The concept of money management can seem overwhelming. You may wonder where to start, which financial goals to prioritize, and how to maintain momentum.
Everyone’s financial situation is unique. Therefore your money management strategy will be unique to your needs as well.
However, you can implement these 7 top tips, and customize them if necessary, as you address your financial challenges and manage your money effectively.
1. Identify Specific Financial Goals
Successful money management starts with priorities. When you know where you want your money to go, you can create a system that helps you reach your goals.
To maximize success, choose short-term and long-term financial goals. Your money priorities could include:
- Boost income
- Repay debt
- Prepare for emergencies
- Save for a vacation, college, or retirement
The more specific the goals are, the more likely you’ll be to understand what you need to do to achieve them and to follow through with them.
2. Truly Know Your Income
This may sound strange but many people don’t know exactly how much money they make each pay period. If you’re self-employed, it can be that much harder to keep track of the real number. Instead of estimating your income, review your pay stubs carefully. Understand exactly how much money you make per hour, per pay period, per month, and so on.
Only once you have an accurate knowledge of your income can you create realistic, sustainable financial goals. This knowledge also helps you weigh expenses. For example, are you willing to spend the equivalent of 5 hours at work on dinner out or a new shirt?
3. Track All of Your Expenses
Successful money management depends, in part, on knowing where you spend your money. Use pencil and paper, a spreadsheet, YNAB software, the EveryDollar app, or another tool to figure out your spending habits.
Before you start tracking expenses, list your spending categories. You can separate expenses into detailed categories like housing, food, and travel or lump your expenses into needs, wants, savings, and debt.
Remember to list all of your expenses. Include fixed expenses like your mortgage and variable expenses like dining out.
Once you calculate your spending, analyze it to identify spending habits and patterns. You may want to take steps to adjust your spending and implement a spending freeze, consolidate debt, or something more significant like downsize your home as you move toward achieving your financial goals.
4. Create a Lifestyle Budget
A budget is a tool that helps you reach your financial goals. It can be as simple or as complicated as you choose.
The key to a budget’s success is time. You must take time to create a budget that calculates all your saving and spending habits and meets your lifestyle needs.
To create your budget, first total all your sources of income, including money you receive from a second job, family members, investment accounts, and so on. Then record your bills and expenses. Finally, create a budget that guides your saving, investing, and spending. Examples of lifestyle budgets include:
The Zero-Based Budget
Allocate all your income toward spending categories like bills, expenses, and savings. This method works well if you live paycheck-to-paycheck or want to pay off debt quickly.
Place designated amounts of cash in pre-labeled expense envelopes. When the cash is gone, you’ll stop spending in that category. Use this system if you consistently overspend or want to use your credit or debit card less often.
Apply 50% of your income to living expenses, 20% to debt reduction and savings, and 30% to personal spending, including entertainment, dining out, and vacations. You can also use a 60/20/20 Method as you meet your financial goals and have fun at the same time.
5. Create a Debt Repayment Strategy
Debt repayment can play an important role in your money management strategy. Debt in the form of a mortgage or car loan can be a good thing, long-term, for your financial portfolio and goals. However, you will want to repay as much debt as possible, especially any high-interest loans or credit lines, as you save money and plan for the future.
Your debt-repayment strategy starts with an accurate view of your debts. Record the total you still owe, the interest rates, and your monthly payment amounts for each credit card, student loan, or other debt you have.
Then decide in which order you will repay your debts. You may want to focus first on repaying the debt with the highest interest rate or you might decide to tackle the smallest balance first.
Once you have the first debt repaid, apply that monthly payment to the next debt on your list. In this way, you will reduce your debt load and free up more money for your financial goals.
6. Save for Emergencies
Forget to save for emergencies, and you could jeopardize your budget if you experience an accident or lay-off. Ideally, you want to save three to six months of income.
Be sure you can access your emergency fund money quickly when you need it, but keep it in an account you’re not likely to use for everyday expenses. Consider opening an interest-bearing savings account or use an online tool like Aspiration or Acorn to save for emergencies.
7. Get Organized
Spend less time managing your money and have more time enjoying life when you get organized. A solid money organization system offers the added bonus of saving you money because paying your bills on time means you avoid late fees and penalty charges while you also protect your credit history and score.
To set up your money management organization system, you could choose to set up automatic bill payments each month. Also, list your bills and their due dates on a calendar or file your bills by their due dates on your desk.
Implement Money Management Tips Today
These seven reliable money management tips can help you successfully manage your money. Additionally, feel free to tweak these tips based on your needs, finances, or life events whether you’re a recent college grad, successful business owner, new parent, or retiree.
Also, check out our Financial Wellness resources or talk to one of our professional financial experts. We can help you clarify your money priorities, calculate your savings goals, or discern a debt repayment strategy as you manage your money.
We want you to be able to save hundreds of dollars a year by managing your money well. That’s why Atlantic Financial Federal Credit Union offers My Financial Insights, a personal financial management tool that is completely free to use and effective at helping people take control of their money. You see where the money is flowing in and out, and are able to visually track progress to reach your financial goals.
Login to your Atlantic Financial Federal Credit Union online banking account to get started today!