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A 21 step process to managing money like a pro
Managing money is not a skill we are born with…
It’s not anything we are taught in schools. Even most parents never thought of teaching their kid’s about money.
Managing money is a life skill every one of us need to learn how to do, and the earlier the better. At the very latest, you need to learn how to manage money in your 20’s.
But this is when you need a money management crash course because you are in the thick of it and tend to be more reckless with your money.
It’s best to start learning how to actually start managing your money when you’re a teen and are beginning to handle money.
Since that is most likely not the case, here are 21 ways to start managing money like a pro no matter what age you are.
Managing Money 101: A Beginners Guide
Money Management Tips For Beginners
21 Things You Must Do To Start Managing Your Money
Create a budget (that you can live with)
The first thing you must do when you start managing money is to make a budget. It’s the only way to start controlling your money.
Your budget is going to be your roadmap to managing money like a pro. It’ll allow you to see where your money is going and what things need to change to start saving for your future.
Your budget doesn’t need to be some elaborate plan, you can do a simple budget in a notebook or create a simple budgeting spreadsheet.
There are also many free printable budget planners you can download online. Find what works best for your needs and is easy to maintain. This is the most important tool to keep you on track.
You can learn everything you need to know about budgeting money here. Once you get these technics down, you can develop an automated budgeting system that will pretty much run on autopilot.
But you must first get the basics down. This means getting familiar with your income, expenses and cash flow.
Personal Capital is a great online tool to help you manage your budget. You can set category limits and track your spending by linking your bank accounts and cards to your profile.
Build an emergency savings
Once you have a working budget, you need to start building your emergency savings. You’ll need to work this into your budget.
Your first goal is to build an emergency fund of at least $1000.00 or more. This is a must, it’s going to be a cushion should unexpected expenses arise that aren’t included in your budget.
The ultimate goal is to save enough money to cover 6 months worth of expenses. This is meant to cover you in case of a job loss or injury that forces you to not be able to work for a long period of time.
We all know that these things happen all too often. It’s best to protect yourself from a financial tragedy.
Remember this money is for real emergencies only! It’s best to keep your emergency fund in a place that isn’t easily accessible, especially if you tend to spend more money than you should.
I suggest you set up an emergency savings account in an online bank. First, because it’s a bit more difficult to “dip in” to your savings for non-emergencies.
Secondly, online banks pay way more in interest than a traditional brick and mortar bank.
Cit Bank is my first choice, simply because it offers the best interest rate
Cit Bank is currently the best option and my recommendation for your emergency savings.
- Currently, they have highest APY through their savings builder account.
- Have no opening or maintenance fees.
- Compound interest daily to maximize your earning potential.
- Only require a $100 minimum deposit to open an account.
Ditch unnecessary expenses
When you first start budgeting, you are going to notice that there are many expenses that you are paying for that you just don’t need.
You’ll also need to find a way to balance your budget if your expenses are more than your income. Getting rid of unnecessary expenses is how you’ll make your budget balance.
The first thing you are going to need to do is cut out any non-essential expense. Cancel any subscriptions or services that you are not using or that just aren’t worth the price you pay for them.
Sometimes you don’t even remember that you are paying for these things since it’s automatically deducted from your checking account.
Trim is a great free tool that helps you to detect recurring subscriptions and wasted money. It monitors your spending and alerts you if there are recurring expenses that you are paying for.
Remember, managing money is all about taking control of where it’s going.
Get out of debt
If you have debt, then you need to get it paid off as soon as you can. When you keep a balance on a credit card, you are basically throwing money in the trash.
Just think about this, if you put something on credit and only pay the minimum payments due, you’ll end up paying double for that one item. This is not good money management.
You’ll need to come up with a debt repayment plan. There are basically two options for paying down debt, the debt snowball method and the debt avalanche method.
The debt snowball method is when you make a plan to pay off debt with the lowest balance first. Then, once that debt is paid, you add the money to the payment of the next lowest balance credit card, and so on.
This is a really popular debt repayment method taught by Dave Ramsey of the Total Money Makeover. This type of debt payoff plan works by keeping you motivated with quick wins.
The debt avalanche method is when you attack debt with the highest interest first. Then once that debt is paid off, you start working on the next highest interest debt.
This method is meant to save you as much money on interest as possible. If you are more of an analytical person, this may be a better debt repayment plan for you.
Stay on top of your credit
Your credit is super important in your overall financial health. It determines if you qualify for loans, and how much interest you are going to be charged.
It can also be a factor to determine how much you pay for insurance, whether you get a job, or even if you can rent an apartment.
This little number holds a lot of power in today’s world when managing your money. It’s best to know your credit score and find ways to improve it if needed.
You can get your free credit score and check it anytime without hurting your score at Credit Sesame.
What I like about Credit Sesame is that they give you recommendations on how you could be saving money based on your personal debt situation.
They make suggestions from anything from the best credit cards to help you transfer balances that will save you money, to showing you how to refinance your car or mortgage to save tons in interest rates.
Make saving money a priority
To start managing money like a pro, you need to make saving money a priority. You need to save for emergencies, your first home downpayment, big-ticket purchases and so much more.
If you aren’t saving for these things, it will be very difficult to stay on top of your finances. It’s going to cause you to have to live from paycheck to paycheck or cause you to get into debt.
Nobody should live this way, which is why saving money is so important. Start by adding savings as a line item in your budget. Find ways to reduce your expenses so you can add more money to your savings account.
You should have that amount deposited directly into your savings through your employer or automatically transferred by your bank into this account.
It’s so much easier to save this money when you don’t need to do anything. Besides after a little while, you get used to not having this money to spend.
Set Financial Goals
Setting financial goals is something that we all must do. Yet if you ask a handful of people what their goals are, they’ll get a bit tough tied defining them.
Maybe it’s because they never really thought about it. But more than likely they have an idea but just haven’t set any time aside to really plan out their financial future.
If you want to reach your money goals, you must set goals. And it can’t just be something as broad as I want to retire by the time I’m 50.
Ok, that’s fine and dandy. Who wouldn’t, right. But how are you going to accomplish that? Wishful thinking will never work.
You need to make a financial plan to reach your goals. What short term steps do you need to take for success?
How will you invest your money to make it grow to reach your financial goal? How much money do you need to save every year to reach this goal? Where will the money come from?
These are all questions you need to answer to get you where you want to be. Of course, these are examples for retiring early but you get the picture.
Putting a plan into place to reach your financial goals is the first step, you also need to track your progress as time goes by to make sure you are meeting these financial goals.
Developing good financial habits needs to be a priority in maintaining your financial health. Much of what you’ll learn in this article will help you to do this.
But like any other habit, they take a while to develop to become second nature. It’s not something you can just do.
When you first start out, you’ll need to think about what you are doing and why it’s important. It’s something you’ll need to work at.
Luckily, that doesn’t last forever. Before you know it you’ll be doing these things without even realizing it or even putting any effort into it.
Save for major purchases
Saving for major purchases should be something that we all do. Do you realize how much more money you would save by not having to borrow from a bank to pay for these things?
Just last week my husband bought a new (to him) truck and we paid cash. Do you know how great it felt to make a major purchase like this with cash? Amazing…
We knew that his old truck had enough miles on it and it was getting pretty old. We figured we should upgrade in the near future. So that became our focus to save for since it made the most sense.
Besides, his old truck was still worth some money so we knew we could cover some of the cost of his newer vehicle.
By not having to finance through a bank, we are going to save roughly $7000 in interest payments. Pretty crazy, huh?
If that’s not motivation to save I don’t know what is. It really is worth the effort to save up instead of borrow money from a bank.
Always get your money’s worth
Always getting your money’s worth seems like a no brainer doesn’t it? You’d be surprised at how much of your money is being wasted away on things that don’t give us our money’s worth in return.
Take your cable bill for example. Many of us spend upwards of $100 on cable alone. This doesn’t even include any of the extras.
Do you actually watch enough cable TV to get your $100 worth out of? I’m sure there are many people who do get their money’s worth, but probably many more aren’t.
There are plenty of cheaper options for watching TV. Hulu only costs $5.99 a month and you can try it for free for one month to see if you like it. That’s a saving of $96 a month. I’m sure you can get your money’s worth with this option.
Sling TV starts at $15 a month and Netflix is between $8.99 and $15.99. So there are still huge savings to be had by making a simple change.
Cable TV is just one example, there are so many other things we waste money on that is just not worth the price we pay.
It’s just something to keep in the back of your mind as you are paying your bills every month.
Don’t use credit recklessly
Using credit recklessly is a financial killer. Remember the example I gave in the saving up for major purchases section above. Well that $7000 in interest that we saved was calculated using a low-interest rate given by a bank.
Credit cards typically have the highest interest rate of any other form of borrowing. It’s literally like burning money.
Stay away from using credit cards as much as possible. Especially if it’s for silly things.
If you do use them, make sure you can pay your balances in full every month. If you know you can’t, then it’s in your best financial interest to get rid of them.
Managing Money 201: Advanced Technics
Advanced Financial Planning to Start Managing Money Like a Pro
Understanding your true income
This money management tip might seem like a duh… I mean who doesn’t know how much they earn? Ok, some people will say the gross amount, others will say the net income (after taxes, deductions and so forth).
But that’s just scratching the surface. Another way to ask might be how much are you gaining at your current job.
This doesn’t always only include what you see on your pay stub every week. If you work at a job that pays for benefits, such as health insurance, 401K matches, HSA, then your income is way more than you think it is.
I’ll use health insurance as an example. Do a little online research and find out what you would normally be paying for health insurance if you weren’t covered by your job.
You might suddenly feel like you hit the jackpot when you think that this money would be coming out of your current paycheck should you have to pay out of pocket for it.
This is just something you should always keep in the back of your mind should you switch jobs. That new job might be paying way more than you currently make, but if the benefits are subpar, you might end up making a really bad financial decision.
Save money for retirement
Saving for retirement might seem like a daunting task. Even more so if you are younger and are just starting out on your own. You may feel like you have time.
Here’s the deal, the longer you put it off, the more of a struggle it’ll be to find enough money to set aside every month.
Besides, you have less financial responsibilities when you’re younger. You might not have children or home yet making this the optimal time to start saving for retirement.
Even if you can’t afford to contribute a whole lot of money to a retirement fund, you really should start as soon as you can.
The compounding interest you earn will definitely help to grow your money faster when you start saving early.
If the company you work for offers a 401K plan and matches a percentage of what you contribute, please take advantage of it.
Even if it’s just a small amount, you really shouldn’t pass up free money. Especially for the betterment of your financial future.
Know your net worth
Once you get started managing money, you’ll want to keep an eye on your net worth. Just as the name sounds, it’s basically an inventory of how much you are worth.
The greater your net worth, the more financially stable you are. To calculate your net worth is a very simple formula similar to a budget. But instead of income vs expenses, it’s assets vs liabilities.
In simple form, you list all your assets and how much they are worth. This could be your home, cars, recreational vehicles, coin collections, vacation homes or artwork. Really anything that has real value.
Just think in terms of anything that can be liquidated (sold) that holds it’s value.
Your liabilities include the amounts that you still owe to a bank or whoever for these things. Include any other debts, medical bills, or other ongoing payments you need to make.
You net out this amount to get your total net worth. This is the number that you need to keep an eye on and focus on increasing.
Create a financial plan
A financial plan is your roadmap for where you want to be and how you are going to get there. It’s kind of the same as setting financial goals but in a broader sense.
Before you sit down to create a financial plan, you need to take a deep dive into what you want out of life.
If your financial goal is to retire in by the time you are 0, your financial plan will look a lot different than someone who wants to build a small business and work for yourself.
The path you take to get to each of these points looks very different. It’s best to take the time to think about what you really want for you and your family’s future.
Of course, this can change over time. What might be a priority now might not be once you have children? Or your goal to be self-employed might turn into a passion to build a multi-million dollar corporation.
That’s ok, just make sure you adjust your financial priorities to align with your plan.
Protect your assets
Protecting your assets might not be something you think about when you are younger and just starting out. But it’s something I think all of us need to do.
Of course, sometimes, you are forced to. Say you take out a mortgage and buy a home. You can bet your bottom dollar that the bank is going to require you to have insurance on your home.
Not really to protect you, but rather themselves. Either way, it ends up covering you as well if something should happen. You really don’t want the down payment that you worked so hard to save for go up in flames.
Having sufficient insurance to protect your assets is just a simple move that anyone can do to make sure that your investment is protected. This way you can financially recover from accidents, natural disasters or anything else that might happen.
Another option you might want to consider is protecting your home systems. Things like your heating systems, A/C, and even major appliances.
Say your home’s heating system dies on you. It’s going to cost you a big chunk of money to have it replaced.
Choice Home Warranty is a great company that warranties your home systems and even appliances. They will pay for repairs or even replacement of anything covered by the warranty.
Organize your finances
Organizing your finances is something you eventually fall into once you’ve worked through all these steps of managing money.
But the sooner you get organized the easier meeting all these other financial obligations will be. Getting your finances in order requires you to have a plan.
One of the biggest tasks is going to be collecting all the information needed and organizing them in one place. This includes your budget, all the bills that you need to pay for.
It should also include your net worth documentation, deeds, and titles, insurance policies, and basically anything having to do with your finances.
Getting your finances organized not only helps you to stay on top of everything but it’s also important should something happen to you, especially if you have a family that depends on you.
Use a money management tool to track it all
There are a lot of things that need to be done when it comes to managing your money. It can seem really overwhelming to just track all this stuff, and in a sense it is.
Tracking your spending, budget, net worth, debt, and the list goes on. Luckily there is a free tool called Personal Capital that you can use to help stay on top of all this.
By signing up for a free Personal Capital account you’ll be able to
- Automatically track your budget
- Easily see where your money is being spent
- Track your net worth
- Keep an eye on your cash flow
- Keep an eye on your retirement accounts
- See your upcoming bills
- All investments you have
They even have a retirement planner and investment checkup tool!
Managing money conclusion
Managing money in every aspect is a process as you can probably imagine. Not all these things will apply to you now, and others won’t apply later on in life.
Some of these money management skills you may already have mastered, others you might not have thought about.
The key here is to go through this list one item at a time. Once you have accomplished one skill, move on to the next. Before you know it you’ll be managing your money like a pro!
More ways to help you manage your money better
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