Figuring out how to manage your money begins with learning how to examine your expenses and income, how to create a budget, and how to find opportunities to save money.
As you work on these steps, you can also learn techniques for improving your credit score, assessing your debt, and putting extra money you may have into savings. Let’s explore each of these steps in detail and go over simple money management tips you can begin using today.
9 steps to manage your money
- Examine your expenses
- Examine your income
- Create a budget
- Find ways to save money
- Understand your credit report
- Assess your debt
- Put money in savings
- Don’t forget tax planning
- Take advantage of apps
1. Examine your expenses
Start by tracking your expenses. This could be done manually, through a spreadsheet, or with an app. This not only promotes mindful spending but also helps identify and eliminate overspending and unnecessary costs.
After monitoring your expenses for a few payment cycles, cancel any unused services, like an unused gym membership. You can also use this opportunity to set limits on your discretionary spending money. Decide which expenses you have the most control over, and start changing your spending habits to keep more money in your pocket.
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2. Examine your income
First, calculate your total monthly income and compare it to your expenses. Check if you’re earning enough to cover all costs and have a surplus for unexpected expenses.
Financial experts recommend maintaining an emergency fund equivalent to three to six months of expenses. They also suggest saving at least 15% of your pre-tax income for retirement, inclusive of employer contributions.
If your earnings are insufficient to meet these targets while managing monthly payments, consider two options. You can reassess your budget to further reduce expenses, or you can increase your income. This additional income could be from a second job, a passive income venture, or a side hustle.
3. Create a budget
Budgeting is crucial for financial success, yet many people don’t have a budget. According to a survey from the Certified Financial Planner Board, of the 43% of Americans who do budget, most see it as merely tracking spending.
However, budgeting is more than that; it’s a powerful tool that involves allocating income to various spending categories. It provides a roadmap for financial decisions and money management.
There are several budgeting methods:
- The zero-based method: Allocate every dollar to an expense, savings goal, or debt payment.
- The 50/30/20 method: Allocate 50% of income to necessities, 30% to discretionary spending, and 20% to savings.
- The 80/20 method: Save 20% of your income and freely spend the rest.
- The envelope method: Label envelopes with expenses, such as groceries, rent, and more, and fill them with cash up to your monthly limit.
- Use SoFi Credit Insights to easily set, categorize, and track your spending1
- Stay on top of bills and receive timely alerts to ensure you never miss a payment
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4. Find ways to save money
If you’re looking for ways to save money, the good news is that there are plenty of opportunities to cut costs without depriving yourself.
If this is your first foray into budgeting and you haven’t tried trimming your expenses yet, you might be surprised by how simple changes can save you a lot of dough.
Here are some easy money management tips for saving on your expenses:
- Compare prices from the best car insurance companies and switch insurance if you find a lower premium.
- Wait for sales and search for coupons, especially on high-price items.
- Use cashback apps to get up to 35% back in your pocket just for shopping at the stores you already frequent and buying things you already buy.
- Check out the best cashback credit cards to earn even more cashback or travel rewards on your everyday spending.
- Get the lottery thrill without the spending regret by opening up a Yotta Savings account and earning tickets to weekly in-app lottery drawings for cash prizes.
- Reduce high interest rates by working to improve your credit score and refinancing your debt (more on this next).
- Go wild on your birthday without breaking the bank by taking advantage of hundreds of birthday freebies offered by local restaurants, stores, and entertainment companies.
5. Understand your credit report
Look at factors such as credit card utilization and payment history, which have the most influence on your score.
If your credit score range is indicated as fair, it’s probably costing you a significant chunk of change every year. Your credit score impacts the interest rate you’ll qualify for on a loan or credit card, which means good credit could save you thousands.
The Consumer Federation of America found that a low score, when compared to a high score, raises the total cost of borrowing a $20,000, 60-month auto loan by more than $5,000.
There are a few steps you can take to get a good credit score on your own, including using a credit-builder loan, getting a secured credit card, or being added as an authorized user on a friend or family member’s credit card.
You should also work on paying down your balance while increasing your credit limit. Set up automatic payments so you’re less likely to make mistakes.
If you still need help, consider consulting a credit counseling or credit repair company. Credit counseling services are nonprofit companies that can help you get out of credit card debt and other types of financial burdens, while credit repair companies are for-profit companies that work on modifying the negative information on your credit report on your behalf.
6. Assess your debt
If interest has piled up and you’re still just making minimum payments on your debts, it’s time to come up with a debt-elimination plan. Even if you’re chipping away at your debt already, having a strategy laid out can make the process faster.
Two common approaches to debt repayment are:
- The debt avalanche method: This method involves prioritizing your debt with the highest interest rate. It can often be the fastest and cheapest way to pay off debt.
- The debt snowball method: This method involves prioritizing debts with the smallest dollar amounts. It can often be the quickest way to reduce your number of accounts with open balances and can be more emotionally gratifying, which can keep you in the debt-payoff game
You should also look for ways to reduce your interest rates, so you can devote more of your money toward your principal balance.
If you want to pay down your credit card balance to become debt-free, you might choose to refinance debt with a balance transfer credit card to get a 0% APR. You could also opt to consolidate your debt with a low-interest personal loan, or simply ask your lender for a lower rate.
Sometimes lenders are amenable to lowering your interest if you’ve been a good customer and made payments on time. You may also be able to lower your monthly student debt payment by doing a student loan refinance.
To check out your credit card options, see our list of the best balance transfer cards.
7. Put money in savings
Even if you’re focused on paying down debt, you still need to build an emergency fund and also a rainy day fund. A sudden change in income from a job loss or an unexpected expense can happen at any time, and having the financial security of an emergency fund can help you deal with such difficult financial situations.
Most financial experts recommend saving three to six months’ worth of expenses in an emergency fund. So, in addition to having a regular savings and checking account, you should consider putting your emergency money into a separate savings account.
A high-yield savings account, in particular, can be a great way to take advantage of the earning potential on the money you won’t be touching anyway. You can create automatic transfers into this account from your main bank account to ensure enough money goes into it before you can use it.
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Once you’ve paid off your high-interest debt, you should also begin saving for retirement every month. There are a variety of retirement plans you can look into. It’s a good idea to take advantage of contribution matching if your employer offers it for a 401(k) plan.
You may also consider opening a Roth IRA. If you’re self-employed, a SEP IRA can be a great savings vehicle. Whatever you choose, a good retirement savings account can help your money grow faster, but just remember you’ll have to wait until you reach a certain age to make withdrawals without penalty.
8. Don’t forget tax planning
Now that you’ve got the basics of money management down, here comes the fun part: Tax planning. Although thinking about your income taxes may not be exactly thrilling, tax-advantaged saving and investing can help you get ahead. And keeping more of your money is definitely worth celebrating.
Tax planning shouldn’t be an afterthought when the new year rolls around. You should stay organized throughout the year, keeping track of your income and deductions.
You should also plan your monthly budget around a contribution to a retirement account and decide whether you want to save for your child’s college education in a 529 plan.
You might also choose to make contributions to a health savings account if you have a high-deductible health plan.
These strategies will help you reduce the amount you’ll owe in taxes each year and help you prepare for a healthy financial life and future at the same time.
9. Take advantage of budgeting apps
It’s smart to take advantage of the available technology to help you reach your saving, budgeting, and investing goals. There are several budgeting apps that can help you, including:
|Budgeting app||Main feature||Cost|
|Rocket Money||Rocket Money simplifies the process of managing your finances by canceling subscriptions you no longer use and negotiating your bills on your behalf||
|Simplifi||Simplifi provides a comprehensive view of all your financial accounts in one convenient location.||
|Oportun||Oportun examines your spending habits and bills to determine the optimal amount to save on your behalf.||
|Wally||Wally enables you to establish group budgets and synchronize information across all your financial accounts.||
|Marcus Insights||Marcus Insights assists you in monitoring your spending, reducing your bills, and even offers the ability to save money directly through the app.||
Money management tips
Tips for managing money in your 20s
Your 20s are the best time to develop good money management habits and practices.
Your expenses will be lower than at any other time in your life since you likely won't be married, own a house, or be supporting children. That means you will have more control over what to do with your money.
It's easier to know how to budget when your cash flow is easy to manage. Here are some of the tips worth keeping in mind:
- Learn how to budget and practice setting and sticking to a budget
- Build in some fun money for things like dining out and avoid taking on extra expenses
- Utilize a credit card to take advantage of cashback rewards and other bonuses, but pay it off in full and avoid carrying a high balance
- Begin an emergency savings account and save for retirement
- Take advantage of a 401(k) if offered by your employer to help retire early or set yourself up for financial freedom.
Tips for managing money with a partner
Managing money with a partner adds some difficulty to the process since the decisions one person makes may have some impact on the other.
That’s why it’s essential to communicate clearly and make sure that you and your partner are on the same page. Here are some tips to help you and your partner manage your finances:
- Have one or more discussions with your partner to make sure you’re both on the same page regarding your financial goals.
- Be clear on who is responsible for paying bills and make sure they are getting paid on time.
- If you and your partner have different spending habits, consider keeping some of your finances separate.
- If your financial goals and habits are similar, having a joint bank account can make it easier to manage your finances.
- If you are married and filing together, work with a tax accountant to make sure that you are filing your taxes in a way that supports your financial needs and goals.
Managing money FAQ
How can you improve your money management skills?
The best way to improve your money management skills is to consider tracking your spending and budgeting.
By tracking your spending, you can potentially hold yourself accountable for the choices you make. And you can easily identify where you're overspending so you can make cuts. By making a budget, you can allocate your dollars in a way that matches your values.
You could build your budget around short-term savings goals and your long-term financial plan, ensuring you're investing money for retirement, as well as saving for big purchases.
What are the best ways to reduce your monthly expenses?
To reduce your monthly expenses, commit to learning how to track spending. By monitoring your spending, you'll be more conscious of where your money is going.
You might also be less likely to overspend or make impulse purchases when you're actively monitoring spending.
You can also more easily determine if you're sticking to your budget and following your financial plan.
How much cash should you have in a savings account?
The amount of money you should have in a savings account depends on your individual needs and the account's purpose.
Generally, it’s a good idea to have an emergency fund, typically with three to six months of living expenses set aside in a bank account or a financial institution that you only tap into in case of emergencies.
You may also want to have a rainy day fund with a few hundred or a few thousand dollars to cover things such as unexpected repairs.
And having a savings account could be a good idea for other goals, such as a home down payment or big purchases you plan to make.
What is the 30-day rule?
The 30-day rule for saving money requires you to wait 30 days before making big purchases.
The goal is to make sure you're avoiding impulse buys that make you happy in the short-term but compromise your long-term financial plans. It could be a good idea to implement this rule if you’re trying to save money.
How to manage money: bottom line
It’s a bird — it’s a plane — no, it’s you, swooping down in your money-management cape to teach the rest of your family and all your friends everything you just learned about making healthy financial decisions.
Armed with an app-filled smartphone in one hand and a deposit slip in the other, you’re ready to take on your debt while battling the impulse to spend. Those savings goals you set for your household? They’re feeling well within reach.
If knowing how to take control of your finances still feels challenging or you’re feeling ready to take more advanced steps with your money, consider speaking with a financial advisor.
Whether you go it alone or get professional advice, with a little planning and a lot of ongoing discipline, you know now that it’s possible to not only avoid financial hardship but also to paint a bright financial future.