You know your finances could use some serious TLC, but you’ve been putting it off… and off… and off.
When you finally do sit down to think about it, you immediately become overwhelmed. When it comes to money management, finding a place to start can be difficult. Which goal do you attack first?
Before we get into it, keep in mind that reaching your financial goals is a journey. To tackle big goals, you have to start small.
What Does Good Money Management Look Like?
For starters, good money management isn’t one size fits all. Your personal finance management should look however it needs to. Just make sure you’re reaching your goals and effectively addressing the financial challenges in your life.
What do you need to account for to achieve long-term financial success? Here are the basics:
- A budget that accommodates your lifestyle.
- A debt-repayment strategy.
- Savings goals that include growing your emergency fund and planning for retirement.
12 Tips to Develop Good Money Management Habits
Ready to improve your financial situation? Here are some of the best tips you need to get your finances under control and work toward a healthier financial future.
Create a Budget That Accommodates Your Lifestyle
Dreaming of financial freedom? Having a budget is the first step to get there.
1. Find an Easy Way to Manage Your Money
What are your financial goals?
Maybe you want to beef up payments toward your student loan debt, or you’re trying to improve your financial situation by tracking your spending. Whatever the reason, you’re on the right track. Budgeting is an integral part of managing your personal finances.
Consider one of these methods:
- The Envelope System: This cash-based budgeting system works well for overspenders. It helps you cut excess spending on debit and credit cards, because this method calls for withdrawing cash and placing it into pre-labeled envelopes for your variable expenses (like groceries and clothing).
- The 50/20/30 Method: If you can pay all your bills with 50% of your income, try this method. You apply 50% of your income to living expenses, 20% toward savings and debt reduction, and 30% to personal spending (e.g. vacations, dining out, personal shopping). This allows you to have fun and save at the same time. For those who spend a majority of their income on living expenses, try the similarly organized 60/20/20 budget instead.
- The Zero-Based Budget: This strict system is great for accounting for all of your income. You budget for your expenses and bills, and assign any extra money to goals. It’s also good for people trying to pay off debt as fast as possible, and beneficial for those living paycheck to paycheck.
2. Boost Your Income Passively
How many streams of income do you have? Don’t fret if it solely comes from your job. When you and your money are ready, consider what we like to call lazy investing.
Here’s an option: If you’ve ever wanted to try real-estate investing without playing landlord, a company called Fundrise will do all the heavy lifting for you.
Through the Fundrise Starter Portfolio, your money will be split into two portfolios that support private real estate around the United States.
This isn’t an obscure investment. You can see exactly which properties are included in your portfolios — like a set of townhomes in Snoqualmie, Washington, or an apartment building in Charlotte, North Carolina.
In addition to four rental properties, Christopher and Meghan Miller have invested in a diversified portfolio of real estate projects across the country — from Washington, D.C. to Los Angeles — through Fundrise’s automated investment experience.
“I don’t have to manage them; I don’t have to do the work to improve the properties; I don’t have to find tenants, evict tenants,” Christopher says.
They follow the progress of each project they’ve invested money into through Fundrise, and Christopher receives automatic payments directly into his checking account.
But remember: Investments come with risk. While Fundrise has paid distributions every quarter since at least Q2 2016, dividend and principal payments are never guaranteed.
You’ll pay a 0.85% annual asset management fee and a 0.15% annual investment advisory fee.
3. Track Your Bills to Avoid Overpaying for Basic Necessities
Now that you have a budget, use it to see how much money you’re spending, and what you’re spending it on — even fixed expenses, like your car insurance.
Are you paying more than you need to?
If you haven’t shopped around lately, or compared rates from the 20 largest auto insurers that do business in your area, we don’t blame you — it’s difficult and time-consuming.
Fortunately, a service called Gabi will do it for you, and you don’t even have to fill out any forms. Simply link your insurance account and provide your driver’s license number, and Gabi will go to work.
Once you link your insurance account to Gabi, it will:
- Scan your existing insurance plan.
- Analyze what coverage you have.
- Compare the major insurers’ rates for that same coverage.
- Help you switch on the spot if it finds you a better rate.
Gabi says it finds an average savings of $720 per year for its customers.
It is a true apples-to-apples comparison at the same coverage levels and deductibles you currently have. Once you sign up, you never have to shop again. Gabi's software has your policy on file and keeps on monitoring for savings as your life changes.
4. Put Your Purchases in Perspective
In 2017, we wrote about Melissa Palmer, a stay-at-home mom who lives off $36,000 a year with her husband Cole and four kids.
She shared a number of smart budgeting tricks, but here’s one that stuck with us:
“One summer, when we lived in Tucson, Cole worked for $10 an hour splitting firewood… outside in the 110-degree summer heat. It was absolutely dreadful work for him. When I would pass a Starbucks and want to stop and get a latte, I'd think, ‘That's half an hour of Cole splitting firewood outside.’”
To get your spending in check, look at your purchases through a different lens. Small purchases add up quickly, and that money might be better spent on necessities.
Develop a Debt-Repayment Strategy
The real ball and chain in your life is debt. Develop a repayment strategy to free yourself from the grasp of sky-high interest rates (and debt stress).
5. Boost Your Credit Score to Reduce Interest on Your Loans
A really easy way to work on your credit score is to get a free “credit report card” from Credit Sesame.
Credit Sesame is like your favorite teacher from high school — without the pop quizzes.
It gives you a free credit score, plus lays out your credit history so you can see exactly how much money you owe and to whom. It even tells you your monthly payments and interest rates, as well as which debts (if any) are in collections.
James Cooper, a motivational speaker, raised his credit score 277 points using Credit Sesame. Now he talks to high school students about the importance of having good credit and uses what he’s learned through Credit Sesame as a blueprint for his lessons.
“We want to touch the Z Generation,” Cooper says “We’re not in the business of fixing credit. We want to get to you before you have to fix your credit.”
Like Cooper, 60% of Credit Sesame members see an increase in their credit score; 50% see at least a 10-point increase, and 20% see at least a 50-point increase after 180 days.*
6. Let This Company Help You Pay off Debt Faster
Do you know how much debt you have? What about the interest you’re paying on top of it?
A lot of us are being crushed by credit card interest rates north of 20%. If you’re in that boat, consolidation and refinancing might be worth a look.
A good resource is Fiona, a search engine for financial services, which can help match you with the right personal loan to meet your needs.
Fiona will show you all the lenders willing to help you pay off your credit card debt and eliminate the headache of paying bills by allowing you to make one payment each month.
If your credit score is at least 620, you can borrow up to $100,000 (no collateral needed) and compare interest rates, which start at 3.84%. Checking rates won’t hurt your credit score. The idea is to secure a loan at a lower interest rate, potentially helping you save thousands.
Take, for example, Katherine, who faced $12,000 in credit-card debt. Holding her back? The 15.24% interest rate. By refinancing with a 5%-interest, seven-year personal loan, she saved $12,000 in interest.
If she’d kept on the same road, she would have paid something like $14,000 in interest alone over 25 years. Yikes.
7. Freeze Your Credit Cards
Managing credit cards is tough. Even though you know better, it’s easy to see this extra cash flow as an opportunity to spend more than you need to.
To help you save money, try freezing your credit cards. Literally — in the freezer they’ll go.
If you tend to make impulsive credit card purchases, stick your card in a Ziploc bag, submerge it in a canister of water and slide it into the freezer.
When you’re tempted to spend, you’ll have to wait for the card to thaw, requiring you to think through your spending decision.
8. Get Serious About Paying off Your Student Loans
If you recently graduated or will soon be graduating from college, you probably have student loans looming ominously on the horizon.
The best thing you could possibly do for yourself? Learn everything you can about paying them off, and make a plan to stay on top of them when repayment time hits you like a ton of bricks.
Set your student loan repayment journey up for success: Know what you owe, understand what “deferment” means, figure out how to lower your interest rate and learn how to make a little extra money so you can pay down your loans more quickly.
And when you hit that point we all hit — that “will this be the rest of my life?!” point — let yourself be inspired by Jeremy Jacobs, an engineer who paid off his $35,000 student loan balance in five years.
Set Smart Savings Goals
Good money management is all about using your money in smart ways. One of the smartest things you can do yourself and your future is learn to put some of it away.
9. Build an Emergency Fund
Tires give out, pipes burst, paychecks come and go, kids get sick… you get the point. If you don’t already have a savings account for emergencies only, we recommend one. It’s a simple way to save money so you have some when you need it the most.
One of our favorite ways to save is with Aspiration. It offers online-only accounts with no fees*, no minimum balance and no minimum monthly deposit for its spending account. Plus, its savings account offers 2.00% APY!
The spending account comes with a debit card that earns 0.5% cash back on all your purchases, plus free ATMs, so you can easily access your money when you need it.
You can transfer between accounts easily and make payments as needed with an Aspiration debit card, via Apple Pay or through Venmo. With no monthly fee and a minimum deposit of just $1 per month, this is an attractive option for an emergency fund.
Not sure how to start an emergency fund? Here are a few ways to build it:
- Set a savings goal. Whether it’s weekly or monthly, having a goal will help you stay focused, and you’ll get in the habit of squirreling money away.
- Got a large bonus at work? Or maybe you received a tax refund. When you have extra money, prioritize stashing the extra cash to give your emergency fund a boost.
- Start a side hustle! Save the extra money you make from your side gig to grow your savings faster.
- Use your budget to identify areas where you can make some cuts. Take the extra money and… yup! Emergency fund.
10. Get the Most out of Your 401(k)
If you haven’t already, enroll in your company’s 401(k) plan ASAP, so you can start growing your retirement account. And yes, it fits in your budget!
As much as you want to be prepared for present-day responsibilities, the last thing you want is to leave old(er), future-you with bills, bills, bills and more bills.
If your employer sponsors a 401(k) plan, you should have access to people who can answer questions in your best interest — a.k.a. HR.
And you’re going to have questions, because, well… 401(k)s are tricky. To get the most out of your plan, here are some important questions to ask to ensure you’re putting your retirement savings in the best possible hands:
- Does your employer match?
- Where is your money invested?
- Can you rollover from your existing 401(k)?
- What fees are you paying?
- What can you do if your plan sucks?
11. Save a Percentage of Your Salary
The rule of thumb for saving is that “at least 20% of your income should go towards savings,” personal finance journalist Paula Pant wrote for The Teachers Insurance and Annuity Association. “More is fine; less is not advised.”
If we’re being real, the experts doling out this advice don’t know your salary, how much your bills are or what circumstances prevent you from saving chunks of money each time you get paid. However, it’s still helpful to keep this information in your back pocket.
Pant broke this question down by savings goals:
- Retirement: Aim for saving 10% to15%. If your company matches your contribution, even better — you’re only on the hook for half.
- Emergency fund: No percentage here, but ideally, your fund should be able to cover three to nine months of your living expenses. To set a goal, calculate your monthly spend, then decide how much you’d need to cover your fixed bills for a few months.
- Wish list: Need a new car? Pant says to jot down the target and deadline, then divide that by the number of months you have left to save, and the result is how much you should put away each month.
Be patient with yourself as you prioritize goals and figure out a system that works for you. Need to extend some timelines? Do it. Gotta pause a goal or two to focus on another one? Do what you have to, and be kind to yourself as you do it.
You may not be able to save 20% right off the bat, so try starting with 5% or 10% to get your cash flowing.
12. Give Your Money the Cold Shoulder
One way to recalibrate your spending habits is to participate in a spending freeze. Here’s how:
Pick a month — or year, even. —
Former Penny Hoarder Jamie Cattanach chose November in hopes of taming her holiday spending.
Don’t spend money on nonessentials during the freeze.
Definitely still pay rent and utilities — all those responsible grown-up bills — but don’t spend anything on entertainment, clothing or dining out.
Sure, it’ll be difficult. You’ll face temptations. But Cattanach finished the challenge and saved at least $600 in one month.
- Pick a month — or year, even. —
Credit Sesame does not guarantee any of these results, and some may even see a decrease in their credit score. Any score improvement is the result of many factors, including paying bills on time, keeping credit balances low, avoiding unnecessary inquiries, appropriate financial planning and developing better credit habits.
Farrah Daniel is an editorial assistant at The Penny Hoarder. Catch up with her latest stories here.