Learning how to manage money wisely is such a game-changer for healthier finances, a stress-free life, and a wealthier bank account: find out how to manage yours!
Managing your money wisely is key not only to having a healthy financial situation and being able to achieve your personal goals, but also to avoid making mistakes, overspending or overlooking some important areas of your life in which you should be investing, like retirement or a savings fund.
Even though managing your personal finances might seem daunting, it’s really simple once you get the hang of it, and it’s absolutely life-changing.
To make it even easier for you, in this post you’ll find 9 great tips on managing money, so you can get started right away!
Track Your Spending
To begin with, the first crucial step to learn how to manage money better is knowing your financial situation.
It’s key that you know exactly how much income you count on every month, and, even more important, how much gets spend and where. Only then will you be able to take control of your finances and develop great money management skills.
So, how do you track your spending? It’s very simple. Make note of how much money you earned, and write down every single purchase or payment you do (no matter how small!) throughout the month.
It might seem like a tedious practice at the beginning but trust me, it’s an important habit and you’ll get the hang of it in no time!
At the end of the month (or even on a weekly basis), sit down to check your expenses: you’ll likely be surprised at the amount of money you splurge on unnecessary things! Which leads me to the next point…
Make a Budget
Once you know how much money is coming in and going out, it’s time to make some cuts on the areas you realize you’re wasting your money (coffee to go every morning? Dining out 5 times a week? Buying too many knick knacks just because?) and create a budget.
Having a budget (and sticking to it) is vital for a good personal money management, and allows you to make the conscious decision of where you’ll be placing those hard-earned dollars; chances are that you won’t be so eager to waste them on trivial things once you have the numbers in front of you.
When budgeting, prioritize your money goals and carefully plan your monthly expenses.
It’s important that you keep tracking your spending, so at the end of the month you can compare them with your budget and see what areas need to be improved…or if you underspent and were left with some extra dollars for your savings account!
Learning how to be better with money doesn’t only mean that you’ll live within your budget and never overspend. Thinking long-term is very important when planning your financial life, and one of the most important areas that you should be taking care of TODAY is your retirement.
Depending on your age, retirement may seem like a thousand years from now, but that’s exactly the beauty of starting early and having many years ahead of you to grow that fund.
Accounts like IRA or 401(k) are tax-free and allow your money to earn interest; that way, your money will be working for you and building up, so when the time comes you’ll be able to maintain your quality of life and fully enjoy your money.
While retirement is probably the most important long-term investment you need to make, long-term financial goals could also be being able to buy your dream house, or pay for your kids’ college tuitions so they don’t have to rely on loans.
Pay off your loans and debt
Debt is the worst possible enemy to your finances’ health, and you want to stay clear of them.
We’ll go more in-depth on how to avoid it in the next couple of points, but if you’re already indebted, paying off your debt ASAP is one of the most important money management tips for beginners (and for anyone, really).
I’m not saying it’s gonna be easy, but you want to get rid of high-interest debt as quickly as possible to start enjoying financial freedom, so the first step is budgeting your debt. Find out how much you owe, what’s the monthly amount that you can spare to pay it off, and never miss a payment.
In the process, though, try not to incur in new debt, so only pay what you can afford. You may need to reduce your expenditure on little luxuries, entertainment or indulgences during this period of time, and be more strict on your general expenses, but trust me, being debt-free is totally worth it.
Use your credit card wisely (and never overspend!)
Staying clear of debt means never spending more than what you have, and with credit cards, overspending is dangerously easy.
Credit cards can come in handy on emergencies or unexpected expenses that you can’t immediately pay with cash, but it’s not a good idea to live off credit cards, as you could effortlessly end up spending more than you can actually afford, and that leads to debt.
Credit score can also be very useful for getting loans that allow you to buy your own house, a car or pay for your education, so be sure to pay your credit card bills on time and always keep your balance below the limit.
Build an Emergency Fund
Creating and investing in an emergency fund is another great way to manage your money wisely. Unexpected events can happen any time, from sudden medical bills to a car break-down, a business opportunity you just can’t miss or a dental emergency.
Whatever they may be, if you’re not prepared to afford them you could end up asking for a payday loan or using your credit cards and completely indebting yourself, even if you were handling your money wisely and carefully staying away from debts.
But life happens, and being ready for the unexpected is the best possible way to maintain a good financial situation, so start allocating a percentage of your income to your emergency fund as soon as you can. You could aim for a 3-month emergency fund, or go all in with a 12-month emergency fund.
It’s true that the previous points are all about saving for the future and cutting out on indulgences, but treating yourself is also an important part of learning how to handle money wisely.
If you work hard to earn every penny but you’re too strict on your personal expenses and don’t ever see a dime, you’ll probably get to a point in which you’ll question what you’re doing and why you’re doing it, and end up throwing your budget into the trash.
While with this I don’t mean that you should eat out every day or buy anything and everything you see at the store, you should be entitled to spend on things that bring you joy now and again, since it’s you that’s putting the effort to make that money after all.
Life needs to have a balance and this also includes finances, so in order to indulge yourself without going over the top, see if you can also budget a specific amount for your personal use. For example, you can use the 30-30-30-10 budget rule that allows you to do that.
That way, you’ll always have some money for joining your friends at a club, taking your niece or nephew to the movies or buying that blouse you’ve been dying to have for months, without destabilizing your finances. You’ll be happier and more eager to work on your money management!
Make a Plan
Budgeting is key to managing your money in the short term, but if you want to learn how to manage your money wisely and successfully, you need to think long term and start planning your future financial moves.
Figure out what your plans and dreams are for the future, whether it’s buying your house, growing your net worth, traveling every year or crossing out a bucket-list experience, and start working toward achieving that goal.
While you may already know what your dreams are, writing them down and having a realistic plan leading to them helps you stay focused and increases your chances of achieving them.
Have a Positive Mindset
A simple money management tip that goes a long way is having the right mindset when it comes to money.
If you have no idea what kind of mindset you have, ask yourself the following questions:
Does budgeting make you feel bad, stressed out, or completely bored? Do you have a negative approach to money? Do you dwell on your lack of financial freedom? If you answer yes to any of them, then you could use a mindset shift.
If you’re constantly thinking about your limited resources or repeating to yourself that you’ll never have enough…well, that’s probably what’s going to happen.
Having the wrong mindset about money (AKA negative thinking) can also lead to self-sabotage, and that’s not how you want to manage your finances, trust me.
Money blocks are real, and you want to get rid of the limiting beliefs to enjoy a life of abundance and financial freedom, so start by identifying those beliefs and changing them toward something positive.
Maybe you think that money comes with problems, that you’re unworthy, or it may be that money struggles are all you’ve ever known).
Start associating money (and its management) with good things, like the possibility of retiring early, being able to afford your dream trip or providing a better life for your children, and keep at it until sitting down to budget becomes one of your favorite activities (totally possible!)
When it comes to ways to manage your salary or even your time wisely, the most important aspect is to be persistent and to continue learning.
Keep reading articles about money management, speak to friends who already do it, and remember that the only possible outcome of revising your finances and dealing with them is a good one.
You’ll always be better off financially when you know your numbers and money habits than when you don’t, so start budgeting today!