Last Updated on January 27, 2023 by Anne-Sophie Reinhardt
You’re not the only one who worries about money. The 2020 Capital One Mind Over Money Study revealed that 77% of respondents felt anxious about their finances. These are steps that you can take to increase your confidence and manage your money better. It can be a great way to set yourself up for a bright future by focusing on money management skills and financial planning in an efficient and smart manner.
What Are Money Management?
Money management includes investing, budgeting, saving, and spending. How can you increase your money confidence and decrease anxiety about your financial goals? You can improve your financial management skills and your mindset by finding ways to manage your money better. You can do your research on your own or seek professional advice to help you plan your finances.
How To Manage Money Better?
These seven money management and financial tips can be used as a guide to your financial journey.
Money Management Skills #1: Make A Personal Budget
People who feel the effects of financial stress have a harder time budgeting. They are less in control of their finances and spend more of their earnings impulsively. A budget is an important first step towards developing better money habits and learning how you can get the most out of your money. Also, single mothers will need to manage her budget to afford living alone.
Budgeting can help you ensure you have enough money for what you need and what you want while also building your savings for the future. Start by creating a budgeting sheet and then following these steps:
- Your Monthly Income – This includes your monthly salary from your job, as well as any other income sources like tax refunds, bonuses, or side income.
- Monthly Expenses – These expenses can include costs in major buckets like housing bills, food and student loans. You can use an average of previous months for monthly payments that don’t match (e.g., food and utilities).
- Expenses to your Income – This will give you the base for your budget. Any money left is your starting point for building savings and paying down debt. If you don’t have enough, it’s worth looking at cutting back on food costs and subscriptions.
Your budget can be thought of as a living document you review often. You can adjust your budget as needed, such as when you pay off a credit card.
Money Management Skills #2: Track Your Spending
Healthy money habits can make it easier to feel more confident in your finances when times get tough. One of these good habits is to track your spending. It can help you stay within your budget and avoid overspending.
How can you keep track of all your spending? It’s simple. It’s easy to track your expenses digitally using one of the many apps online. You can use apps that can help with tracking. But you can also save receipts and keep track of everything in a notebook or planner if you prefer something paper-based.
One tip: It may be a good idea to break down your expenses into categories. This will allow you to see exactly where your money is going, and also where you might be spending too much.
Money Management Skills #3: Save For Retirement
People worry about their financial future and this includes retirement savings. When it comes to retirement savings, it may be a good idea to start small. You could, in other words, start small and save a little every month, then increase it as you feel more ready.
You may also want to open a retirement account, which could be used to supplement your retirement income from Social Security or pensions. The following accounts are possible:
Your Employer May Offer A 401(k)
You can deposit pretax dollars with a 401k by taking a regular deduction of your paycheck. Capital One executive Beth Sabin says that if your company matches your 401(k), you can contribute until your full match. She also suggests increasing your contribution by 1 percent to determine if it’s feasible. To increase your savings, you can raise it by one percentage point if it is.
Plans that are sponsored by an employer, work in the same way as 401(k). The difference is that 403 (b) plans can be offered by public schools or other organizations that are exempt from tax. Traditional 403(b), like traditional 401(k), contributions are tax-deferred. Until you withdraw funds, you won’t be subject to taxes on your earnings or contributions.
Individual Retirement Account (IRA)
Traditional IRA contributions, which are generally self-directed and not sponsored or managed by an employer, are tax-deferred. The money you withdraw will be subject to your regular income tax rate once you have retired and are no longer able to make withdrawals.
Contributions to a Roth IRA don’t qualify for tax deduction, but you might be able withdraw your money tax-free during retirement.
For more information on these plans, you might want to speak with your tax advisor. Remember that compound interest is a good reason to save early. The CFPB explains that compound interest can help you increase your savings by earning interest. This Compound Interest Calculator by the U.S Securities and Exchange Commission will show you how compound interest can add-up.
Money Management Skills #4: Save For Emergencies
You may feel more confident about your financial position by putting away money in an Emergency Fund to cover unexpected events, such as major home repairs. Perhaps your goal is to increase your savings. These finance tips can help you with unexpected expenses:
- Interest rates can change – It is a good idea to shop around. You can earn more interest if you save with a savings account that offers a higher rate.
- Put extra income into your account – Consider putting the money you receive from your employer, such as a tax refund or bonus, into your bank account. This extra cash can increase your savings.
- Instead of buying what you want, buy what you actually need – This will allow you to save money.
- Automate your savings – You may be able, with the assistance of your employer to set up automatic savings transfers to your savings account. This will help you build your savings and avoid the temptation to spend more money.
Money Management Skills #5: Plan To Pay Off Debt
Repaying your debt can help you manage your finances better and decrease anxiety. The CFPB recommends two strategies to get rid of debt:
This method focuses on paying down your lowest balances first. While you make minimum payments on your debts, you still have to pay them. You also use any extra money to pay down your smallest balance. You then use the money that you have left to pay your next-smallest debt. It could lead to higher interest rates making it more difficult for you to pay off your debts. This could lead to higher long-term costs.
Debt Avalanche Method
In this method–also called the highest-interest-rate method–you list your debts based on their interest rates, from highest to lowest. The highest interest rate debt is the first to be paid. After that debt is paid off, the extra money can be used for the next loan. Also, you can still make minimum payments on your debts.
Money Management Skills #6: Establish Good Credit Habits
Your finances can be improved by working towards establishing high credit scores. Your credit score is a snapshot of creditworthiness, according to the CFPB. These scores can have a significant impact on many aspects of your life, from renting an apartment to applying for a job. The CFPB recommends these as part of a personal financial management plan to build credit.
- You can pay your bills on time – each and every month.
- Do not exceed the credit limit.
- Do your best to build a credit history.
It may also be beneficial to regularly check your credit reports for accuracy. CreditWise is a simple way to check your VantageScore(r), 3.0 credit score, and TransUnion(r), credit report. It will not affect your credit scores.
Improve Your Money Mindset
It is important to think about how you spend your money. However, it is also important to think about how you view it. A positive outlook on money management can include focusing on your goals and adopting a positive financial mindset. This could mean a solution-oriented approach that focuses on what you can control, such as repayment of debts or your spending habits.
You’re not the only one feeling stressed when it comes to managing money, personal finances, and reaching your savings goals. Now you’re more familiar with strategies to manage your money, set your monthly budget, pay off debts, and build your emergency fund. These strategies can become habits if you continue to work at them. This could set you up to financial success at any stage of your life.