If there is something we have learned in recent months, it is the need for proper financial planning. This is especially with regard to the ability to manage money. With reduced incomes or sources of revenues, it is not a wonder to hear someone ask; how can I manage my money wisely?
When you face a financial crisis, ability to manage your personal finances is of paramount importance.
Your salary income or business revenues can drop significantly or stop altogether. It is not an interesting thing to go through or witness.
In such instances, your skills at managing your money wisely and being smart with every dollar become very real.
This is a step by step guide on how to manage your money wisely today and in days or months ahead.
How to Manage Your Money Wisely
The following twenty one tips will help and guide in on how to manage your money wisely. The plan here is to help you succeed.
- Create a plan of action.
- Have an emergency fund.
- Create a long term investment plan.
- Use your credit wisely.
- Be careful with your housing costs.
- Reward yourself.
- Educate or increase your knowledge.
- Start managing money right now.
- Have the right mindset.
- Develop the habits.
- Know how to spend.
- Set aside money for fun.
- Save money.
- Make or earn money.
- Keep money/preserve capital.
- Multiply money through investing.
- Create a budget.
- Track your spending.
- Leverage technology.
- Manage or consolidate your debt.
- Find what works and keep doing it.
If you have any money right now, then you have something to manage. This is a skill you should ensure you have.
Do not wait to make more money before you learn how to manage money wisely. Start with what you have and from the point you are at right now.
21 Tips and Strategies on How to Manage Your Money Wisely
You do not have to be an expert in personal finance or to have a huge investment portfolio to manage your money wisely.
You just need to be deliberate about your actions. It is also important to have the willingness to have a health financial position in your life..
The following tips and strategies will help you to manage your money wisely.
Create a plan of action.
Having a financial plan is about more than figuring out how much of your pay-check is left after the bills are paid.
Your plan starts with thinking about what you really want to do. What goals do you have? Do you want to travel? Buy a house? Own a business?
Being successful, whatever that means to you, starts with having a clear idea of where you want to go and then making a plan to get there.
Creating a budget is a key part of any financial plan and will help you achieve your goals and stay focused. If necessary, look for resources that provide budgeting or other money management tips.
Have an emergency fund
Do not put yourself in a situation where you have to rely on credit for unexpected expenses. One of your top priorities should be building up your emergency savings.
As a guide, experts recommend saving at least three to six months’ worth of living expenses.
If you are planning any larger financial purchases like a home or car, consider setting up a separate savings account for those.
Big-ticket items like a vacation are much more enjoyable if the whole thing is already paid for and you are not racking up credit card debt.
Create a long term investment plan
When investing long-term, you will want to consider putting your money in something other than a standard savings account that has tax benefits.
The most popular accounts that can allow your money to grow tax-free until you are older are 401(k)s and Individual Retirement Accounts (IRAs).
Age of withdrawal without penalty is 59.5. You may want to get financial tips and guidance from a professional advisor.
You will also want to start saving as much as you can as early as you can to maximize the compound interest you can make, which is basically interest you’ve made on the amount you’ve invested also earning interest.
Use your credit wisely
Using credit responsibly is an important part of a sound financial plan because your credit score impacts your ability to make almost any big financial purchases.
Be sure to pay your bills on time, every time, and try to keep your balance well below the limit of the card.
Pay attention to the ratio of how much debt you currently have to how much you can borrow. This number should stay below 30 percent or it can negatively impact your credit score.
Be careful with your housing costs
Housing costs are generally the most significant part of everyone’s budget, as well as a major emotional investment.
The search for the “perfect” home can easily extend your budget beyond what is really comfortable.
When setting a housing budget, be sure to include all fixed costs and consider what amount you really want to pay.
Do not buy a home just because a mortgage lender approves your loan application. The home lender is looking out for their best interests, not yours.
You may also want to make a list of features you “need to have” and ones that are “nice to have”. This allows you to make a thoughtful and financially sound decision.
Being realistic about what you want and what you can afford upfront can save a lot of financial stress later on.
One of the biggest mistakes people make when getting their finances in order is becoming too strict. If we constantly deny ourselves the things we love the most, we will eventually cave into the pressure and make mistakes.
Studies have shown that willpower is a limited resource; you can only resist so many temptations before you will give in.
This applies not only to temptations of food but also financial temptations as well.
When considering how to manage your money wisely, the savviest financial minds will tell you that you have to make room for indulgence in the budget to stay on track.
Set yourself up for success. Add in a date night or a vacation here and there. Reward yourself when you hit a savings goal with a night out or a movie.
Educate or increase your knowledge
The world of finance is complicated, but money is a necessary part of life. You do not have to understand everything.
However, to stay financially secure, you need to keep learning about tools and resources you can take advantage of to make what you have work hard for you.
Take stock of what you already understand; then build on that with books, classes or savings advice from a professional.
Before you know it, you will be sharing your expertise on how to manage money effectively with friends and family.
Start managing money right now
The fact that you do not have much money to manage currently, tells me that you do not know how to manage it well.
Waiting will only make your situation get worse and worse. Learn while you earn, and learn to manage your money while you are earning money.
Do not make the common mistake of waiting until you have a lot of money to start learning money management skills. This way, as you are making money you are also managing it.
Imagine you are suddenly earning $6,000 per month and you cannot manage it. Would you be able to manage $10,000 or 20,000 per month?
That is why you want to learn to manage smaller sums of money first.
Wealth comes to people who know how to multiply their money. That is why the rich get richer.
Success and wealth have less to do with magic opportunities, and more to do with your knowledge and skills.
The rich often have the skills to multiply money and invest appropriately.
Have the right mindset.
When you are managing money, with what kind of mindset do you approach your financial situation? Does it stress you out?
Does managing money bore you? Do you generally feel negative about managing your money? This is the wrong mindset.
If you think too much about your lack of money, I call that “thinking in scarcity”. You believe that your resources are limited and that you never have enough.
A wiser mindset to adopt is the mindset of abundance. If you live in abundance you know there will be enough for everyone.
Let me give you a perfect example. If Bill Gates earns millions of dollars per month, does that mean you earn a million dollars less? No, it doesn’t. Your income is not related to other people’s income.
The more they make is not the less you make. Don’t mistakenly believe there are limits to how much money you can make.
What you need is the right mindset, and the skills to make and keep more money.
The amount of money you can make is limitless once you learn how to make, keep, and multiply your money.
Develop the habits
When you want to learn to manage your money, developing the habit of financial order is crucial. What does that mean?
Even if you only make $1,000 a month you still want to get into a regular habit of managing it well.
Especially when you aren’t making much money yet, it is twice as important that you build the habit.
If your income grows and you did not learn to manage money, you will get yourself in deeper trouble.
Am sure you have seen so many people get into credit card debt or other forms of debt because they never learned to manage their money wisely.
They made mistakes and have to play catch up with credit card debt and other payments every month. When bigger sums accumulate, it gets harder and harder to get out of it.
If you make $1,000 a month and make a mistake, you maybe lose a bit of money. But you can make it back.
However, if you earn $10,000 and make a mistake, you can get yourself in serious debt. That is why you want to start building the habit of money management as early as you can.
This does not only apply to making money. The same goes for spending money, saving money or investing money.
Managing money is a habit that you have to approach with the right mindset.
Know how to spend
Most people think they only use for money is to spend it. They think their money’s ‘job’ is to get spent.
In reality, money has four jobs: spending, saving, investing and donating.
So spending your money is only one part of your money management. Most people make the mistake of spending too much. They spend more money than they have and get into serious debt.
Then they try to learn from their mistakes and develop money managing systems. But here lies the next pitfall.
Most people manage their money poorly because they make their money management system too complicated. As it’s too complicated, they never use it.
That is why I want to suggest a very easy strategy for managing money.
Set aside money for fun
When you put 10% of your money aside to spend on fun, then there is no guilt about spending that money.
You cannot get rich looking poor. What is more, you cannot get rich feeling poor.
That is why I recommend spending at least a bit of your money on things that will make you feel good.
So many financial advisers would talk about saving every last penny. They tell you should not get that Starbucks coffee. That you should collect all the spare change around your house.
How you should sit on your money so you are prepared for emergencies. I do not agree with them at all. If you limit yourself too much and save every last bit you will fall back into a mindset of scarcity.
It is okay to like nice things. I know that I like nice things. As long as you keep it within 10% of your income there is no guilt.
Still, it is very important to keep it to 10% and not to overspend. If you spend too much money on fun your other investments and safeties will shrink.
You might think 10% fun money is too much for right now. That is okay. But do at least 1-2%. Because again, spending your money on fun is also a habit.
If you do not build the habit early you won’t manage it well once you have more money.
Save money, including saving for retirement.
I recommend saving 10% of your money as your emergency fund. That money goes into a separate account and you do not touch it unless it is a real emergency.
Do not spend it on fun or on your rent. It is for emergencies only. In the best case, the money on your savings account accumulates without you needing it often.
Watching your money grow is great for your mindset. What I noticed from managing money for myself is this: when you have some cash already you will attract more cash.
It is a psychological phenomenon. Seeing that you have money on your account gives you the feeling that you can make more. You did it before, why not do it again?
So, when you have the habit to accumulate money, you accumulate even more. As I said, it is not that important how much money you make or save. It’s about building the habit.
Saving for retirement should be another top priority
Saving money is a thing many people struggle with. Statistics tell us that 29% of all American households have less than $1,000 in savings.
That means if there is only one emergency, they are wiped out. They are one pay check away from poverty. Yet, America is one of the wealthiest countries in the world.
Why do so many people lack savings?
I believe it is a lack of habit and self-control. The money you save is meant for emergencies. So many people, they would use their savings to buy things.
When you want to buy more, do not use your savings. Instead, focus on making more money.
Make or earn more money
When I talk about my system, where 60% of my income goes towards the necessities – there is usually one reaction I get from others. They tell me they can’t live from only 60% of their money.
When you are in a similar situation, there is one thing you can do about it. Upgrade your skills to make more.
The number one thing I teach all my students is this: when you have income problems, it’s never a money problem. Instead, it’s a skill problem.
If you develop your skills and become able to provide more value to the marketplace your income will increase. Yet, what do most people do when they want more money? They would either get a second or even third job. Or, they plan to start a business.
Now, I think managing money will be so much easier for you if you develop a skill first.
I usually call them high-income skills. High-income skills are always in demand and allow you to make money at will – once you mastered it.
While you focus on increasing your income, you also want to focus on keeping your habits for managing money in place.
If you really need more than 60% for your living costs, do not debunk the whole system.
For example, I would rather have you only put 1-2% in learning or investment. This way, you still keep your management system in place. You just distribute the money differently.
At the beginning of my career, I made some fatal mistakes. Suddenly, I was making all this money. I would buy a new car every year and I used my money to buy friendships.
Every night I would blow three grand – and I don’t even drink. Only later I got much smarter. I noticed, while I was great at making money, I sucked at keeping it.
So, I started consulting financial advisers and experts. Only then did I learn what it means to keep money.
Why am I telling you this?
Because I want you to avoid my mistakes. Do not spend stupid amounts of money and try to buy friendships. That’s not how real friendships or networks work.
Don’t become overconfident. If you are good at generating money, keep focusing on your cash flow.
When it comes to keeping your money, I also want to mention your credit card. Credit cards are amazing but make sure not to max them out every single month.
I recommend you use about 60-70%. What’s more, you want to pay them off every month.
When you overspend and get into credit card debt you will struggle as the credit card interests are higher than your savings.
Why do you want to keep money? Well, part of it goes into your emergency savings and your savings for learning and growth.
What’s more, you definitely want to have that extra money for investments.
Multiply or Invest Money
Multiplying money is the true mastery of managing money. And yet, most people have no idea about it.
You might not even get to this stage, if you cannot make or keep enough money.
Now, how do you multiply your money?
The way to multiply your money and grow rich is through investments.
When it comes to investing, do not get fancy. Do not make it too complicated or sophisticated.
If anything, you want to go with something very, very simple. All wealthy people I know invest in only a number of things.
They invest their money into proven things, like real estate, index funds, the stock market or their own businesses.
That’s it. They are not chasing the latest investment trends they see on social media. They only invest in long-term proven investment vehicles.
Create a budget
Like many people, you might now want to create a budget. This could be because you do not want to go through what you think will be a boring process of listing out expenses, adding up numbers, and making sure everything lines up.
If you are bad with money management, you do not have room for excuses with budgeting. All it takes to get your spending on track is a few hours working a budget each month.
Instead of focusing on the process of creating a budget, focus on the value that budgeting will bring to your life.
Your budget is useless if you make it then let it collect dust in a folder tucked away in your bookshelf or file cabinet.
Refer to it often throughout the month to help guide your spending decisions. Update it as you pay bills and spend on other monthly expenses.
At any given time during the month, you should have an idea of how much money you’re able to spend, considering any expenses you have left to pay.
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,. Then categorize them so you can identify areas where you have a hard time keeping your spending in check.
In this time and age, you be able to leverage technology in managing your finances better.
There are lots of platforms, solutions and mobile application that can help you do this with an ease.
Manage your debt.
It is very normal for someone to get into debt in the course of their financial life. I know you might already be having some debt, in one form or the other.
One of the most important aspect in learning how to manage your money wisely is the ability to deal with your debt.
You should be able to manage your debt if you are to achieve financial independence.
Find what works and keep doing it.
Being good with money takes practice
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.
How do you budget your money the 50-20-30 rule?
This is a very interesting budgeting approach.
The 50-30-20 rule budget is a simple way to budget that does not involve detailed budgeting categories.
Instead, you spend 50% of your after-tax pay on needs, 30% on wants, and 20% on savings or paying off debt.
What is the best way to manage your money?
Ability to manage your money is a very important skill. You can use it to improve your personal finances, and build your long term wealth.
While there are several ways in which you can achieve your money management goals, you should always look for the best way to manage your resources.
7 Best Ways to Spend Your Money
Here are the seven steps to take to manage your money wisely:
- 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 can I improve my money management skills?
These seven money management skills you should sharpen or help you improve your money;
- Set S.M.A.R.T. financial
- Organize your money with a budget.
- Build and maintain an emergency fund.
- Make conscious spending decisions.
- Diversify your income.
- Create a debt payoff strategy.
- Pay yourself first.
How do I stop struggling with money?
If you are struggling with your finances, the following six steps will help you to turn things around.
- Work on having a budget.
- Reduce your expenses.
- Save up for an emergency fund.
- Stop incurring new debt and make a debt payoff plan.
- Earn extra income.
- Automate your financial life.
In conclusion, let me tell you something, nobody likes being broke, but being broke is as a result of our actions and lifestyle. Research indicates that for most people, the reason they have financial struggles is not because they earn little money, the problem comes from not managing the money wisely.
That is why learning and using the above ideas on how to manage your money wisely is very important.
It is sad, money management is not taught in most high schools and colleges. This lack of basic financial education leaves many people clueless about how to manage their money and stay out of debt.
You see, it might seem like an impossible task, but that is because you have not taken the time to start managing your income.
You do not have to be an expert in finance to manage your money wisely. Managing your money well can be one of the most rewarding things you can do.
If you are working from home, you can manage your money or finance from the comfort of your home.