Money Management: Real Ways for You To Improve Your Finances
Money is the driving force, constant motivation and figurative pot of gold at the end of the work day’s rainbow. You work for it, and yet negotiating how to spend it, invest it or save it can seem quite complicated. Proper money management shouldn’t be something you put off, but instead can be something you start today.
5 Basics You Should Know About Money Management
With money management, little steps end up taking you pretty far. It is not something you have to do all at once, but instead, you can start planting today to reap the fruits of your labor tomorrow. To get started, here are five basic pillars of money management.
- Take a personal inventory to design your unique financial plan.
- Build a blueprint intended for the long-term.
- Set realistic goals and make the most of your savings.
- Plan persistently and professionally.
- Diversify your investments.
1. Take a Personal Inventory To Design Your Unique Financial Plan
When taking stock of your finances, remember that your financial situation is unique to you, so try not to be tempted by how other people are investing or spending their income. A dollar to them may differ in value from a dollar to you.
When you assess your spending habits, you might be surprised at what you notice about how you spend money and where you could save it. This personal inventory is important — so be honest with yourself when asking questions like the following.
- Do you save any money per paycheck?
- Are there expenses you could eliminate from your monthly budget?
- Do you have a weekly budget?
- Are you consistently overspending?
- If you lost your job, how long would you be able to get by on your savings?
2. Build a Blueprint Intended for the Long-term
Investing in your future isn’t about immediate returns or doubling your money overnight, it is about slowly and steadily growing your wealth. It’s not a sprint, it is a marathon. By taking a few steps, you will start to see the outline of your financial plan blueprint.
Building a Budget
There are many ways to go about forming your budget.
A place to start is the 50/30/20 rule for financial planning and budgeting. This is where you break down your income into the three categories: needs, wants and savings — then allocate them accordingly.
The basic budget allocates 50% to needs, 30% to wants and 20% to savings, but you can use different percentages if these don’t work for you. Even if you can only save 10%, 5% or even just 1% of your income, it’s better than saving nothing.
Paying Off Debts
Paying off debt can be overwhelming, but if you tackle your biggest one first, you can chip away faster at your debt as a whole.
For example, start paying off your account with the highest interest rate first, while just making the minimum payments on any other debts. By working your way down from debts based on highest to lowest interest rates, you’ll not only pay debts off faster but spend a bit less overall.
Keeping track of your expenses will show you where you spend too much or where you may have wiggle room to cut back.
For example, look at all your monthly subscriptions — you may not use some of them anymore, or not enough to justify the expense. Consider cancelling them entirely, but at least take them off autopay so you’re making a conscious decision to keep them and the money isn’t automatically taken from your account.
You can start saving in small ways, like setting aside a certain percentage of your paycheck each week, or even trying a challenge like the 52-week money challenge, where you save $1,378 in 52 weeks, or one year, by matching the amount of money you set aside with the corresponding number of each week. For example, you would save $1 in week one, $2 in week two and so on, which adds up by the end of the year.
Maximize on your savings by opening a high-yield savings account for better returns.
Bad habits can be hard to break, but creating good habits can build a better future. This is especially true when it comes to your credit habits. Your credit can affect nearly every aspect of your financial life, so be sure to make payments on time to build a solid credit history and score, and stay within your financial limits.
If your job or company doesn’t offer a 401(K), you can set up a retirement account personally. Compound interest accounts you build over time will help create financial stability and security for you in the future.
3. Set Realistic Goals and Make the Most of Your Savings
By setting realistic goals, you can visualize yourself accomplishing them, which makes it more motivating to work towards them. There are no guarantees, but having attainable goals can help you better grow your savings. You don’t just have to squirrel away your money in a savings account — you can also begin investing it. Saving and investing is a process you should repeat over and over.
You should have savings for emergencies and the unexpected, but you should also have enough in your savings to live on for six months if something does happen that causes you to be without income. This may seem like a big amount, so start smaller by saving up enough money for one month, then increase from there.
4. Plan Persistently and Professionally
Once you have developed your plan, budget and path to get where you want to go, stick with it. Be persistent in your financial goals by staying within your budget, spending wisely and consistently adding to your savings.
Once you have these habits in motion, it may be worth considering seeking professional help, such as a financial advisor. Money management is a full-time gig, and having someone who specializes in it can only help you grow your personal wealth.
5. Diversify Your Investments
The adage about not putting all your eggs in one basket holds true with financial planning, as well. There will always be risks and elements outside of your control when it comes to investing, so make sure you diversify what investment instruments you are using, as well as where you are investing your money.
If you can cut back and live within or below your means now, your future self will greatly appreciate it. When you first start thinking about money management, try not to think of your entire financial plan as a whole, but instead break it down into small achievable goals. You can create the future you want by starting now.
- What are the five basics of money management?
- There are many ways to manage your money, but five basics include:
- – Take a personal inventory of your finances.
- – Plan for the long-term.
- – Set realistic goals.
- – Stick to your plan.
- – Diversify your investments.
- What is the 50/30/20 rule for managing money?
- The 50/30/20 rule for managing money is a common percentage-based way to budget. You simply divide your income into needs, wants and savings: needs is 50%, wants is 30% and savings is 20%.
- What is the best way to manage money?
- The best way to manage money is to start working on your financial plan by building a budget, paying off your debts, tracking your spending, saving and investing.
- What is meant by money management?
- Money management is taking control of your personal finances and developing and sticking with a plan to start growing your wealth now to create a more financially secure future.
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- Citizens Bank. "What is the 50/30/20 Budget Rule?"
- Fidelity. "Why diversification matters."
- Capital One. 2022. "7 Money Management Tips to Improve Your Finances."