How do I manage my finances?
This question is as old as the idea of money itself. It is one of the most popular questions as it seems there is always less money at the end of the month or your accounting period.
If you are struggling to manage your finances, this resource is created for you.
Wouldn’t it be nice to stop being stressed about how to manage your personal finances? It would be great if there was a formula that would allow you to never worry about money.
This might not be realistic. However, there are a few things you can do today to improve the way you manage finances.
This would ensure that you would have peace of mind.
If you manage to stick to these ideas, your money problems will reduce and you will beget some benefits that include reduced debt, increased savings and a high credit score.
23 Key Steps on How to Manage Your Finances
Managing your finances does not need to be overwhelming. Instead, implement these tips one at a time to take control of your finances.
- Understand your current financial situation
- Set personal priorities and financial goals
- Create and stick to a budget.
- Establish an emergency fund
- Save for retirement
- Pay off debt
- Schedule regular progress reports
- Ask for professional help
- Track your spending
- Do not commit to new recurring bills
- Save up for big purchases
- Limit credit card purchases
- Pay the best prices
- Practice good money habits
- Create a business plan
- Protect your source of cash.
- Outsource when necessary
- Set up right bank accounts
- Monitor your finances
- Understand your credit score
- Start investing
- Build knowledge
- Find your ‘why’
Having the ability to manage your finances is more than just ensuring that you are making your ends meet.
In fact, you do not to even be a mathematics genius, you just need to be able to add and subtract.
Building the Case on How to Manage Your Finances Effectively
Money cannot buy happiness, but it surely can bring a sense of security.
Without a handle on money management, you may always feel like your life is one step away from a financial cliff.
In fact, 25% of Americans say they worry about money all the time and studies show that two-thirds of Americans would struggle to find $1,000 to cover a financial crisis.
You definitely want to avoid being in situations like this. This means knowing know to manage your money.
When you manage your finances well, life may not get easier but you have more time to focus on important things in your life.
23 Ideas on How to Manage Your Finances Properly
Today, life is even tougher given the economic environment and the loss of jobs due to the current global crisis the world is facing.
This makes it even more critical that you are able to manage your current finances prudently.
It is very possible that you are being faced with spending decisions on a daily basis. The key question is, can you afford to make that particular purchase?
It would be wise for you to run the numbers, and ascertain that you actually can afford to make that buying decision. Based on that, you will know if you have enough cash or you have allocated your finances to something else.
Are you are struggling with money management issues today?
This could mean a living pay check to pay check despite making more than enough money. If that is your situation, then here are some tips to improve your financial habits.
Understand your current financial situation
Although it might be scary, you can’t improve your financial situation unless you take stock of your current situation.
Be brutally honest with yourself about any outstanding debt or high expenses that are hurting your budget. Celebrate your good financial choices. Write everything down so that you can see the whole picture.
A financial plan is essential in helping you reach your financial goals. The plan should have multiple steps or milestones. A sample plan might include creating a monthly budget and spending plan, then getting out of debt.
Once you’ve accomplished these three things and have followed through on your new plan for a few months, you may find that you have extra cash, and the money you free up from your debt payments can be used to reach your next round of goals.
It is a key to decide what priorities are most important to you.
Keep steadily working toward your long-term financial goals, but also start to focus on the most important near-term goals you have set for yourself.
Do you want to take an extravagant trip? Start investing? Buy a home or build your own business?
These are all things to consider when deciding on your next step.
Your goals, along with an emergency fund, will help you stop making financial decisions based on fear and help you get control of your situation.
When creating a financial plan, remember these things:
- Your budget is critical to success. It is the tool that will give you the most control of your financial future. Your budget is the key to achieving the rest of your plan.
- You should keep contributing to long-term goals, like saving for retirement, no matter what your financial plan stage is.
Building an emergency fund is another key factor in financial success and stress reduction.
Set personal priorities and financial goals
Take some time to write specific, long-term financial goals. You may want to take a month-long trip to Europe, buy an investment property, or retire early.
All of these goals will affect how you plan your finances.
For example, your goal to retire early is dependent on how well you save your money now.
Other goals, including home ownership, starting a family, moving, or changing careers, will all be affected by how you manage your finances today.
Once you have written down your financial goals, prioritize them.
This organizational process ensures that you are paying the most attention to the ones that are of the highest importance to you.
You can also list them in the order you want to achieve them, but a long-term goal like saving for retirement requires you to work towards it while also working on your other goals.
Below are some tips on how to get clear on your financial goals:
- Set long-term goals like getting out of debt, buying a home, or retiring early.
- Have short-term goals, like following a budget, decreasing your spending, paying down, or not using your credit cards.
Prioritize your goals to help you create a financial plan.
Create and stick to a budget.
Your budget is one of the biggest tools that will help you succeed financially. It allows you to create a spending plan so you can allocate your money in a way that will help you to reach your goals.
You can make your budget as high-level or detailed as you want, as long as it helps you reach your ultimate goal of spending less than you earn, paying off any debts, increasing your emergency fund, and saving for the future.
A budget will also help you decide how to spend your money over the coming months and years.
Without the plan, you might spend cash on things that seem important now, but do not offer much in terms of enhancing your future.
Many people get caught in this quagmire and get down on themselves for not reaching the financial milestones they want for their family and their own life.
Do not forget to celebrate small victories along the way.
For example, congratulate yourself once you pay off your debt, or reward yourself when you stick to your budget for three months solid, or when you successfully add to your emergency fund.
If you are married, you and your spouse need to work together on the budget.
Working together makes it feels fair to both of you, and you both have the same level of commitment towards achieving it. This unity can go a long way towards helping you prevent money-related arguments.
Below are some tips for married couples who want to create a budget together:
Consider switching to an envelope budgeting system that uses cash for spending areas that require more discipline.
Use budgeting software with a mobile app so you can enter spending in real-time.
Plan your expenses in advance to avoid any overspending.
Establish an emergency fund.
An emergency fund can be absolutely critical.
Unfortunately, life throws large expenses your way when you least expect it. Typically these emergency expenses are accompanied by unpleasant events such as a hospital visit or job loss.
You never know when an emergency will appear in your life but you can prepare for it.
Make it a priority to put money into your emergency fund with each and every pay check. Many experts recommend saving three to six months of expenses in your emergency fund.
However, this will depend on your risk tolerance. If you would feel better with more saved, then you can add more to your emergency fund.
Set up a separate savings account to store your emergency fund. Otherwise, it is too easy to spend these funds.
When an emergency strikes, you won’t have to worry about the financial side of the equation.
Instead, you can focus on the emergency at hand. You’ll thank yourself later for taking this step.
Save for retirement.
Depositing money into a savings account each month can help you build healthy financial habits.
You can even set it up so the money is automatically transferred from your checking account to your savings account.
That way, you don’t have to remember to make the transfer.
Saving for retirement now can seem unnecessary. After all, you aren’t going to be retiring for decades.
However, it is absolutely critical that you start saving for retirement as early as possible.
At the very least, you should start contributing to any employer-sponsored retirement plans. Make sure to take advantage of any matching funds offered by your employer.
If you aren’t lucky enough to receive matching funds, then consider contributing to a Roth IRA instead.
Make a contribution with each pay check to hit your retirement savings goals each year.
Pay off debt
Consumer debt is a huge obstacle for many when it comes to reaching financial goals. That is why you should make eliminating it a priority.
Set up a debt elimination plan to help you pay it off more quickly.
For example, while making minimum payments on all of your debt accounts, pay any extra money towards one debt at a time.
After paying off one debt account, move all the money you were paying on the first debt to the next debt and continue from there, creating a debt-paydown “snowball effect.”
Once you are totally out of debt, commit to staying out of debt. Leaving credit cards at home may be a wise strategy. Save up an emergency fund to cover unexpected expenses, so you are not tempted to use a credit card to cover them.
Try these tips to help you pay off debt more quickly:
- Sell unused or unwanted items around your home to find extra money to add to your debt repayment plan.
- A second job can help speed up the process and can be necessary if you want to make fast or lasting changes to your situation.
Look for areas in which you can cut your budget to increase the cash available for your debt payments.
Debt is a huge financial burden. Not only does it affect your current budget, but also your savings for the future.
Take your debt seriously and make it a priority to pay down your debt. Consider different debt repayment strategies and pick one that works best for you.
Don’t let debt stand between you and other financial goals. Create a plan to tackle it today.
Schedule regular progress reports.
Managing your money successfully is an ongoing process. However, you need to have a way to track the progress.
You can do this successfully by having regular progress reports with yourself or with your financial planner or advisor.
It helps to schedule regular times throughout the year to evaluate your financial situation. You should always know your income, savings, spending and net worth.
The four metrics will help you to determine what progress has been made toward financial goals and whether any budget items need to be adjusted for the future.
Ask for professional help
Once you have grown your savings and want to begin investing to increase your wealth, speak to a financial planner to help you make wise investment decisions.
A good adviser will share the risks involved in each investment. He or she will also help you find products that match your comfort level and investing return needs.
A financial planner can also help you with your budget, which is another plus.
Investing is a long-term strategy that helps you in building wealth. You can also find financial help elsewhere, such as:
It does not have to be a difficult experience to get your debt paid off, money saved, and progress made towards your financial goals.
Invest in yourself and your financial future so that you won’t ever need to worry about your finances again.
Track your spending
Small purchases here and there add up quickly, and before you know it, you’ve overspent your budget.
Start tracking your spending to discover places where you may be unknowingly overspending.
Save your receipts and write your purchases in a spending journal, categorizing them so you can identify areas where you have a hard time keeping your spending in check.
Do not commit to new recurring bills.
Just because your income and credit qualify you for a certain loan, doesn’t mean you should take it.
Many people naively think the bank wouldn’t approve them for a credit card or loan they can’t afford.
The bank only knows your income, as you have reported, and the debt obligations included on your credit report.
They do not know any other obligations that could prevent you from making your payments on time.
It is up to you to decide whether a monthly payment is affordable based on your income and other monthly obligations.
Save up for big purchases.
The ability to delay gratification will go a long way in helping you be better with money.
When you put off large purchases, you give yourself time to evaluate whether the purchase is necessary and even more time to compare prices.
By saving up rather than using credit, you avoid paying interest on the purchase.
And if you save rather than skipping bills or obligations, well, you don’t have to deal with the many consequences of missing those bills.
Limit credit card purchases.
Credit cards are a bad spender’s worst enemy.
When you run out of cash, you simply turn to your credit cards without considering whether you can afford to pay the balance.
Resist the urge to use your credit cards for purchases you cannot afford, especially on items you do not really need.
Pay the best prices.
You can make the most of your money comparison shopping.
This is by ensuring that you are paying the lowest prices for products and services.
Look for discounts, coupons, and cheaper alternatives whenever you can.
Practice good money habits.
In the beginning, you may not be used to planning ahead and putting off purchases until you can afford them.
The more you make these habits part of your daily life, the easier it is to manage your money, and the better off your finances will be.
Create a business plan.
Business plans are a must for any business in any industry. A business plan is your map from your starting point to your grand appearance at the finish line.
Business planning can be a burden, but it is completely necessary to have a successful start-up.
This will help you set realistic goals and take measures to complete them in real time frames.
Your business plan will help you stay focused, measure your success, and revisit your overall plan when a new opportunity arises.
A business plan will establish where you are and where you want to get to over the next few years.
It should detail how you will finance your business and its activities, what money you will need and where it will come from.
Protect your source of cash.
This might seem obvious, but it is important to understand exactly what you earn.
Take a minute to determine your net income after taxes, not just your gross income. You will be more able to accurately budget with this number.
If you are disappointed in your total income, then consider picking up a side hustle. A lucrative work from home side hustle can fit into your schedule and help to dramatically improve your finances.
Another way to boost your income is to negotiate your salary. Don’t be afraid to approach your supervisor with data that supports your request for a raise. You never know what they may be able to offer.
Outsource when necessary.
As much as you want to, you cannot do it all.
When you try to do everything, your business as a whole will suffer.
When you feel that you are being stretched too thin or are needed in more than one place at a time, it is time to add to your team.
Finding the funds in your budget is one of the biggest reasons why business owners take on too much.
There are many forms of financing that can help you secure a strong source of capital to better manage payroll.
For example, payroll funding for oil and gas businesses allows you to get an advance of up to 96% on outstanding invoices.
Rather than waiting on payments to be paid and processed in full, with payroll funding or invoice factoring, you will be able to get a cash advance of the funds that are already owed to your business – without incurring any additional debt.
Set up right bank accounts.
The right bank accounts are critical to your financial success.
Trying to manage your finances without the right bank accounts is similar to trying to take care of your car without the right parts.
You will need to set up checking, saving, and investment accounts. These are the building blocks of financial success.
It is important to get both a checking and savings account so that you can easily separate your spending cash from long term savings. Simply leaving your savings in your checking account makes it all too easy to accidentally spend your hard-earned savings.
Monitor your finances.
You should regularly monitor the progress of your business finances. On a daily basis, you should know how much money you have in the bank, how many sales you are making and your stock levels.
You should also review your position against the targets set in your business plan on a monthly basis.
It is essential that you choose the right type of finance for your business – each type of finance is designed to meet different needs.
Smaller businesses usually rely more on business overdrafts and personal funding but this might not be the best kind of funding for your company
Understand your credit score.
Your credit score is a three-digit number that can have a big impact on your finances.
Lenders are willing to offer borrowers with high credit scores better loan terms and lower interest rates.
As you apply for large loans such as a mortgage, a small interest rate reduction can save you thousands of dollars.
Take action to improve your credit score.
Start by pulling your credit report to check for any errors and use a credit monitoring service to prevent any future mistakes.
Other ways to improve your credit score including making on-time payments and keeping your credit utilization rate low.
A good credit-builder account can help you rebuild your credit and also help you avoid taking on new debt!
If you plan to build long term wealth, then investing is a key piece of that.
Investing over a long period of time can lead to amazing returns. You’ll be able to grow your money slowly as you invest more every year.
If you are not sure where to get started investing, then consider taking our free course.
You will learn everything you need to know about investing your first dollar.
The more you know about personal finances, the better. Seriously, more knowledge about personal finance will never hurt you.
You can use any new information you learn to make adjustments to your personal finances.
Luckily, there are countless personal finance resources. Podcasts and books are two great sources of information.
Find resources that help you master your specific financial situation.
Realize that others have walked before you, seek out similar stories. You may find helpful tips on ways to optimize your finances.
Find your ‘why’
Staying on top of your finances will require some amount of time and effort. At some point, you will probably feel like giving up. It is a completely natural feeling.
The best way to avoid personal finance burn out is to find your reason.
Why are you choosing to learn how to manage your money? Why are you taking action to put yourself in a better financial position?
A few common reasons include:
- Getting rid of oppressive debt.
- Becoming financially independent.
- Spending more time on the things that light you up.
Whatever your reason, make sure you have one.
Take a minute to understand your why. Go beyond simply wanting more money to understanding why you want more money.
In conclusion, there is no better time than now to work or learn how to manage your finances.
Taking actions and the time to manage your money better really pays off.
As we have discussed above, managing your finances will help you stay on top of your bills and also help you in achieving your long-term financial goals.
You can also save money which you will be able to use to pay off your debts, or even use the extra cash to fund your holiday.
Prudent management of your finances will help you to make investments that will grow your wealth.
Make the choice to start managing your finances effectively today.
Implement each of the above tips over time. Do not let yourself get overwhelmed, just take it one step at a time.
Remember, you absolutely can effectively manage your finances. It will just take a little bit of time and effort to get your money under control.
Frequently Asked Questions
How do you do the 50 20 30 budget rule?
The rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must-have or must-do.
The remaining half should be split up between 20% savings and debt repayment and 30% to everything else that you might want.
How can I manage my finances better?
Here are seven steps to take to manage your money properly:
- Understand your current financial situation.
- Set personal priorities and finance goals.
- Create and stick to a budget.
- Establish an emergency fund.
- Save for retirement.
- Pay off debt.
- Schedule regular progress reports.
How do I organize myself financially?
6 Step Plan to Organizing Your Finances
- Set Up a Filing System For Your Personal Finance.
- Create a Budget with the Help of a Budget Calculator, and Stick to It.
- Set Up Money Reminders or Automate Bill Payments.
- Balance Your Payments with Your Paydays.
- Evaluate and Pay Off Your Debt.
- Start Saving Money.
How do you balance your finances?
Here are some of the key steps to help you manage your money the right way:
- Create a budget.
- Understand your expenses.
- Understand your income.
- Consolidate your debt.
- Slash or remove unnecessary expenses.
- Create an emergency fund.
- Save 10 to 15 percent for retirement.
- Review and understand your credit report.