How to Manage Your Money Better
1. Make a Personal Budget
People feeling the impacts of financial stress struggle more with budgeting—that’s one finding from the Capital One Mind Over Money study. They feel less in control and tend to spend their paychecks more impulsively.
According to the Consumer Financial Protection Bureau (CFPB), “budgeting helps ensure that you’ll have enough money for the things you need and the things you want, while still building your savings for future goals.”
- Add up your monthly income. This includes your salary at your job plus other sources of income like bonuses, tax refunds or income from side work.
- Add up your monthly expenses. These can include expenses in the major “buckets” like paying bills for housing, food, student loans and transportation. For monthly payments that aren’t always the same—food and utilities, for example—you could use an average from previous months.
- Subtract your expenses from your income. This amount will be the starting place for your budget. Anything left over is what you have to work with when you’re paying down debt and building up savings. If what’s left is too small, you may want to consider cutting costs for things like takeout food and subscriptions, if you haven’t already.
It may help to think of your budget as a living document that you look at often. That way, you can make adjustments if you need to, like when you eliminate a monthly expense by paying off a credit card. You might also consider popular budgeting approaches, like the 50/30/20 rule, when creating your budget.
2. Track Your Spending
3. Save for Retirement
Not surprisingly, the Capital One Mind Over Money study found that Americans are worried about their financial future. That includes saving for retirement. In fact, 68% of respondents said they’re worried they won’t have enough money to retire.
- 401(k) plan through your employer. With a 401(k), you can deposit pretax dollars through a regular deduction from your paycheck. Beth Sabin, an executive at Capital One, says, “If you have a company match through your 401(k), this can be a great place to start by contributing until you have your full match.” She also recommends upping your contribution by 1 percentage point to see if that’s doable for you. If it is, you might increase it by another percentage point to accelerate your savings.
- 403(b) plan. Like 401(k) plans, 403(b) plans are employer sponsored. One difference is that 403(b) plans are offered by public schools and some organizations that are tax exempt. Contributions to traditional 403(b) plans are tax deferred—just like they are with traditional 401(k) plans. So you don’t have to pay taxes on the contributions or earnings until you withdraw funds from the account.
- Individual Retirement Account (IRA). Contributions to a traditional IRA—an account that is generally self-directed and not sponsored by an employer—are tax deferred. Once you retire and start making withdrawals, the money will be taxed at your regular income tax rate.
- Roth IRA. While contributions to a Roth IRA aren’t tax deductible when you make them, you may be able to withdraw your money tax free during your retirement years.
Keep in mind that compound interest can be an important reason to start saving early. As the CFPB explains, compound interest may help you accelerate your savings by earning interest on interest. To see how compound interest can add up, you may want to try this Compound Interest Calculator from the U.S. Securities and Exchange Commission.
4. Save for Emergencies
5. Plan to Pay Off Debt
: This method focuses on paying off your smallest balances first. You still make the minimum payments on all of your debts. At the same time, you use any extra money to pay off your smallest balance. Then you use the money you’ve freed up to pay off your next-smallest balance and so on. This could mean debts with higher interest rates might wind up taking longer to pay off. And that could cost you more in the long run. : In this method—also called the highest-interest-rate method—you list your debts based on their interest rates, from highest to lowest. You put your money toward the debt with the highest interest rate first. Once that’s paid off, those extra funds can be used to pay off the next loan on your list. You also still continue to make the minimum payments on all your debts.
6. Establish Good Credit Habits
Regularly checking your credit reports for accuracy may help too. CreditWise from Capital One is an easy way to monitor your VantageScore ® 3.0 credit score and TransUnion ® credit report. It won’t hurt your credit scores. And it’s free for everyone, even if you don’t have a Capital One product. You can also get free copies of your credit reports from each of the three major credit bureaus at AnnualCreditReport.com.
Set Clear Financial Goals
To know if you’re managing your money successfully, it’s important to create some financial goals both big and small. Making progress toward these goes will prove to you that you are being successful at managing your money, and knowing that you’re mastering your money will only give you confidence to do even better.
Create financial goals that are important to you. Whether your goal is to create a $500 or 800,000 emergency savings account, pay off one credit card, get out of debt, or save a down payment for a home, setting clear financial goals will definitely help you with your money management.
Once you’ve written down your goals, determine their level of importance and think about how much money you’ll realistically need to set aside each month to reach them in the time frame you have in mind. Then sit down with your budget and see how you can allocate the right amount of money each month to make each one of your goals happen.
You may not be able to afford to pursue each goal right away. You may need to find a way of increasing your income and/or decreasing your expenses, but if a goal is really important to you, you’ll eventually find a way. Also bear in mind that accomplishing one goal – like paying off a debt – can free up money to pursue other goals.
Organize Your Finances
Getting your finances in order is an important, basic money management skill everyone should develop. If your bills and financial statements aren’t organized and easily accessible, you’ll be much more likely to miss payment deadlines, damage your credit, overdraw your bank accounts (because you don’t know what your balances are or when all your payments are due), pay expensive NSF fees on bounced cheques, and waste a lot of time searching for documents.
Designate a space in your home for your personal finances – even if it’s just one spot on a desk. Get yourself the right tools to help you get organized such as a filing cabinet, folders, boxes, a computer, whatever works for you. Some people even like to scan important documents and save a copy of them on their computer, so if the original gets lost or destroyed, they have a backup.
If you’re finding it hard to keep all your paperwork straight, you can also simplify your system by signing up for online statements. However, if you find you have to see bills and visualize when they need to paid, get a separate calendar and mark it up with all your payment dates. You can also use an online calendar that sends you email or text message reminders.
Get Help Managing Your Money
Are you ready to become the boss of your money but not quite sure where to begin? That’s okay! Take our free three-minute assessment to find out where you stand. We’ll give you a list of next steps and resources to help kick-start your journey.
If you’re already saving and investing but need more help managing your money, it’s time to get in touch with a financial advisor. Our SmartVestor program will connect you with a professional in your area who will take the time to get to know you and help you build an investing strategy so you can reach your goals.
Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.