The Guide to Leveling Up Your Money Management

Published on
August 22, 2022

Our finances are one of the most critical aspects of our lives. Just like your physical health, managing your money poorly can have negative consequences. The good news is that the opposite is also true: taking charge of your financial health can put you in the driver’s seat to start making positive changes in your life.

The first step to leveling up your money management is figuring out your financial situation as well as your goals. After that, you need to plan with achievable steps to get there.

Properly managing your money will give you a sense of control and peace of mind. In this guide, we’ll walk you through the basics of personal finance so that you can enjoy the benefits of a financially fit life.

#1: Focus on Both: Short Term & Long Term Financial Goals

When you’re trying to build a solid financial foundation, it’s essential to focus on both your short-term and long-term goals. That might seem like a daunting task, but it’s doable if you take it one step at a time.

Start by creating a list of all things you want to achieve. Once you have that list, it’s time to prioritize. What are the most important goals? Which ones can you achieve sooner?

Next, come up with a plan of action. Figure out what you need to do to reach your goals and make a timeline for yourself. Knowing what you need to do can keep you motivated and working towards your targets. Here are some examples of financial goals you may have in mind:

Short-term goals:

  • Saving for a down payment on a car or house

  • Paying off credit card debt

  • Building an emergency fund

Long-term goals:

  • Saving for retirement

  • Saving for college tuition

  • Investing in stocks or mutual funds

Remember: your goals will likely change over time. That’s okay! Just revise your plan as needed and make sure you stay on track.

#2: Create a Budget: Know Where Your Money is Going

Once you have your goals in mind, it’s time to look at your spending habits. Do you know where all of your money goes each month? If not, now is the time to find out.

Creating a budget is one of the most important steps you can take to get your finances in order. Budgeting will help you track your spending, figure out what areas of your life you can save money in, and make it easier to set spending limits for yourself.
There are a few different ways to approach budgeting. You can use the envelope method, which involves putting cash into different categories (“envelopes”) like rent, food, and entertainment. Or, you can use a digital budgeting tool like Mint, or You Need a Budget (YNAB).

Whichever method you choose, make sure you track all of your expenses – even the small ones. It’s also important to be realistic with your budget.

Don’t try to cut back so much that you end up depriving yourself. You’re more likely to stick to your budget if you give yourself some wiggle room.

Once you have a handle on where your money is going, you can start making changes. If you find that you’re spending too much in one area, try to cut back and redirect that money to your savings or investments.

#3: Build an Emergency Fund: Have Money to Fall Back On

One of the smartest things you can do for your finances is to build an emergency fund. This is money that you set aside specifically for unexpected expenses.

If something happens – like a car accident or a medical emergency – and you don’t have any savings, you could be left in a difficult situation. You might have to charge your credit cards or borrow money from family and friends.

But if you have an emergency fund, you can easily cover those unexpected costs.

How much should you save? That depends on your unique situation, but a good rule of thumb is to have 3-6 months of expenses saved up.

So if you spend $2,000 per month on bills and other necessities, you’d want to have $6,000-$12,000 in your emergency fund.

Of course, building up that much savings can take time. If you don’t have thousands of dollars just sitting around, start small and gradually increase your contributions. Even saving a few hundred dollars can be a big help if you need it in a pinch.

Try opening a separate bank account that you can use specifically for your emergency fund. This will help you stay disciplined and make it easier to keep track of your progress.

#4: Pay Off Your Credit Card Debt: Get Rid of That Ball and Chain

Credit card debt is one of the biggest financial headaches out there. It can keep you from reaching your goals and cause a lot of stress. In fact, the average household with credit card debt owes over $6,125!

If you’re in this situation, it’s time to start paying off your debt. The sooner you get rid of it, the better. Two methods that can help you do this are:

1. The Snowball Method

This involves paying off your smallest debts first by sending your extra monthly payments to that account. Once that debt is paid off, you move on to the next smallest one and so on.

This works so well because it gives you a sense of accomplishment and motivation to keep going. The psychological boost of seeing your debt disappear can be very powerful.

2. The Avalanche Method

This method is similar to the snowball method, but instead of paying off your smallest debts first, you focus on the ones with the highest interest rates. This is because it saves you more money in the long run.

The reason why this method gives results is that it attacks the most expensive debt first. This saves you money on interest payments, which frees up more cash for your other debts.

Both of these methods can work well if you’re dedicated to getting rid of your debt. Just pick the one that makes the most sense for you and get started.

#5: Save for Your Retirement: Set Aside Money for the Future

The best financial decision you can take for your future is to start saving for retirement. This may seem like a daunting task, but it’s never too late to get started.

The sooner you start, the more money you’ll have saved up by the time you retire. And if you start early, you can take advantage of compound interest.

How much should you save? That depends on many factors, such as age and income. Try and save 10-15% of your income. If you make $50,000 per year, you’d want to save at least $5,000.

There are a lot of different ways to save for retirement. You can open a 401(k) account, an IRA account, or even a Roth IRA account.

You can also use special accounts that give you valuable tax breaks. For example, the Roth IRA account allows you to contribute after-tax money, but your withdrawals in retirement are tax-free. This can be a great way to reduce your tax bill in retirement.

Saving for retirement may seem like a difficult task, but it’s one of the most important things you can do for your future. Just start small and increase your contributions over time, and you’ll be glad you did when you retire.

Concluding Thoughts

There you have it—five simple steps that can help you get your finances in order. Remember: nothing worth having comes easy. But with time and discipline, you can achieve financial freedom and reach your goals.

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