No secret recipe exists for how to manage money, but there are tried-and-true strategies. Managing money isn’t a complicated task, though it requires ongoing attention.
Keeping an attentive eye on your money management helps to improve your mental health and confidence. It also frees up more time for you to do the things important to you — instead of worrying about bills, savings, and other areas of your finances.
It only takes a few simple steps to create a financial plan for your money. You can work with a financial professional, but it isn’t required to get started. Follow these basic steps to learn how to manage money the right way.
The first step on any journey is to figure out where you are now. Gather your financial documents to get an idea of where you stand, starting with your inventory of assets. List everything you own of value, including:
- Personal belongings
- Business interests
- Other valuables like computer equipment, jewelry, collectibles, or musical instruments
Once you’ve compiled your list of assets, list your liabilities. Liabilities are things you owe, like credit card debt, student loans, car loans, small business loans, and mortgages. Keep in mind liabilities are revolving debts, not your regular bills due each month.
The last piece is to calculate your net worth. It’s easier than you think — simply subtract your total liabilities from your total assets. The result is your current net worth.
Knowing your net worth helps you identify what you’ve accomplished so far and determine where to go next.
Related Content: How We Grew Our Net Worth to $1,000,000 in 10 Years
Define Your Values and Goals
Now that you know where you stand, it’s time to decide what is most important to you. Your values determine your goals when figuring out how to manage money.
What is most important to you? Do you want to buy a home, pay down debt, travel, start a family, go back to college, change careers, or start a business?
There’s no “right” answer, and you can even have multiple goals. For example, suppose you have a short-term plan of paying off debts, so you can change careers or create a business in a few years. Or you might start a business now as part of your plan to pay off debt and travel full time.
Once you identify your goals, choose a timeframe for completion. Note whether they are short-term or long-term, and think about when you can realistically check them off your list. For example, your plan might look like this:
“I want to run a furniture restoration business within the next two years so I can quit my full-time job. I will start it on the side, working evenings and weekends. Once I reach a $50,000 income, then I’ll transition to full-time.”
“I want to buy a 2,000 sq ft house within five years, and I’m going to start saving 20% of my income each paycheck for the downpayment and closing costs.”
Control Your Money
Whether you have one bank account or multiple credit cards and retirement and investment accounts, tracking your spending can be a challenge. Some people use a spreadsheet or good old-fashioned pen and paper. But keeping it updated can be difficult, and it doesn't always give you the full view.
Ideally, you need a snapshot of all your accounts at a glance to best control your money. Adding in money management tools that include budgeting, bill tracking, and daily cash flow make it considerably easier to feel confident about your money.
Apps like Simplifi by Quicken can help. They put your entire financial situation at your fingertips. It lets you import all of your bank and credit accounts, helps you budget your monthly bills and their due dates, and lets you set up multiple savings goals like emergency funds and vacations.
Eliminate High-Interest Debt
High-interest debt can quickly drain the money you earn, making debt reduction feel impossible. But when you create a plan to reduce or eliminate the interest while paying down the principal debt, you can steadily make progress.
If you opened credit cards a while ago and your credit score has improved since then, try calling the bank to request an interest rate reduction. Or you might qualify for a new credit card with a 0% introductory interest rate on balance transfers, saving you money in fees while moving the needle on your debt.
No matter how you choose to tackle your balances, you need a method to make it happen. Two common approaches are the avalanche method and the debt snowball. With the avalanche strategy, you start paying the loan with the highest interest rate first. The debt snowball has you start with your lowest balance first and clear debts out account by account.
Related Content: How We Paid Off $50,000 of Debt in One Year
Save More Money
They say that a penny saved is a penny earned. While a penny might not be worth much anymore, every little bit you save can add up over time. You might clip coupons or use a grocery-savings app at the grocery store or commit to thrift store shopping — it counts.
For example, suppose you budget $50 for clothing and only spend $30 at the thrift store. Make a point to put the extra $20 toward your debt payoff or savings goal rather than spend it on something else.
At the same time, look for ways to reduce other expenses. Most people can look at their bank statements and find non-essential services they can cut or reduce (Spotify, Netflix, Hello Fresh). It might cause a little inconvenience, but saving $15 a month or more for each service you cancel adds up to at least $180 per year.
For entertainment, seek out free activities, like nature hikes, libraries, museums, or volunteer work. You can also save on gifts by framing recent or old photos or giving handmade items to family members and friends.
Boosting your income can supercharge your progress toward managing your money. The fastest and least complicated way to increase your income is to ask for a raise. Of course, this only works if you’re already employed. Spend a few hours planning how to ask your boss for a higher wage and back it up with solid data about your performance. Ask for a little more than you want to leave room to negotiate.
Using your free time to create new sources of income is another worthwhile endeavor, and side hustles for parents and singles are an option. Many side hustles do not require additional education or training, such as driving for a rideshare service or delivering groceries.
You can also sell items to boost your income. For example, cleaning out your closets and listing things on eBay, Facebook Marketplace, or Mercari is time-efficient and can generate cash quickly.
If you want to change careers, dip your toes in the water on nights and weekends. Let friends and family know the new type of work you do. But a word of caution, you might want to keep your job search away from your day job (and LinkedIn), so you don’t lose that steady paycheck before you find a new opportunity.
Investing isn’t as daunting a task as you might think. You can start with a little money and implement simple strategies, then work your way up from there.
Easy ways to get started investing are to select a higher percentage of your salary to contribute to your employer’s 401(k), 403(b), 457, or thrift savings plan.
You could also open a Roth IRA. Build your portfolio over time. Your pool of money can grow from your contributions and market returns.
Learning how to manage money is like cultivating a garden. You can’t just plant the seeds and walk away. Instead, you must check on it regularly, clean things up, add some water, pull weeds, and fertilize. Eventually, you have flowers or fruit.
The same is true with your finances. Schedule a money “date” once a week to check your bills and cash flow. Make sure the day-to-day tasks get attention. This action helps you keep or improve your credit history since missed or late payments result in credit score penalties.
Once a month, review the big picture. Update your assets and liabilities to track your net worth and progress toward your goals. Next, check your goals and decide if they still make sense. It is natural to modify your goals as your finances take shape.
Final Thoughts on How to Manage Money
Each step in learning how to manage money brings you closer to your goals. Even if you can’t tackle them all in one day, consistency pays off. Sit down and review everything regularly, so you don’t fall behind.
Start by getting a full picture. Then, set goals, attack debts, save money, increase your income, and start investing.
It’s a straightforward approach, but it requires dedication to make it work. If you are ready to take charge of your money, cash in on one of the many free or low-cost tools that save you time. Simplifi by Quicken is one of those great tools and it can guide you on how to manage money with ease.
Are you wondering how to manage your money this year? What questions do you have?
Please let us know in the comments below.