Top Money Management Tips

The term “money manager” often refers to someone who oversees investments. But money management in your personal financial life goes well beyond prudent portfolio decisions.

Responsible money management involves planning for financial emergencies, building a strong credit history and managing any debt.

To improve your money management skills, you’ll first need to understand your financial habits. Then, you’ll be ready to look at ways to manage your money better.

What is money management?

Money management is a term that broadly encompasses the ways you use your funds — such as budgeting, saving, investing and more. 

Successful money management also involves understanding how you feel about your money.

“You have to train yourself to think about money in a certain way, and it’s hard,” says Scooter Thomas, a certified financial planner and financial adviser at Savant Wealth Management. Good advisers will talk with clients about how they feel about their money, Thomas says.

Why is money management important?

Money management takes work, but it can ultimately make your life less stressful. More specifically, money management is important because it can help you:

• Achieve financial goals. Whether you’re saving for retirement, planning for a child’s college education, hoping to buy a house or all of the above, solid money management can help get you on track — and stay there.
• Navigate hard times. If you face an unexpected job loss or costly home repair, for example, the work you’ve already put into money management can pay off.
• Withstand economic changes. You can’t plan for every possible twist, but you can take steps to make your finances more resilient. For instance, when prices go up because of inflation, you can check on your investments to make sure they are adequately diversified.

6 ways to manage your money better

1. Make a budget

Creating a budget — which is a list of your income and expenses — helps you understand your spending habits and figure out where to make changes. For example, if you want to start saving money, you can look for expenses to reduce.  

You can use many approaches to create a budget. If you’re not sure where to start, consider the 50/30/20 budget rule. With this method, you dedicate 50% of your post-tax income to your needs, 30% to wants and 20% to savings.

Other budget-building tools include budget worksheets (such as this worksheet published by the Federal Trade Commission) and mobile apps. The best money management apps will serve your personal budgeting needs. App features can include cash flow tracking, debt payoff tools and subscription trackers.

2. Create an emergency fund

An emergency fund is an amount of money you save up and set aside to use in case you lose your job, have an urgent medical need or otherwise need to cover unexpected expenses.

If you have three to six months’ worth of living expenses saved in an emergency fund, you’re in solid shape. The exact amount you should save depends on factors such as your debt obligations as well as job stability.

If thinking in terms of living expenses isn’t helpful for you, you can make the exercise more concrete.

“I say have enough cash cushion that you can pay for your two biggest emergencies without having to go get money from (somewhere),” Thomas says.

A high-yield savings account can be a good place to put your emergency fund. The funds in that account will remain easy to access, but you’ll generally earn a higher annual percentage yield (APY) than you would in a checking account or regular savings account. Shop around to find the account with the best rate.

3. Manage debt

Your approach to debt management will depend on what kinds of debt you have and what kinds of savings you have, among other factors. 

If you have high-interest debt from credit cards, for example, you’ll likely want to make paying it off quickly a priority. In contrast, if your debt includes federal student loans, you’ll want to evaluate your payment plan options before finalizing your approach.

Balancing debt payoff and saving can be challenging. You might place a higher premium on saving if you’re building out your emergency fund and you have lower-interest debt, for instance. Consumers who feel anxious about their debt and have extra funds they can comfortably dedicate to repayment might instead prioritize debt elimination.

4. Build and monitor credit

A strong credit score will help you qualify for loans and credit cards at competitive interest rates. This can help you save significantly on interest costs.

The best way to improve your credit score depends on your credit history. But several tips apply broadly. Making all of your payments on time, using no more than 30% of your available credit limits, and limiting new credit applications can help you build or keep a healthy score.

You should also regularly check your credit reports for potentially damaging errors. Access your free reports from the three major consumer credit bureaus — Equifax, Experian and TransUnion — at AnnualCreditReport.com. You’re entitled to one free credit report from each bureau as often as once a week.

5. Save for retirement

Your retirement savings plan will depend on factors such as your age and expected retirement expenses.

If your employer offers a 401(k) plan with matching, you should aim to contribute enough to unlock the full match. If your employer doesn’t offer a 401(k) or you otherwise don’t have access to this type of account, you can still save with an individual retirement account (IRA).

In either case, you’ll likely need to choose between a Roth or traditional retirement savings account.

6. Be persistent

Putting a solid money management plan into place takes work. Maintaining it takes work, too. Try not to get discouraged if you don’t notice immediate improvements or dramatic turnarounds.

“The first thing to do is easy to say and harder to do: Spend less than you make,” Thomas says.

How do you improve money management?

You might already be using some of the money management tips above in your financial life. You can improve your money management by incorporating more of them. You may also be able to:

• Automate your savings. You can likely have your bank automatically move money from your checking account to your savings account at a set interval. You can also establish an automatic contribution of a percentage of your paycheck to your 401(k).
• Consult a financial adviser. If you’ve tried going your own way and are struggling, you could consider involving a financial professional, such as a certified financial planner or a certified nonprofit credit counselor.
• Avoid impulsive investing. Good money management also means knowing when not to act. “Timing the market is a fool’s errand,” Thomas says. “If you’re trying to figure out when the best time to buy and when the best time to sell is, chances are you’re going to miss both.”