How to Manage Your Money

What we'll cover:

• 3 money management tips: track what you spend, consider creating goals; and review/revise your plan
• SMART goals: Specific, Measurable, Attainable, Realistic and Time-bound
• Revisit the 50/30/20 Rule (50 percent essentials, 30 percent wants, 20 percent savings)

Yes, learning how to manage your money can make your life easier.  

But before we deep dive into our three money management tips – track your spending, create goals, review and revise your plan - here's an important thing to remember:  your spending habits will change, because your life is going to change. 

You may get married, have a baby, start your own business, or move halfway across the country. All of these life changes mean your budget will change too. To take action on our three money tips, consider using a money management app that can help automate much of the work.

Tip 1 - Track what you spend

When you track your take-home pay, you’ll have a clear line of sight into your finances, post-taxes, and how that money is allocated. This is a must. Once you’ve done that, you can see how and if your spending patterns are in line with your idea of financial well-being.

Look, there’s two different ways you can go about doing this: one is to use an app; the other is to do it manually. Either way, you may want to consider taking inventory of your expenses. 

Try these lists:

• List all of your regular sources of monthly income – you want your post-tax total (what you take home), as well as tracking income that’s dependable, since that’s essentially your financial bedrock. 
• Take inventory of all accounts, including account balances of your bank accounts (checking and savings), which  is a good starting point to figuring out your net worth.
• List the living expenses you have every month, like mortgage payments or rent, loan payments, and insurance. Additionally, list what you tend to pay every month on variable, necessary expenses - like gas or grocery store bills – that might show up on credit card bills.
• List expenses that may be more flexible, like eating out, and optional, like a vacation you may be saving up for. 
• List paid subscriptions that you've signed up for, including gym memberships, video/music streaming services, fashion collections, food delivery providers, online tools, digital news outlets, and gaming companies.

Once you have these numbers lined up, you’re ready to answer two important questions:

• Are you spending more than you make? 
• Do you have some money set aside for savings? If not, do you want to start saving and create savings goals?

Answering these questions, and looking at where your money goes, should help you figure out your monthly budget. If your spending or saving levels aren’t where you want them to be, the list you just put together may help you re-prioritize your expenses, to see where you may be able to cut back. For example, you may realize that you have been paying for a subscription for the last few months that you haven't been using, so canceling that subscription or finding a less expensive alternative could help you save money in the long run.

If you’re looking for a financial compass of sorts, the 50/30/20 budget rule could provide a money management strategy for allocating a steady income.

It breaks down like this: 

• 50 percent for essentials – These are recurring monthly expenses. Think insurance, rent or mortgage, gas, groceries, etc.
• 30 percent for wants – What do you want but don’t need? Dinner and movies? Vacations? Collectibles? Clothing? 
• 20 percent to save – Still building an emergency fund? That’s what this can be used for, or even if you’re just trying to save money generally. Use it to continue stashing money away – because there’s no harm in padding your savings account.

Tip 2 – Consider creating goals

Do you understand where your money is going? Check.

And can you see how it measures against the money you’re bringing in? Check and Check.

Great, so now you can create goals and a plan to reach them – because goals are useless without a clear plan of attack. 

Maybe a goal is to invest more on a regular basis. Or continue to build up your emergency fund. Maybe you’d like to be able to start contributing to a retirement account (or increase your current contribution amount). Thinking about getting a new car, upgrading your living situation or taking a much-needed vacation? These are all goals, and there should be an action plan behind the ones you plan to prioritize (and the amount of money you want to put towards those goals). 

To reach your goals, you’re going to want to dive into another set of numbers: how much money you’ll need to reach each of those goals, and what you’ll need to save every year, every month, and every week to achieve them. 

It requires a few steps. If you’re serious about managing your money it’s worth it, because breaking down goals into parts is the concept behind what are called “SMART” goals. It stands for goals that are Specific, Measurable, Attainable, Realistic and Time-bound. 

In other words: A goal that’s smart is a goal with a plan to reach it. You don’t have to do the letters in order. Just account for each of them.

What a SMART goal looks like:

Let’s say for example, that your goal is to save $2,000 in an emergency fund (Specific).

In one year (Time-bound).

Breaking it down monthly or weekly, you would need to save on average about $167 per month  or about $38 every week  (Measurable, Attainable, and, if we’re on a roll, Realistic).

Breaking this one goal into parts makes it easier to act on than pursuing a vague goal like “save some money.”

So that’s part one of saving. 

Part two includes knowing that it’s possible for the money you’re setting aside to earn money while it waits to be spent – let it sit in an account that earns interest (essentially providing you extra money!). 

Some options you may want to consider: savings accounts that offer high Annual Percentage Yields or “APYs ” – the total interest you will earn on a savings account or certificate of deposit in one year, including all compounded interest. The higher the interest rate, the more money you can earn!

Tip 3 - Put your plan to work, review and revise

Now that you’ve got goals and a money management plan for how to meet those goals, you should feel ready to take action. Keep in mind that it’s OK to make adjustments. Sometimes in life you just need to adapt.

Plus, this will help you get ready for the next phase: checking in regularly on your action plans to see if you’re on course to achieve your goals. Keep tracking your spending, keep seeing if you’re staying within your plan and identify anything that’s throwing you off track.

Then, do it again. In fact, consider scheduling regular check-ins on your progress, because we know how difficult it can be to make time for this. Goals and plans aren’t the kind of thing you can just set and forget. But building check-ins into your schedule should make it habitual over time, and when you establish good habits like this it can feel like achieving any and every goal is within reach.

If you get a raise, first, nice job! Next, make a plan for it by first asking: is the increase needed to pay down credit card debt? Can you use it to build an emergency fund? Can you put it towards a vacation savings account? 

Sound like a familiar pattern? Good -- you’re getting the hang of it. 

Ask for support and reward yourself

Having someone remind you that you have financial goals may help you stick with them, so consider finding an accountability partner. This could be a trusted friend or family member, to help keep you on track. 

Above all else, give yourself some credit. Any progress is good progress. So celebrate even the small wins with your money management plan. For example, 12 months to meet a SMART goal of saving $2,000 for an emergency fund can feel like a long time. So consider giving yourself a small (plan-friendly) reward for achieving each SMART goal.