8 Tips For Money Management To Achieve Financial Prosperity

Spread the love

For meeting your financial goals it is important to know the basic tips for money management. 

You need to deal with monthly household expenses, personal spendings, and investment needs for the future. And all of this involves money. You need to pay for non discretionary expenses while staying in a balanced financial position.

If you can manage your money properly then you can easily overcome financial problems. And also achieving future financial goals will be easy.

Better money management is also important to throw off debt and other non essential expenses. 

In this post I’m going to reveal 8 different tips for money management that will help you to effectively manage your personal finances. 

Whether you’re a teenager, college student, or a couple who want to satisfy their household expenses. These tips are applicable to all of you. 

So let’s dive right in.

What is money management?

It is referred to as the process of administering money by an individual or a business. This is done through earning, budgeting, saving, spending, and investing. 

Money management is a broader term. It is not just limited to individual households, students, and retirees. But it is also done on a wide range by financial market participants, investors, small businesses, and larger corporations.

It is used as a tool in two major ways: 

  1. Business money management
  2. Individual money management

For achieving and improving better financial health, effective money management is crucial.

It involves different important factors or what say components like managing debt, estate planning, banking and saving, calculating tax, retirement planning, investing and budgeting. Doing all of these in a proper way not only helps you achieve your financial goals but also develop better financial habits.

Let’s jump on to how money management can benefit you.

Why is money management important? 

Several benefits make money management un avoidable but also beneficial for you to achieve your future dreams. Here are some of them.

  • You get a better understanding of how much you need to earn to meet your monthly financial needs.
  • Helps you keep track of your income and spending’s to have a clear overview of where your money is going.
  • You can easily avoid unnecessary or unessential items that are wasting your money so you can use that for important needs.
  • Improves your financial position and helps you easily achieve the required financial goals. Whether having enough emergency fund saving, buying a car, or buying a house.
  • You become financially smarter using new technology like online applications and softwares for money management. They range from budgeting to forecasting to auto saving systems.
  • As a student you can pay back your loans easily by learning and increasing your knowledge about money workflow.. 
  • Helps you boost your credit score which makes you favorite among financial institutions.
  • You can avoid debt and credit cards to avoid paying extra interest and fees to save more.

So these are some of the benefits of learning the tips for money management. 

Now let’s jump on to different ways you can effectively manage your money.

8 Tips for money management

Money management is easy. You simply need to follow some simple tips and tricks. It doesn’t matter whether you want to manage your personal and household finances or college expenses. These tips apply to all of the circumstances.

So let’s dive into 8 simple tips for money management.

1. Know your income and spending

For becoming smart at where your income is coming and where it is going you need to know how much you’re earning and items it is being spent on.

Data shows that 65% of Americans don’t even know how much they spent last month.

Percentage of American's who don't know their last month spending's

What do you need to do?

Make a list of all the income sources which give you money. And list down all the expenses on which you spend your income.

Usually most people earn from their job and spend their earnings on multiple expenses. 

But how to track expenses?

There are multiple ways to track these expenses: 

  • Analyze your monthly account statements
  • List down all the food expenses like grocery, meat, and fruit etc.
  • Utility bills including gas, water, garbage, and electricity
  • Insurance and retirement investment expense
  • Interest on mortgage and credit card payments
  • Personal shopping and impulse purchases

Usually your expenses fall in two main categories: 

First ones are called essentials or non discretionary expenses or spendings. Which includes your utility bills, food, and insurance, etc.

Second ones are called non essentials or discretionary expenses. Which we otherwise don’t have much need for. They include eating outside frequently, branded purchasing, and car wash, etc.

By tracking and categorizing the income and spending you can avoid these non essentials. And save more for other important aspects like emergency funds. 

According to statistics the Americans spend more than $18,000 each year on non essential items. 

Percentage of American's income spends on non essential items

Imagine if you just save $10,000 going into non essentials and invest that for retirement or emergency saving at 6% annual rate for 25 years. Then you’ll have more than $548,000 in savings after 25 years. A big sum of money.

For more information on expense tracking visit this article from Nerdwallet.

2. Have a monthly budget

Budgeting sample excel sheet image

Budgeting is simply an estimation of income and spending’s for a specific time period in future. 

There are several reasons why you should consider making a budget for your personal finances. 

  • You can easily keep track of your income and expenses
  • Helps you stay inside the circle and avoid overspending
  • Gives you opportunity to save for emergency and avoid nonessentials
  • You can flexibly adjust it by changing different expense
  • Financial goals can easily be met with proper eye on spending’s

Here is the chart showing the budgeting behavior of USA people by age group.

Americans budgeting behavior

And they’re not hard to create. You need to follow some simple steps.

  • Here is how to create a simple personal budget: 
  • Gather documents of your income and expenses
  • List down all the incomes and sum them up
  • List down all the expenses and add
  • Subtract all the expenses from income to get net income
  • Analyze the results and take the action steps
  • Rinse and repeat the whole process for next time

For more information check out my guide on how to create a personal finance budget

3. Pay using cash for frequent purchases

We all face frequent purchases throughout the month including purchases at a superstore, shopping mall, and restaurants.  

Swiping your credit card for these kinds of purchases isn’t a good choice. Why? Because you only increase your interest and debt payments on credit cards.

What is the solution? 

Hold some cash in your wallet and pay with it for these kinds of smaller purchases. This way you only pay what the original cost is.

4. Pay off debt fast

Among all the financial prediatiors debt is the number one. Why? Because you not only pay the principal amount but also the interest and other charges on it.

On average Americans have $6,270 in credit cad debt and $92,727 (including all other types of debt).

The types of debt according to the Federal Reserve Bank of New York’s Household Debt and Credit Card Report are following for first quarter of 2021.

Average american debt distribution by type of debt.

So if you’ve a debt burden whether in the form of credit card debt or student loan or mortgage for buying a house. Just try to pay it as soon as possible. It will help you less stress about money and save more for emergencies and retirement.

It also helps you improve your credit score and spend on essentials. You can build assets when you save more money instead of paying it to lenders.

But how do you pay debt early? 

There are several strategies to pay off debt fast. Some common ones include: 

  • Reduce your current spending’s and waste money on non essentials
  • Use debt consolidation 
  • Pay off debt with higher interest rate first
  • Increase your income with part time work or side hustle business

If you want more information on how to pay off debt faster than here are the 7 tips from NerdWallet

Related post: How to Avoid Debt to Make Yourself Financially Strong

5. Pay bills on time

Whether it is a credit card bill or utility bill or mortgage debt payment, pay it as soon as possible. 

Not meeting the deadline will not only increase your tention but also add extra fees and penalties. 

It is also possible that you shouldn’t have money left after a due date and you spend that on any other expense. And it can result in disbalance in an ongoing money management activities sequence.

Along with that, on time payment builds your credit history and makes you more trustworthy.

6. Start investing your money

investing graph

Investing at the right time is not only beneficial for retirement but also helps you earn huge and beat inflation. It is the most important of all the tips for money management.

If you’re doing a job in any government position or with a private employer then lots of investment opportunities can give you benefit. You can invest in plans like 401k matching if your employer contributes the matching amount to what you invest. 

In case your employer doesn’t give such benefits then going for IRA and Roth IRA  is a right option for long term retirement investment. 

Why do you consider these plans? Because there are lots of benefits related to them. And one of the major advantages is tax deferred or tax free growth or withdrawals. 

There are other investment options also available like mutual funds, insurances, and rental properties. But remember investing is the key to a better financial future. It is like a tree you plant today and start getting the juicy fruits after a couple of years.

But keep in mind that whatever investment opportunity you avail first read out their policy and guidelines. And get enough knowledge about that so you can avoid the maximum risk exposure.

7. Cancel out unnecessary subscription

Automatic renewal subscriptions to online or offline memberships is a waste of money. 

Why? Because whether you use them or not they automatically cut out money from your bank account or credit card. This will not only incur your interest and fees but you don’t get any advantage. 

So don’t ignore them for just being a $5 or $10 subscription. This becomes a lot of money if you multiply that with a 6 or 12 months longer period of time.

What to do? 

If you currently use them on regular bases then close the option of auto renewal. And those which you no longer are going to use cancel them out. 

8. Hold an emergency saving

Emergency funds or savings are important for meeting unexpected or emergency needs. But unfortunately most of the people can’t meet this criteria and have limited to no savings.

According to a survey of 1000 adults just 23% of Americans have enough money in savings so they can meet the needs for six months of their expenses. While 26 percent have nothing at all.

Americans emergency saving statistics

According to ABC News 40% of the Americans didn’t have $400 in savings to pay for an emergency.

Why should you save for an emergency? Several reasons support this.

You can face a loss of job so until you get a next job you must have something in your savings to cover the expenses. So you can cover them with your emergency savings. It also prevents you from using a credit card which builds just more and more debt and interest on you. You can also cure the situations like illness, accident or any sudden payments with emergency funds.

After getting the know how of these tips for money management, let’s discuss some common questions.

Related post: 18 Simple Ways on How to Save Money Even If You Find It Impossible

Frequently asked questions

In this section I’ll answer some most commonly asked question regarding the money management.

How can I improve my money management skills?

You can improve your money management skills by reading fundamental rules about money. For example accounting basics which include what is asset, expense, liability, and their differences. Along with that by practicing that knowledge and applying it to real situations. You should also know factors like budgeting, spending, investing, and saving.

What are some common money management mistakes?

The most common money management mistakes people do includes: 

  • Not having a proper budget 
  • Building huge debts with credit cards
  • Underrating the importance of emergency fund
  • Not investing in profitable opportunity
  • Having no track record of spending’s
  • Doing no retirement planning

These mistakes usually lead to financial stress and problems which don’t solve for an entire life. Therefore by avoiding all these mistakes you should become financially smart.

What is the best free money management app?

Money management apps fall in different categories like budgeting apps, android apps, desktop apps, expense tracker etc. Otherwise Mint is the free software for budgeting available in both android and iOS apps. 

For more information you can visit this article: 12 Money management apps for growing your wealth.

What is the 30 day rule?

This rule is tempting to stop yourself from impulse purchases or instant gratification. In this rule what you do is make a list of all the items you want to purchase that are not your compulsory or need. After that, put the list aside for 30 days. 

After 30 days  review your list to see whether you still need those items still or not. Usually you don’t have that importance for the items which were 30 days before. And it also helps you to get enough time to search for the best deal on an expensive item. 

This way by stopping yourself for 30 days you can save money and stop yourself from buying non essentials or get a discount. 

In simple words this rule is a 30 days challenge.

What makes a good money manager?

Multiple skills and knowledge about different money aspects and factors make you a good money manager. And if you want to become not a good one but excellent in money management then you should include these qualities. 

  • Have a deep knowledge of basic accounting and finance principles
  • Should know investing with experience
  • Have ability to handle risk and generate good returns on investment
  • Who manage money with proper planning and financial goals
  • Continuously learn the new financial rules and investing techniques

In short a good manager continuously learns and practically implements that knowledge to gain experience. He indulges himself in solving different financial problems to become an expert.

Conclusion

Money management is not difficult. What you need to do is just follow some basic guidelines and tips in every day personal money affairs.

But the results will amaze you. Because it is the key to achieving personal financial success.

In this post you’ve learned 8 different tips for money management. Let’s take a look at the summary.

  • Know your income and spending’s
  • Have a monthly budget
  • Pay using cash for frequent purchases
  • Return your debt fast
  • Pay bills on time
  • Start investing your money
  • Cancel out unnecessary subscriptions
  • Hold an emergency fund

If you implement these 8 tips for money management I’m sure you will easily solve lots of your personal finance problems. And they also make your financially smart.

Tell me in your comments which tips you like the most?

Other popular post:

What Is Financial Planning? How to Do It In 12 Easy Steps?

13 Easy Tips on How to Improve Credit Score Fast

What Is a Debt Settlement? A Simple Technique to Negotiate

15 Personal Finance Topics You Should Master In 2022

Ahmad Ali