16 Tips For Better Money Management

Woman with pen and pencil making budgetDo you consider yourself a good money manager? Many Americans consider themselves to be smart money managers who really aren’t. The problem with money management is that many of us take it for granted that we know how to manage money when we really don’t. It’s like assuming that we’re excellent bowlers simply because we can hold a bowling ball in our hands. Just because you have money and manage it doesn’t mean you’re a smart money manager. So here are 16 tips that could help you do a better job of managing your finances.

  • Track your spending
  • Create a budget and stick to it
  • Take charge of your money by outlining goals, creating plans, and taking action
  • Create a filing system for your financial paperwork
  • Make a “bill’s calendar
  • Pay cash for everything
  • Have an emergency fund
  • Research checking accounts for their minimum balances, fees and overdraft fees to find the best deal
  • Safeguard your Social Security number and shred all financial documents to protect your identity
  • Purchase only things you need and not things you want
  • Resist peer pressure to spend money that you don’t really have
  • Shop around for car insurance and extend your car’s life by having routine maintenance done on time
  • Keep good credit by paying your bills and loans on time
  • Limit the number of credit cards you carry
  • Keep control of your credit cards and do not run up big balances
  • Get into the habit of saving money and put your money to work earning compound interest.

The importance of knowing where your money is going

If you go back and review our list of 16 tips, you’ll find that the first two have to do with tracking your spending and creating a budget. We put these two in this order because it’s virtually impossible to create a decent budget unless you first track your spending. You need to know where your money’s going before you can get it under control. There are numerous apps available for today’s smart phones that make it very easy to bookkeep your spending. This doesn’t mean these apps will do it all for you. You will still need to enter information about all of your purchases but the app will store the information and organize your spending into categories for you.

You may be shocked

When you sit down and review your spending after that first month, you may be shocked. For example, you might have thought you were spending only $100 or so on entertainment only to find that you actually spent $500. Or you could have guessed that you were spending $200 at the grocery store only to discover that you spent $400.

Your spending and your goals

You should also consider how you’re spending your money versus your goals in life. Our tip #3 is to outline goals, create plans, and take action. The reason for this is because good money management means having goals and then creating a plan for achieving them. In fact, if you have no goals, you might not even need to create a budget or plan. But if you do create short- and long-term goals and have a plan for accomplishing them then you can prioritize your spending based on them. In turn, this will help you create a budget and keep you on track as you can see that you’re moving closer and closer to achieving your goals.

Smart money management and credit card debt

Do you know what a minefield is? It’s an area of ground peppered with landmines. If you step on one of these mines, it explodes and you’re history. We tend to think of credit cards as mines. If you use them unwisely, they can explode into big debt. If this has already happened to you, it’s important that you get to work eliminating those credit card debts. For example, you could use a tactic called snowballing to pay them off. This is where you make a list of your credit card debts ranging from the one that has the highest interest rate down to the one with the lowest. You then focus on paying off the debt with the highest interest rate first, while continuing to make the minimum payments on your other cards. This is because paying off the card with the highest interest rate first will free up the maximum amount of money you can then put to work paying off the card with the second highest interest rate, and so on.

What not to do

What you definitely don’t want to do is just keep making the minimum payments on all your cards as explained in this brief video.

To avoid that minefield

If you haven’t yet created a minefield of credit card debt, there’s an easy way to prevent this from happening. Just don’t use credit cards. Pay cash instead. If you have multiple credit cards, you might consider shredding all of them but one. Then take that card and do as one woman did and freeze it in a block of ice. That way it would be available if you needed it to pay for an emergency but not easily accessible for impulse purchases.

Why paying cash is importantSpending cuts, isolated

There are several reasons why it’s important to pay cash for your purchases. First, this avoids creating debt. But second, there is just something more tangible and physical about paying cash. This is hard to explain but try this test. Next time you’re purchasing something for more than $50, take out a credit card then put it away and pay cash. We think you’ll agree that it’s just somehow feels harder to pay cash, which can help limit the amount of stuff you buy.