(Disclosure: Some of the links below may be affiliate links)
Today’s post is a guest post by Financial Wolves, a blog about making money with side hustles to help you achieve financial freedom. I am very happy to have them as a guest poster today.
Most people hear the phrase “personal finance” and run the other way. However, personal finance is not something to be scared or nervous about. About 50% of all American households live paycheck to paycheck.
At the same time, only 30% of them have long-term financial plans. Therefore, learning money management tips is more important now than ever.
Without proper money management, you are risking your finances. Being smart about personal finance means you are prepared when life throws you curveballs.
Let’s say you are fired or going through health problems.
If you did not have the foresight to plan your finances, what are you going to do? Money management is a vital part of financial planning. If you do not know how to go about it, read on for some easy money management tips.
What are Common Money Management Mistakes?
Before we get to it, what money management mistakes are you making? It does not matter what income bracket you fall under. Studies show that most people make these mistakes because of a lack of financial literacy.
Some common mistakes include:
- Firstly, getting big tax refunds as opposed to saving that money for interest-free loans.
- Excessive spending (i.e., spending too much on things you do not need).
- Not knowing how much and where you are spending. Some people do not review their bank statements and, consequently, do not keep track of their finances.
- Only saving what is left at the end of the month. If you do it this way, you will only save a few pennies.
- Also, living paycheck to paycheck without any backup plan.
Are you guilty of any of these mistakes? Do not worry. After all, money management is a trial-and-error process. You will not learn anything if you do not make mistakes.
What Are the Three Ways to Manage Money?
Another question we need to answer before we go to our money management tips is in what ways do we manage money.
In sum, there are three ways we do this:
- Earning (meaning your regular income)
- Saving (your retirement plans/401K, home equity plans, college plans, etc.)
- Investing (for example, investing in a business, real estate, stock)
While the bottom two are important, most of us only follow the first one. Therefore, most money management tips and advice encourage you to invest and save. Although our list is no exception, we have also included tips to optimize your income.
How to Improve Money Management Skills: Eight Money Management Tips
So, what money management tips should you follow? In essence, there are many things you can do to improve your personal finance. It depends on your situation that includes your income, debt, spending, savings, etc.
However, these are generally the eight things you should be doing:
1. Maximize Your Household Income
Your household income is your most immediate source of money. Consequently, it is a good idea to maximize it. Calculate your market value according to your qualifications and experience and see if you are getting paid enough.
We all work hard, but again, statistics show most people remain underpaid (particularly women). Do not be afraid to ask for a raise if you feel you deserve it.
2. Start a Side Job
Do not depend on one source of income. Always have a backup in place, even if it is small. Whether it is blogging or YouTubing, there are so many entrepreneurial opportunities in today’s job market. You can either find ways to make money online or do traditional jobs to earn income like these under the table jobs.
Either way, additional income means saving money at a faster rate.
Alternatively, if you do not want to take the time to build a fan-base, you can simply become an Uber driver or a VA (virtual assistant).
3. Budget and Prioritize Your Spending
If you take away anything from these money management tips, let it be the importance of budgeting. Keep track of your monthly/weekly expenses and see how you can minimize them.
Do not overspend on unnecessary things. That includes the Starbucks pumpkin spice latte and Kate Spade bag you have your eye on.
However, do not forget to take into account non-monthly expenses such as medical checkups (only if your insurance does not cover it) and home maintenance.
4. Get a Savings Account
Experts recommend getting high-interest savings and checking accounts. In all good financial planning, it is important to set goals. Savings accounts let you do that. How much you save every month directly correlates to how early you can retire.
See what is a reasonable percentage of your paycheck to save every month. You can talk to your account manager about this. Once you have decided, schedule the deduction immediately.
5. Invest What You Have
Due to the risk factor, most people do not like to invest. However, if you do it smartly, your investments should pay off over the long-term. You can invest in anything you want, including stock, real estate, bonds, and business initiatives.
If you are interested in investing, we suggest looking up more detailed guides. However, the concept is simple. Invest in something that has low fees and high diversification. You should invest as much as you can and as fast as you can. The trick, in most cases, is to get there early.
6. Prepare for Emergencies
Apart from savings accounts, you should also keep a certain amount of money aside for emergencies. Simple home repairs can cost thousands of dollars. Other than that, medical emergencies, even with health insurance, can cost a lot.
Therefore, it is smart to keep an emergency fund for unforeseen costs.
7. Do not forget About Life Insurance
It is never too early to get life insurance. The sooner you get it, the better it is for you and your loved ones. You should think seriously about getting life insurance, especially if you are the sole breadwinner in your family.
You can look at insurance providers and see which is the best for you.
8. Get Out of Debt
Lastly, debt is a severe problem for most Americans these days. From student loans to mortgage debt, almost 326 million US citizens have debt. If you have multiple debts, it is best to focus on the one with the highest interest first.
Managing debt is a matter of strategy. Consult an expert on how to plan and follow through. In general, credit card loans have the highest interest rates, so be sure to get those out of the way.
Moreover, if you are in the middle of getting student loans, it is better to get those with less than 5.0% interest.
Money Management Tips: FAQs
How Much Money Should I Save for Retirement?
This depends on several things, including:
- Your cost of living (food, house, clothes)
- Your life expectation (which you can estimate through family history)
- Expected medical costs (for existing conditions like diabetes, blood pressure, and possible future conditions)
- Possible retirement plans (for example, traveling or cruising)
There are many more things. Consequently, think about your situation in detail before settling on a retirement plan.
What Type of Life Insurance Should I Get?
Again, it depends on individual factors. For example, if you are the sole breadwinner and have a family of four, you are going to need an insurance plan that sustains your family.
If you need a lifetime policy, a permanent life insurance plan is the one to get. However, permanent plans are more expensive than others.
Is it Better to Lease or Purchase a Car?
Well, how often do you drive? If the answer is every day, you are better off buying a car. For those who use cars frequently, leasing is more expensive. Alternatively, if you only need to drive occasionally, leasing is a more practical option.
To sum it up, these money management tips tell you one thing: the importance of financial planning. If you are a good planner, there is no reason you cannot manage your finances effectively. However, apart from planning, it is a good idea to read up on financial concepts.
There are even many online courses on financial literacy. If you know your stuff, you empower yourself. No one can deceive you into making uninformed decisions, and you are less likely to make financial mistakes.
In essence, we hope you found this guide helpful and informative.
Do you have any other money management tips?
Thanks a lot to Financial Wolves for this guest post! Financial Wolves is a blog focusing on helping you make more to achieve financial freedom. They have repaid their student loans and shifted their focus to side hustles, real estate, and blogging. You can follow them on Twitter and Facebook