Money Management: 4 Tips for Mastering Your Finances - NerdWallet (2024)

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What is money management, exactly? It’s a plan for your money so you can make the most of it. This plan typically involves budgeting and saving money, avoiding or reducing debt and investing in your future.

If learning how to manage your money sounds intimidating or stressful, take it one step at a time. Below are money management tips to help you gain control and, more importantly, peace of mind.

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How to manage your money

1. Take inventory of your finances2. Build a money management blueprint3. Make the most of your savings4. Be persistent

1. Take inventory of your finances

Money management is about more than making the math work out. It’s about adjusting your mindset, too.

Take a mental inventory of your current position.

  • Are you consistently overspending?

  • Do you have enough saved up to survive an unexpected expense?

  • Do you live paycheck to paycheck?

  • Do you feel overwhelmed by financial jargon?

Be honest with yourself about where your weaknesses lie. You might’ve made some missteps in the past, but you don’t have to continue on that path. Here’s how to manage your money now, while preparing for the future.

» MORE: How to make money working from home

2. Build a money management blueprint

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How do you put your plan in action?

Use the steps below to build a blueprint that works for your finances.

Start with a budget

If you’re not sure how to budget, start by choosing a system that you’ll stick with. We like the 50/30/20 budget plan, which allocates 50% of your income for needs, 30% for wants and 20% for savings and debt repayment. This 50/30/20 budget calculator divides your income into these categories.

If the 50/30/20 rules don’t work for you, there are plenty of other types of budgets to choose from. You may also find that a free budget app helps you stay on top of your finances.

Track your spending

By tracking expenses, you can see exactly where your money is going. It may inspire you to stop spending so much in a certain category or adjust your spending habits so they better align with your goals.

Find ways to save

As you pay more attention to your finances, you’ll likely find opportunities to save. Here’s how to save money, from tweaking daily habits, to negotiating bills, to making long-term changes.

Ideally, over time, saving money will become part of your lifestyle. If you want to learn more about saving money with coupons, freebies and DIY hacks, check out our guide to frugal living.

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Use designated accounts for spending and savings

One way to make money management easier is to keep money designated for bills and budgeted expenses separate from your emergency fund. This will reduce the temptation to dip into it for nonemergencies. Saving for a house, vacation or new car? Stash those funds in separate accounts so you can see progress toward each goal.

Make a plan to pay off debt

A strategic approach to debt repayment will help you reach the debt-free finish line faster. We recommend tackling your most expensive debt — the accounts with the highest interest rates — first, while making minimum payments on the rest. Then, work your way down through any lower-interest rate debt until it is all paid off. Consider using windfalls, such as a tax refund or bonus at work, to make a dent in balances.

» Here are tools and tips to help you pay off debt

Develop good credit habits

Your credit can determine whether you’re able to get loans and the rates you pay on them, as well as many other aspects of your financial life. A credit check may be part of getting a cell phone plan, apartment or car insurance.

To stay on top of your score, focus on the two biggest factors that influence it: payment history and credit utilization (how much of your credit limits you’re using). Aim to pay everything on time, because just one missed payment can hurt your score, and use less than 30% of your credit limits on each card and overall.

» Learn what a good credit score is and how to get one

Invest in your financial future

Set money aside now, in a 401(k) or IRA, and let compound interest work its magic. The ultimate goal is long-term financial freedom and stability. Not sure how much you need to save? Try our retirement calculator.

3. Make the most of your savings

Money management goes beyond spending less than you make. A true sign of financial prowess is saving enough to live comfortably in the long term as well as the short term.

You can achieve this in four steps:

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Save

Start socking away extra money to build an emergency fund. Ideally, you should have six months’ worth of living expenses at your disposal in case the unthinkable happens. If that seems too ambitious, start small. A $500 reserve is a great first goal.

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Invest

Invest extra money for your future. Set yourself up for retirement by contributing to a 401(k). If your company offers a match, contribute enough to get the maximum.

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Pay off debt

Whether it’s a loan or a looming credit card bill, you probably have some debt obligations. Always make at least the minimum monthly payments so you don’t suffer credit score damage due to a late payment. If you have extra money for bills, pay down the high-interest debt first.

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Repeat

Keep building up that emergency fund, investing for retirement and knocking down debt.

4. Be persistent

Despite their good intentions, many people fall off the financial bandwagon. Sticking to a budget that’s too restrictive can be suffocating. Navigating investment jargon can be confusing. But don’t get discouraged.

You didn’t get in the financial position you’re in overnight, and you won’t get out of it overnight, either. Give yourself time to learn and grow. With hard work and dedication, you can manage your money with confidence.

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Money Management: 4 Tips for Mastering Your Finances - NerdWallet (2024)

FAQs

What are the four ways to manage your money successfully? ›

4 Ways To Manage Your Money More Effectively
  • Set Financial Goals. In the future, you may want to buy a different house, send your kids to college and retire. ...
  • Think Ahead in Your Spending Decisions. ...
  • Purchase With Cash. ...
  • Start Saving Early.

What is the 50/30/20 rule? ›

The rule is to split your after-tax income into three categories of spending: 50% on needs, 30% on wants, and 20% on savings. 1. This intuitive and straightforward rule can help you draw up a reasonable budget that you can stick to over time in order to meet your financial goals.

What are the 3 basic steps in money management? ›

3 Basic Money Management Skills
  • Keep track of your spending.
  • Start saving funds now for any future financial situations.
  • Make monthly debt payments.

What four guidelines should you use to manage your money wisely? ›

Helpful Tips for You
  • Track your spending—every dollar! Before you can manage your money wisely, you need to understand where your money goes each month. ...
  • Look for expenses to adjust, reduce or eliminate. As you evaluate your spending habits, identify room for change. ...
  • ​​​​Give your money a purpose. ...
  • Stay flexible.

What are the 4 steps of money? ›

4 Steps to Financial Success
  • Step 1: Know Your Numbers. Comparing your income to monthly payments will help you budget for savings. ...
  • Step 2: Protect What's Yours. Insurance is the best defense against the unexpected. ...
  • Step 3: Fund Your Future. How do you see your retirement? ...
  • Step 4: Build Your Wealth.

What are the 3 golden rules of money management? ›

Rule 1: Plan Your Future. Rule 2: Set Financial Goals. Rule 3: Save Your Money.

What are the four walls? ›

Personal finance expert Dave Ramsey says if you're going through a tough financial period, you should budget for the “Four Walls” first above anything else. In a series of tweets, Ramsey suggested budgeting for food, utilities, shelter and transportation — in that specific order.

What is the 40 40 20 budget rule? ›

The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.

How to budget $4000 a month? ›

How To Budget Using the 50/30/20 Rule
  1. 50% for mandatory expenses = $2,000 (0.50 X 4,000 = $2,000)
  2. 30% for wants and discretionary spending = $1,200 (0.30 X 4,000 = $1,200)
  3. 20% for savings and debt repayment = $800 (0.20 X 4,000 = $800)
Oct 26, 2023

What are the 3 S's for financial planning? ›

3 S of financial planning are Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP).

How to manage finances better? ›

5 Steps to Take Control of Your Finances
  1. Take Inventory—and Set Goals. ...
  2. Understand Compound Interest. ...
  3. Pay Off Debt and Create An Emergency Fund. ...
  4. Set Up Your 401(k) or Individual Retirement Account (IRA) ...
  5. Start Building Your Investment Profile.
Jan 9, 2024

What is the number one rule of money management? ›

Golden Rule #1: Don't Spend More Than You Make

Basic money management starts with this rule. If you spend less than you earn, your finances will always be in good shape. Understand the difference between needs and wants, live within your income, and don't incur unnecessary debt.

How to manage large sums of money? ›

Here are steps you can take if you come into a sizable sum of money.
  1. Create a plan. ...
  2. Get organized. ...
  3. Take care of financial essentials. ...
  4. Invest in your future. ...
  5. Seek advice from the pros. ...
  6. Protect your money from scammers.
Jun 20, 2024

How to stop reckless spending? ›

If you're looking to curb reckless spending habits, keep reading below for helpful tips for managing expenses and saving money.
  1. Create and Maintain a Set Budget. ...
  2. Track Your Spending. ...
  3. Set Financial Goals. ...
  4. Create an Emergency Fund. ...
  5. Avoid Impulse Purchases and Reckless Spending. ...
  6. Prioritize Needs vs.

What are the four ways we can use our money? ›

There are four decisions we can make with our money: save it, spend it, share it or invest it. Understanding these differences is important to managing our money well. Michigan State University Extension takes a closer look at what each of these terms mean and how we can help youth understand them.

How do you manage money to be successful? ›

  1. Choose Carefully.
  2. Invest In Yourself.
  3. Plan Your Spending.
  4. Save, Save More, and. Keep Saving.
  5. Put Yourself on a Budget.
  6. Learn to Invest.
  7. Credit Can Be Your Friend. or Enemy.
  8. Nothing is Ever Free.

What do you think the four ways to spend money are? ›

In Free to Choose, Milton Friedman famously noted that there are four ways to spend money[1]:
  1. Spending your own money on yourself. For example, buying groceries or lunch. ...
  2. Spending your own money on someone else. ...
  3. Spending someone else's money on yourself. ...
  4. Spending someone else's money on someone else.
Jul 28, 2022

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