10 Money Management Tips to Improve Your Finances
To improve your personal finances, you don’t need a higher-paying job or an inheritance from a relative. Better money management is often all that is required for many people to reduce their spending, improve their ability to invest and save, and achieve previously unattainable financial goals.
Even if you believe your finances are in a rut with no way out, there are a number of steps you can take to improve your situation. Here are seven examples to get you started.
1. Keep track of your spending in order to improve your finances.
If you don’t know what and where you’re spending your money each month, there’s a good chance your personal spending habits could be better.
Spending awareness is the first step toward better money management. Use a money management app like MoneyTrack to track your spending across categories and see how much you’re spending on non-essentials like dining, entertainment, and even your daily coffee. After you’ve educated yourself on these habits, you can devise a strategy to improve them.
2. Make a monthly budget that is reasonable.
Your budget needs to be set according to your monthly spending habits as well as your monthly income.
Setting a strict budget based on drastic changes, such as never eating out, is pointless if you’re already ordering takeout four times a week. Make a budget that suits your spending habits and lifestyle.
You should view a budget as a way to encourage better habits, such as cooking at home more frequently, but you should also give yourself a realistic chance of meeting this budget. This is the only way this money management method will work.
3. Save money, even if it takes time.
Make an emergency fund that you can use when unexpected events occur. Even if your contributions are small, this fund can save you from potentially risky situations in which you are forced to borrow money at high interest rates or are unable to pay your bills on time.
You also need to make general savings contributions to increase or strengthen your financial security in the event of a job loss. Use automatic contributions, such as FSCB’s pocket – change, to grow this fund and reinforce the habit of saving money.
4. Pay all of your bills on time each month.
Paying your bills on time is a simple way to manage your money wisely, and it has numerous advantages: It assists you in avoiding late fees and prioritizes necessary spending. A solid on-time payment history can also help you raise your credit score and lower your interest rates.
5. Reduce recurring charges.
Do you pay for services that you never use? It’s easy to overlook monthly subscriptions to streaming services and mobile apps that charge your bank account even if you don’t use them on a regular basis.
Examine your spending for charges like these, and think about canceling unnecessary subscriptions to save more money each month.
6. Save money for large purchases.
Certain types of loans and debt can be useful when making large purchases, such as a house or a car that you urgently require. However, for other large purchases, cash is the most secure and cost-effective option.
When you pay cash, you avoid accruing interest and incurring debt that will take months—or, in some cases, years—to repay. Remember, the money you saved can sit in a bank account and yield interest, which can be used for your big purchases.
7. Begin developing an investment strategy.
Even if your financial resources are limited, making small contributions to investment accounts can help you use your earnings to generate more income.
Find out if your company offers 401(k) matching, which is essentially free money. Consider establishing a retirement or other investment account.
Changing your own habits is the first step toward better finances. Some of these changes will be more difficult than others, but if you stick with it, you’ll end up with great money management skills that will serve you for the rest of your life—and, in the meantime, you’ll have more money in your pocket.
A solid budget is the foundation of good money management.
8. Set personal priorities and financial goals.
After you’ve laid out your current financial situation, it’s time to consider whether it aligns with your values. For example, if spending weekends with your family is a priority, paying for a housekeeping service may free up valuable time and be a wise financial investment. It may not make as much sense, however, if travel is a higher priority. In that case, the money spent on housekeeping could be better spent on vacations.
9. Create an Emergency Fund
Having money set aside for unexpected events such as a lost job, illness, or a broken car is part of learning how to manage money better. Everyone needs an emergency fund for three to six months worth of expenses.
The most effective way to establish this fund is to include savings in your budget. The amount you save depends on how much extra money you have available, but Terrill recommends setting aside at least 10% of your monthly income for emergency savings.
10. Put money aside for retirement
You may want to retire at some point, which will be difficult to do without a retirement fund. Social Security benefits only replace about 40% of your income, and many employers no longer provide pensions.
Workplace retirement plans, such as 401(k) accounts, can be a good place to save for retirement because contributions are deducted automatically from your paycheck. Furthermore, many employers will match a portion of their employees’ contributions, boosting retirement savings even further. These accounts are also eligible for tax breaks. Traditional 401(k) contributions are tax-deductible, whereas Roth 401(k) accounts are funded with after-tax dollars, but earnings withdrawn in retirement are tax-free.
An IRA provides similar tax benefits to those who do not have access to a 401(k) or other employer-sponsored retirement plan. Total IRA contributions in 2020 cannot exceed $6,000 for workers under the age of 50 or $7,000 for those over the age of 50. According to Terrill, you should aim to save 10% to 20% of your income for retirement.