Money management and personal finance can be touchy subjects. Many people experience a lot of anxiety when they think about their financial lives, both as they are today and how they may look in the future.
Maybe you didn’t start saving for retirement as early as you’d hoped or perhaps you didn’t get an emergency fund in place and ended up in debt. Whatever your circumstances, deciding to take control of your situation now is always the best choice.
You simply have to follow a few key steps and you’ll be well on your way.
How to Manage Your Money
Managing money and learning how to do it is easier than you think.
If you aren’t sure where to begin, here are some of the best money management tips to help you win on the personal finance front.
- Start budgeting
- Build an emergency fund
- Get out of debt
- Improve your credit
- Maximize your income
- Start a side hustle
- Get insurance in order
- Stay consistent
1. Start Budgeting
Budgeting often reinforces a scarcity mindset. People think they have to cut out all the small purchases that bring them joy. But if you take a balanced approach, once you learn how to budget, it can be a helpful tool for reaching your financial goals. And there are a handful of helpful budgeting apps out there to help.
If you want a simpler version of budgeting, simply focus on optimizing your three biggest expenses— housing, transportation, and food. While small purchases like daily lattes or your Netflix subscription can add up, you can save the most where you spend the most.
- Housing: Through house hacking (a form of real estate investing), you can easily save 30% percent or more of your income. Your rent or mortgage is likely your biggest expense, so reducing it and investing the savings will add up quickly.
- Transportation: In addition to your housing expense, it almost always makes the most economic sense to buy a used car instead of a new one and invest the savings.
- Food: It’s also worth taking the time to reduce your food expenses and work hard to save money eating out.
2. Build an Emergency Fund
Major appliance malfunctions, car breakdowns, medical emergencies, and job losses have one thing in common—they can come out of nowhere. That’s why having an emergency fund is crucial.
Most experts recommend saving enough money to cover at least three to six months of expenses. To start an emergency fund, calculate your expenses, set savings goals, and make routine deposits to your account.
You can deposit your money into several types of accounts, but I recommend a high-yield savings account. Check out my emergency fund calculator for help determining how much to save.
3. Get Out of Debt
Being in debt can be incredibly stressful. But don’t worry—people get out of debt every day. Becoming debt-free is just a numbers game. There are many strategies for debt repayment, like paying off your smallest balance first then moving on to your next biggest debt (aka debt snowball) or paying down your biggest debt first (debt avalanche).
In most cases, I recommend paying down your debt with the highest interest rate first to save the most money.
- Credit cards: Credit card debt usually carries the highest interest rates. In some cases, paying off high-interest credit card debt with a personal loan can be a smart move. You get a fixed interest rate and predictability with your payments and timeline.
- Student loans: If you’ve already taken out student loans and the interest rate is above 5%, consider student loan refinancing and other ways to reduce student loan debt.
- Mortgages: It often makes sense to keep your mortgage and put your extra money into investments. For five years, I had a 2.3% mortgage rate. I could’ve paid off my mortgage. Instead, I used the bank’s money for my home and invested my money in the stock market. I made over $100,000 on my investments because they grew over 10% each year. (10% is a lot better than 2.3%).
4. Improve Your Credit
Your credit report and score play a massive role in your financial life. By monitoring your credit, including your credit score, you can make decisions that improve your situation, both today and in the future.
To keep your credit score in good standing, be sure to pay your bills on time. Don’t max out your available credit, and work to build up a long credit history with multiple types of credit.
It’s also important to monitor your credit. While there are tons of credit monitoring apps out there, Credit Sesame helps you keep an eye on your report and score for free. You’ll receive customized recommendations and access to helpful tools that can help you get and maintain a good credit score, empowering you to make better choices every day.
5. Maximize Your Income
One way to speed up your journey to financial freedom is to maximize your income. Here are a few strategies for increasing your earnings.
- Ask for a raise: Most people are underpaid but they’re afraid of getting fired or don’t know how to get a raise. Employers may have had the upper hand in the past, but this power dynamic has shifted, and in many industries, employees now have the leverage.
- Contact recruiters: Build relationships with at least two recruiters in your industry. Recruiters live close to the market, so they know what you should be getting paid and can recommend skills to learn or recommend a higher-paying job.
- Build passive income: With the right passive income ideas and some determination, you can succeed. Focus on ideas where you broker other people’s time instead of trading your own. Instead of walking dogs for a company that limits your hours and rates, start your own, get clients, then hire dog walkers. You can set your rates and you aren’t limited by the hours you have in a day.
- Get free money: If you make purchases online, creating an account with a rebates site is a must. Start with one of our best cashback apps. They’re reputable and incredibly easy to use. If you use a credit card, one of the best money management tips around is to make sure it provides rewards. Just don’t use the rewards points as an excuse for unnecessary spending.
6. Start a Side Hustle
Diversifying your income can be just as important as diversifying your investment portfolio. By starting a side hustle, you can bring cash in and give yourself additional financial security.
A side hustle is anything you do to make money outside of your full-time job. You’re most likely to have success if you start a side hustle you enjoy doing where you set your own fees and hours.
While it’s not bad to drive for Lyft or Uber, there are real limitations with these types of side hustles. Any side hustle where you manage your own time and decide what you can charge has the potential to make you more money.
Some of the Best Side Hustles:
- Blogging: Read my guide on how to start a blog with Bluehost and get my FREE 7-day blogging side hustle email course, where I share the step-by-step blueprint thousands of people have used to start a blog that makes money)
- Online surveys: While you can’t necessarily earn a living by doing online surveys, you can earn some quick cash by sharing your opinion. If you want to make a little extra cash, check out the best survey sites.
- Becoming a virtual assistant: Sound interesting? Find out how to become a virtual assistant.
- Starting a YouTube channel: If you think you’re worth watching, here’s how much Youtubers make.
To learn more about side hustling, check out Chapter 10, More Money in Less Time: How to Launch A Profitable Side Hustle in my book Financial Freedom: A Proven Path to All The Money You Will Ever Need.
In the chapter I lay out a very detailed step-by-step strategy for picking, launching, and growing a side hustle.
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Here are some pointers to help you invest, from what apps to use to retirement planning.
- Get started: If you haven’t started investing yet, the most important step is to simply start today using one of the best investing apps.
- Increase your contributions: One easy way is to increase your investment contribution amount 1% every 30 days by talking with your human resources department or 401(k) provider. If you prefer dollars over percentages, invest an extra $50, $100, or $1,000 more each month. Every dollar adds up.
- Get educated: If you need a crash course on investing, check out my posts on how to start investing and investing strategies to get started.
- Save for retirement: You need to prioritize retirement savings. Social Security only goes so far, and pensions are on the decline. So it’s crucial to invest in your financial future by saving for retirement. You can contribute funds to a tax-advantaged retirement account, like a 401(k) or an IRA to set your future self up for financial success.
- Branch out: Want to diversify your portfolio? Try real estate investing. Today, anyone can get into real estate investing with real estate crowdfunding. If you’re looking for a portal and don’t have a lot of funds to get started, consider Fundrise. Fundrise provides access to eREITs and eFunds, a form of real estate portfolio with a level of diversification.
8. Get Insurance in Order
Some insurance products are more essential than others. If anyone depends on you financially, you have shared debts, or you don’t have money saved for a funeral, you need life insurance. There are multiple types of life insurance, and term life is a solid affordable option for millennials that can give you peace of mind at a low cost.
Another key insurance product people don’t reevaluate regularly is car insurance. If you recently paid off a car, you might not need full coverage anymore, presenting an opportunity to save, even if you don’t change carriers.
When it comes to life, car, or any other type of insurance, doing a little comparison shopping is always wise. You can get quotes from competitors for absolutely nothing and might discover an option that costs less than what your current provider charges.
9. Stay Consistent
Once you learn how to manage your money, it’s important to take steps to stay in control of your finances. Here are a few pointers to help you stay on track.
- Track your money: it’s important to set up an easy way to track your money. What’s most important is tracking how much you’re spending, saving, and investing, along with the performance of your investments and your net worth. Although I use many of the best money apps, the free one I use daily is Personal Capital. I’ve also used Mint, and you can check out the features of both in my Personal Capital vs Mint comparison. For a step-by-step blueprint, check out my Personal Capital review.
- Reduce major expenses: For nearly every family, housing is the biggest monthly expense. By reducing your housing costs, you can make significant headway in mastering your finances. Whether you choose to move to a more affordable home or rent out a room with Airbnb, making your housing more affordable can make a big difference in your life.
- Avoid impulse purchases: Impulse purchases can quickly destroy a monthly budget. If you spot something you want that isn’t on your list, wait at least 24 hours to assess whether you’re just enticed or it’s something you actually need. For big purchases, you may want to instill a 7- or 30-day waiting period, just to be safe. Getting your spending habits in check can be a game-changer.
- Make your checking/savings work for you: When you combine a high-yield savings account and a high-interest checking account, all of your money is always working for you instead of just sitting there. If you’re looking for great high-interest checking and savings accounts, check out Discover Bank. They offer free options that can help you make the most of your money. Read our Discover Bank review.
- Optimize your taxes: The average American pays over 20% of their income to taxes, so finding ways to save money on your taxes can really add up over time. You don’t have to become an expert on tax laws, but it’s worth taking the time to understand your own taxes each year, even if you’re using a service like H&R Block, TaxAct, or an accountant.
- Negotiate your bills: Not all costs are set in stone. If you want to lower your monthly expenses, Rocket Money (formerly Truebill) can handle the negotiations for you. Plus, you only pay for the service if they secure you a discount, with the fee being set at 40 percent of what you save, so you always come out ahead.
Rocket Money (formerly Truebill)
Rocket Money makes it easy for you to manage subscriptions, lower your bills, optimize your spending and get a grasp on your financial life.
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