makes it difficult to set money aside, pay off debts, and create larger financial goals.
Paying too much in interest:
Those massive interest rates or even moderate interest rates, are crippling financially, so it’s important to try and avoid paying interest whenever possible, whether that means consolidating debt or working hard to pay it off more quickly.
Balancing your desire to purchase things versus the reality of your income and financial situation:
It can be difficult to forego the things we want. For people who give in to temptations more easily, money management can be a tremendous challenge.
Again, every person’s financial situation is unique, but these are some of the hurdles people face as they begin learning ways to manage money.
Image source: Pixabay
What Is Money Management?
As we begin this comprehensive guide to answer the question of “how to manage my money,” we’ll first introduce you to the basic concepts of what money management really is because some people may have different ideas.
At its core, money management isn’t as simple as creating a budget.
Rather, it’s about having an understanding of where you’re spending your money currently and also a framework for how you want your future financial picture to look.
Creating a budget is just one component of learning how to manage money wisely.
Other important factors include defining goals, figuring out strategies to be organized, tracking your spending, and, of course, finding ways to save money.
What You’ll Gain When You Learn How to Manage Your Money
Along with asking yourself how to manage money better, you may also be asking, “What’s in it for me?”
What we mean by this is, for money management to actually work, you have to understand its benefits and how they’ll positively impact your life.
A few of the benefits include:
Financial concerns affect almost every area of many of our lives. When you’re worried about money or feel insecure about how you’re spending your money, it can take its toll not only on your stress levels and mental well-being but also on your relationships.
By learning how to manage your money, you can create a sense of security and peace of mind that’s priceless.
It can be almost impossible to eliminate debt and high-interest payments from your life when you’re struggling with how to manage your money.
By committing to a financial management plan, you can not only start paying off your current debt more efficiently, but you can also avoid future debt. Additionally, as your credit score improves, if you do make big purchases, you’ll receive the benefit of lower interest rates from lenders.
Strong money management skills don’t just impact your life and finances in the short-term. It’s also about building a long-term plan and a life you want. When you’re managing your money, you can save more for your retirement or other goals, such as your children's college education, and you’ll even be more likely to have money left over for extras like vacations.
With those benefits in mind, we’re moving onto the actionable steps you can take to learn to manage your money.
These money management tips are designed to be flexible enough for anyone to utilize, and they’re not so daunting or overwhelming that you’ll be intimidated as you work to change your financial life.
Track Your Spending
Tracking your spending is perhaps the most important thing you’ll do in your quest for how to manage money better.
So many people don’t have a clear idea of where their money is going, so they have no idea of how to make the necessary changes. You may be spending a tremendous amount of money in an unnecessary place or even a little bit of money that’s adding up over time.
It’s important to look at not just where you’re spending on monthly bills and fixed costs but also other areas, such as entertainment or eating out.
It can be difficult to look at the reality of your spending, but without tracking your spending, you’ll never know where to begin.
You’re in luck here, however, because there are so many free money management tools that make it easy to track your spending.
Some of the many terrific options include:
- You Need a Budget
Again, this is just a tiny sample of your online money management tools, but you’ll be amazed how much using one of these free options will impact your spending and understanding of where your money goes.
Deciding to track your spending is perhaps the best way to manage money, and it’s the tip you should follow if you don’t do anything else on this list.
Create a Bill Pay Plan
Try to track your spending for at least a period of two to three months. This will give you the best idea of overall trends.
Once you’ve done this – possibly using one of the free money management tools listed above – you can move onto the next step on our list of money management tips, which is creating a plan for paying bills.
Certain expenses simply can't be avoided, and these are areas where you need to first focus your attention.
A few tips for organizing and planning for bills as part of learning how to manage money include:
- If you’re using an online money management tool, add all of your bills here. Set up monthly alerts that let you know when these bills are due so you can avoid late fees. If you’re not using an online tool, you can track bills the old-fashioned way, using a calendar or an Excel spreadsheet.
- You may want to consider setting up recurring payments that will be automatically drafted from your checking account. This makes it effortless to pay your bills. If not, consider setting aside one day each month where you tackle all of your payments so it’s not a chore hanging over your head the rest of the month.
- Pay the debts you hate the most first to give yourself a mental feeling of accomplishment. For example, if you hate your student loan payments, make sure you do those first each month.
Once you have a plan and a controlled system in place for managing your bills, you’re quite a few steps ahead in your overall money management strategy. This sense of organization is one of the most valuable aspects of money management.
Outline Your Goals
If you’ve been asking yourself “how to manage my money,” it’s essential you define your personal goals.
These goals should include both short and long-term concepts:
- Start with your short-term goals. For example, maybe you want to spend less on weekend entertainment and put more into your savings each month.
- Then, move to medium-term goals, like paying off your student loan debt within five years.
- Next, it’s time for long-term goal-setting. This can be where people have the most trouble because it can seem like those long-term events are just so far away, yet this is a crucial component of learning how to manage money.
Don’t neglect the goal-setting step in this money management plan because these goals will serve as a driver of how you spend, save, and invest your money. They’re like a foundation for how you manage your money.
Bills are your number one priority, but once you’ve created a system for handling them, you can start looking at other areas where you need to prioritize.
You’ll have to focus your attention on the areas where you either have to spend your money or feel it’s non-negotiable for you, but this means some things will likely have to be eliminated.
If your priority is paying off student loan or credit card debt, plan to put a bit more of your monthly budget to these items.
Once you have the most important things accounted for, based on creating a sense of balance with your income, you can then prioritize some of the nonessentials that you’d still like to have as part of your life.
For example, maybe eating out twice a month is important to you. Look at how much you spend on an average meal out and build that into your budget.
Learning how to manage your money doesn’t mean you’re depriving yourself of everything you enjoy. Instead, it’s about having a clearer picture of how you’re spending your money, along with planning for the future.
While learning how to manage money better shouldn’t be about deprivation, it is likely you’re going to find some places you can make cuts in your spending.
A few areas you might make cuts without making too much of an impact on your life can include:
- Looking at your insurance policies: Insurance and, in particular, health insurance, can be one of the biggest costs people pay. Assess your policies and see if there are ways you can save money.
- Evaluating how much you’re paying in interest: We already discussed the damaging impact high-interest rates can have on finding ways to manage money, so try to eliminate them whenever possible. Options to cut these costs could include consolidating debt onto a low-interest card or paying off high-interest debt as quickly as possible.
- How much your utilities and other household expenses cost you: Perhaps you could reduce your energy usage or cut out costly cable bills by using streaming services, like Netflix or Hulu.
Even though these changes may seem small, they can add up to have a big impact.
Design a Savings Plan
Unfortunately, one of the largest obstacles to learning the ways to manage money is following the idea that if you have money left over, then all of it should be put towards your savings.
When you’re designing a savings plan, consider the following:
What are your goals specifically as they pertain to savings?
Perhaps you’re just starting out and want to save for a new house, or maybe you have a young family, so you’d like to focus on saving for college.
Your savings goals are unique and distinctive from your overall financial goals, so think of them as such. Your savings goals will likely be segmented into short and long-term objectives, or, at least, medium and short-term.
Use calculators to determine how much your goals will cost.
If your goal is to save for retirement, you can calculate this using free online money management and financial tools.
Decide how you’ll save your money.
You may want a basic savings account where you automatically contribute money each week, but it’s a good idea to diversify your savings techniques and tailor them to your goals.
Money markets and CDs can be useful for short-term savings. For your long-term goals, you might invest in something like a mutual fund or the stock market. This money that you’re putting in riskier areas are the funds with which you can reasonably weather downturns or dips in the economy or market.
Remember, while creating a savings plan is an invaluable part of learning how to manage your money, it is flexible. As your career or income grows or your financial needs change, you should plan on adjusting your savings plan accordingly.
Image source: Pixabay
Check Your Credit
Finally, as you’re learning some of the most attainable and realistic money management tips, it’s important to look at your credit as well.
Your credit is an important element in your financial life, so it’s something that you need to understand as part of learning how to manage money wisely.
Obtain a copy of your credit report (you’re entitled to a free one once a year), and review it. Look for any discrepancies or mistakes because they actually happen quite a bit.
Once you ensure your report is mistake-free, you can then start making the necessary moves to fix any other issues that could prevent you from obtaining your financial goals or receiving a low-interest rate on future purchases.
Contact creditors and work out plans to pay off the debts that are red flags on your report.
Summing up Our Money Management Tips
Learning how to manage your money doesn’t have to be intimidating. Once you can answer the question of “what is money management,” you can then follow the steps above to assess your spending and income, create a budget, and set your savings and long-term goals.
When you learn how to manage money more effectively, you’ll feel a greater sense of control and security over every area of your life.
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