Your finances play a critical role in your life. If you have enough money to live, you can pay your rent, mortgage, and bills on time, go on vacation, save for retirement, and take care of your family members and kids.
However, personal money management isn’t always easy. The current cost of living is high, and wages aren’t keeping up. Younger generations are already in debt because of student loans, and paying rent and buying a home can be a challenge.
Thankfully, there is always a way you can take control, no matter what kind of financial situation you’re facing.
Here are 10 personal money management tips to get you started.
1. Determine Your Exact Income
One of the most important steps to financial freedom is figuring out exactly how much money you make. This can be tough if you’re self-employed or a freelancer, so you’ll have to carefully track approximately how much you make each month. If you have a full-time job, you’ll usually always have a fixed income.
Remember that when you’re doing personal money management, and you are looking at your self-employment or freelance income, you’ll need to deduct taxes and social security. Otherwise, you’re overestimating exactly how much you make. A full-time job will do that for you, so don’t worry about that if you have a regular 9-5 position.
Also, keep in mind that income isn’t just what you make from a job. You’ll need to calculate in your earnings from investments, properties, and gifts from loved ones.
Determining your income is helpful because you’ll be able to see whether or not you’re making enough money to keep up with your living expenses. If you’re falling short, consider taking on a second job, or going from freelance to full-time. If you don’t have much time, you can do work-from-home side gigs like driving for a ride-sharing company, renting out a room in your home, writing for publications, taking company surveys, or working as a customer service representative.
2. Create a Budget
Next up on the personal money management list is to create a budget. This will allow you to see where your money is going every month and how you can cut back if needed.
To set up your budget, first, write down your monthly income that you determined previously. Then, look through old bank statements and receipts to see where your money is going. To be on the safe side, estimate slightly more than you’re actually spending, so if you go over some months, you’re still within budget. List your expenses into different categories like Mortgage, Rent, Gas, Utility Bills, Credit Card Debt, Student Loans, Entertainment, etc.
Then, actually track your spending. You can do this manually through a spreadsheet, but it’s probably easier to use a budgeting app like Mint or You Need a Budget instead. They will automatically import your credit and debit card information and help to ensure you’re staying on course. This makes personal money management a cinch.
3. Use Your Credit Card Sparingly
Next, when you’re dealing with personal money management, you need to take credit cards into consideration. Of course, you want to build credit so that you can get loans, but you also don’t want to risk going into debt. Don’t get credit cards with too high of a limit, otherwise, you may be tempted to max them out. Use them only for emergency situations, or for purchases that you can easily pay off at the end of each month. Track your credit score, and make sure you are staying within the 700 to 800+ range, which is considered to be good or excellent.
4. Download Personal Money Management Apps
Along with Mint and You Need a Budget, there are a number of other personal money management apps available. They include Personal Capital, which provides financial software and wealth management, Wally, which tracks your expenses and helps you set personal finance goals, and Good Budget, which uses electronic “envelopes” that act like old-fashioned cash and make you choose how to spend your money.
5. Build a Retirement Fund
A key part of personal money management is a retirement fund. First, you should open up a retirement account like a traditional 401(K), a traditional IRA or a Roth IRA. Each one has different tax benefits, and if you have an employer-matching 401(K), you can take advantage of that. As soon as you enter the working world, you need to start saving for retirement.
Ideally, you should be contributing at least 10 to 15 percent of your yearly income towards your retirement. However, you may want to contribute more depending upon how much you can live off of when you’re older. If you want a more lavish lifestyle in retirement, you need to figure out ways to contributing additional amounts. Your retirement fund can’t just sit there, either. You need to invest it in a stable and trusted mutual fund that will gain interest and not be too risky. It’s just a good personal money management practice.
6. Pay Your Bills on Time
One of the best ways to keep up with personal money management is to make sure you’re always paying your bills on time. If you don’t pay bills on time, you may go into collections, and that has a negative impact on your credit score. A bad credit score can hurt your chances of getting loans and moving forward financially in the future. Also, if you don’t pay on time, you’ll get hit with late fees, which can quickly add up at $25 or $35 a pop. Make sure you set reminders on your phone and subscribe to email alerts when bills are due. You can also set up automatic bill payment, which will deduct the money owed from your bank account, so you don’t even have to think about when it’s due.
7. Use an Effective Debt Payoff Method
When it comes to debt and personal money management, there are various opinions on how to effectively pay off debt. Many of them are valid, and what will work will depend on your personality. Psychologically, the debt snowball method, where you pay off your smallest debts first and pay the minimums on your bigger debts, may encourage you to keep going. However, critics of this plan say that it’s better to pay off your biggest debts first if they are gaining interest. So you may want to start with the biggest debt that’s tacking on a lot of extra interest every month instead. You can also transfer your credit card debt with high interest to a 0 percent interest card. Keep in mind that many of these cards only have 12- or 18-month periods, and at the end, you’ll start getting hit with interest again. Also, there is a transfer balance fee, so you aren’t getting off scot-free.
8. Read Books from Financial Experts
Along with reading trusted financial sources online, read books from personal money management experts. The king of personal finance advice is Dave Ramsey, whose books include “The Total Money Makeover” and “Financial Peace.” There’s also Robert Kiyosaki, who wrote “Rich Dad Poor Dad,” and Suze Orman, whose books include “The 9 Steps to Financial Freedom” and “The Road to Wealth.” Check out bestseller lists and reviews on personal money management books to find the right ones for you.
9. Start Investing Your Money
There are a number of ways to start investing. You can go through a stockbroker, a Direct Stock Purchase Plan, or a stock’s dividend reinvestment program. Aside from investing in the stock market, you can also invest in an exchange-traded fund (EFT), a mutual fund, and real estate. Just remember: Don’t put all your money into an investment. Only put in what you can afford to lose. Do your research through reliable financial sources like The Wall Street Journal and MarketWatch, and don’t follow any get-rich-quick schemes. Usually, it takes years for investments to pay off, but when they do, you can be set for the rest of your life.
10. Reward Yourself for Successes
Personal money management doesn’t have to be boring or a punishment. When you put a nice lump sum of money into your retirement fund, cut back on spending, get a new lucrative job, or reach another financial milestone, reward yourself. Take yourself out to a nice dinner, go for a massage, take a fun day trip, or buy yourself that new gadget you’ve been eyeing. But don’t do this too often, or you’ll be right back to where you started. Getting into great financial shape is not easy. If you do well, you deserve to treat yourself.
Getting Started with Personal Money Management Today
It’s never too late to become financially healthy. All it takes is some research and dedication to changing your relationship with money. Anyone can do it. Get your finances on track today, and you’ll be set up for the rest of your life. Money Map Report will have an answer for your future financial success.