This is your ultimate money management guide, packed with money managing tips (no matter what your current financial circumstances look like).
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I’ve interviewed lots of people over the years and one thing has become crystal-clear to me: they never learned how to manage their money.
Formally, that is.
You’ve probably seen others manage their money, and your parents certainly tried their best. But chances are really good – given the lack of financial education in our country – that you just kind of fell into managing your money life.
And while you’ve done the best you can up until now, you know there’s more to this managing money thing.
You’ve been around the block a few times, and you know that if you don’t learn to control your money, it controls you.
I’m here to guide you through the process of managing your money not just to survive, but to thrive.
To start to be able to design your life on your terms – just like my husband and I have gotten to dabble in designing our lives (hint: I may be a work-at-home-mom, but I’m still not earning a full-time income. The reason I’ve been able to raise our almost-three-year-old? Is because we know how to manage our money. Imagine what choices YOU can make once you nail this as well? I’ve got chills just thinking about it!).
How to Manage Your Money Life – Assess Where You’re At
Besides you being here and reading through this page (bravo, you!), the Number #1 step to this entire process of learning how to manage your money is to find out where your finances are at right now. All the bells and whistles. All the pimples and uglies.
I take you through the entire process of grading the different areas of your financial life – your Net Worth, FICO score, Debt, Home Equity, Retirement Planning, and Estate Health – including a free How am I doing Financially Kit.
Get through that (go ahead, I’ll wait), and uncover the weaknesses to your money system. Use that as a guiding light to go through the rest of this page and see where you need to concentrate your efforts.
Pssst: Need some help with the story that your financial statements are actually trying to tell you? I say screw the financial statements…and answer these 3 questions instead to reveal your financial wellbeing.
On top of that, I want you to take a minute and do two things:
- Your One-Word Money Statement: I did this powerful exercise with a group of people several years ago, and I’d like to offer it to you as well. Come up with one word about how you’re feeling about the state of your money life.
- Accept Your Current Circumstances: I can’t tell you what a gift it is to accept where you are right now in your life. It forces you to be more present, to acknowledge what needs to work, to be grateful for what is already working.
I wanted to address these two areas as a lead in to the next section, which is all about shifting your mindset around money. It might not seem so important – especially when you’re staring down a barrel of creditors or looking at a $0 bank account balance – but trust me, it’s foundational.
Cleaning Up Your Money Mindset
The words we speak to ourselves, our partners, and our kids become our lives. And if you’re like a ‘typical’ American household, chances are, your money dialogue + other money thoughts need a tune-up.
Money Mindset Tune-Up:
- Lighten up! Everyone makes money mistakes (here’s a few of ours).
- Stop being ashamed of your financial mistakes – they just may be your biggest asset.
- How to Clean Up Your Money Conversation
- Climbing out of debt? Debt can be a rewarding motivator. Let me explain.
- How to Start from Where You are, with What You Have
- Do you think you're bad with money? Let's talk about that limiting belief.
Done with that mental flossing? Let’s move onto cleaning up your financial accounts.
Detox Your Financial Accounts
How to manage your money when you've got accounts all over the place that don't all talk to each other (i.e. they aren't linked up)?
We’re going to have your financial system all put together, wrapped up in a bow. This will make how to manage your money wayyyyy easier for you. But before we can do that, we’ve do some decluttering.
Here’s where I encourage you to do a “financial accounts dump” by writing down all of your financial accounts on one list. Everything that we're working with – we want the whole picture.
Here are the types of accounts you likely have (and if you don't, you might want to add a few of these to your money tasks in the Resource section):
- Checking Accounts: Individual, Joint
- Savings Accounts: Individual, Joint
- Health Savings Account (HSA)
- Credit Card Accounts
- Employer Retirement Accounts: 401(k), 403(b), pensions, Simple IRA, SEP, SARSEP, 457, and 409A
- Individual Retirement Accounts (IRA): Roth/Traditional, or Individual 401(k) for self-employed people
- Non-Retirement Investment Accounts: Bonds, stocks, mutual funds, Certificates of Deposit (CDs)
- Insurance Accounts: Auto, Home, Life, Health
- Flexible Savings Accounts (FSAs)
- Long-Term Care Policy
- Children's Financial Accounts: College Savings plans (529s), Coverdell ESA (Education Savings Account), Checking, Savings, Retirement Accounts, Custodial Accounts
Pro tip: Having trouble recalling all of your financial accounts or want to make sure you’re covering your bases? Check out your free annual credit report (annualcreditreport.com) and see what shows up.
Here’s how we’re going to do some general maintenance to clean up these accounts:
- Shed the Unnecessary: Get rid of accounts that no longer serve you. In some cases, you'll need to combine accounts. For example, an account you opened just for the opening bonus that you no longer need, or nixing your duplicate accounts after combining finances a few years ago with your spouse, or you have a litter of 401(k)s from employers you’ve left over the years and haven’t combined these into one place.
- Review Your Access + Security for Each Remaining Account: We're talking about one of your precious resources: your money. So, we need to make sure that the right people have access to it, that you're able to easily access it, and that it is as secure as it can be. Make sure you know how to sign into each of your accounts online for easy access, and that the right people can access the accounts. Tighten up security by changing passwords that haven’t been changed in years, as well as set up an easy way to remember all these passwords (I personally use the free online software, LastPass).
- Assess Coverages + Protections: Make sure your accounts all reflect your current needs. For example, is your life insurance adequate now for how your life has changed since you opened it? Does your insurance policy include your wedding rings and home renovations completed since buying it? Does your checking account have overdraft protection (or not – I like to keep ours shut off)?
Your accounts are all listed out in plain view of you. Now it’s time to set up a Couture Money System so that these accounts can practically run themselves!
Your Couture Money System to Help You Manage Your Money
You’ve got a life to live. At the same time, money fuels a good portion of that life. So, you need to find a balance between managing your money, and spending your time living your life – because you’ve got about a bazillion other things you’d rather be doing, right?
You need to set up money systems that will practically manage your money for you.
Setting up a couture money system will do two things for you:
- Give you a bottom-line picture of your inputs (income) and outputs (spending) anytime you want it.
- Set up a foolproof way to budget (spending and savings).
Honestly, it’s going to make you feel completely put together.
Your Couture Money System is going to have a few layers to it. And it is COUTURE…so not everyone’s is going to look the same. Let me layout a foundational structure for you:
- Link Your Accounts: Everything needs to be linked up to your Checking Account for automation (next). You want to have your checking account linked to your savings account. You want to have each of your credit cards, your mortgage, student loans, and other debt accounts linked to your checking account. You want to have your investment accounts associated to your checking account.
- Set Up Automations: You next want to automate absolutely everything you can. Automate your bill payments for your creditors/mortgage/student loans/etc. Automatically withdrawal money into your savings each month. Direct Deposit your paycheck into your checking account. Set up automatic investments into your retirement accounts. Automate, automate, automate.
- Set Up a Budget System: There’s incredible budgeting software out there that will help you express your priorities + needs + wants automatically, plus keep tabs on your checking account (where everything is linked to) in just a glance. Personal Finance Apps like Mint.com and YNAB.com track your expenses, and budget for savings for you.
- Set Up an Aggregate Money Management App: Your last step is to set up a free dashboard that aggregates EVERYTHING – all your assets, your liabilities, AND your investments – into one snapshot to give you a quick view of exactly how you’re doing financially anytime you’d like it. I personally use Personal Capital, and have for years. They’re a free wealth management system, and the information they give you is priceless (not to mention makes you smarter with your money because you known crazy things like the amount of fees you’re paying across all accounts and investments).
What I love about this Couture Money System? You set it all up once, and you’re done. There’s little maintenance over the years you’ll need to do.
How to Create a Budget in Line with Your Financial Priorities
This is where we start to put the “personal” back into “Personal Finance”. Because everything we’re doing here? Has to be about YOU and what YOU want. Otherwise, it won’t stick.
If you went through the steps above and set up your budget software, then it automatically populates your spending over the last few months.
This information is golden! And it doesn’t entail you going through that checking account ledger you’re probably not keeping anyway (who does in this digital age?).
It’s time to figure out the budget that you WANT to keep, not the one that you’ve BEEN keeping by default.
Take a couple of minutes to complete these two exercises:
- Spending Priorities Reality Check: There are things you want to be spending your money on, I’m sure. List out your top 3 spending priorities, then look in your budgeting software account to see how much you spend in these 3 categories each month as a percentage of your income. For example, if you’re a foodie and love to cook from scratch like my husband and I, then spending a bit more on food is probably a priority. Let’s say you spend $400/month on food, and you earn $5,000/month after taxes. Divide $400/$5000 to reveal that you spend 8% of your income on food.
- Savings Reality Check: Again, go into your budgeting software and see how much money per month you’re sending to retirement (retirement accounts are investment accounts; however, we’ll include that in our “savings” category here), and any of your savings accounts. Figure out the percentage of your income that you’re saving. For example, if you’re sending $100/month to a 401(k), and $450/month to your IRA, and $150/month to your travel fund, and you earn $5000, then you would divide $700/$5,000 to reveal that you’re saving 14% of your income each month.
- Bonus Exercise: Find the percentage of your income going towards servicing (i.e. paying) your debts each month.
Any eye-opening information there? Don’t worry if you’re a bit discouraged by the zeroes staring back at you; that’s why you’re here – learning how to control your money and how to manage your money is going to open up many possibilities for you!
As for the rest of creating your budget, check out this resource:
- Budget Advice: How to start a budget for the first-time budgeter
Now…we’re going to dedicate an entire section to tackling your debt.
Managing Your Debt So You Can Pay it Off
We can't discuss how to manage your money and leave out the super-important topic of debt.
Nothing will increase your cash flow + opportunities faster than paying off your debt. Not to mention…it just feels darn good to get it off your back.
I would know, as my husband and I paid off the last of our $59,496 in debt (student loan, car loan, and engagement ring loan) on September 1, 2010.
If we had followed the schedule our creditors wanted us to – the one that would suck the most amount of interest out of us – we’d still be in debt TODAY…8 whole years later!
We still have our mortgage, but we’re chipping away at that on a 15-year loan instead of a 30-year one.
So, back to you. If you’re here — like I was just a few short years ago — then you’ve overspent, overextended yourself and your finances, and are likely feeling overwhelmed. Are you over all that?
Here are ways to SMARTLY, and QUICKLY, get out from under your debt:
- Becoming debt free on your to-do list? 3 Debt repayment strategies I’d use if I were starting all over today.
- 1 Method to Pay Off Mortgage Faster
- How can I pay off my credit cards faster? Here’s a cool trick for you.
Strategies for How to Manage Your Money Better Moving Forward
Managing money is not all about systems – though that’s a true foundation to it all.
You’ve got to make better money decisions, with both the short-term and long-term in mind, in order to really get control of your finances.
In the short-term, you’ve got to put out the fires and pay your monthly bills. In the long-term, you’ve got to save up for your goals + for retirement.
Let me walk you through how to make better decisions when managing your money – the kind that will enable you to live the life you want to live:
- Use this piece of money advice to make the best financial decision EVERY TIME
- Your Fool-Proof Method for setting up a money plan to fund the next big thing in your life (whatever it is!)
- Use our hybrid money strategy for spending
In this final section, we’re going to talk about how to protect all the money you’re setting aside (or will be in the future), plus the lifestyle you’ve become accustomed to living.
Strategies to Protect Your Finances + Lifestyle
Anyone who’s ever had their credit cards stolen (we did!), or their identity stolen, or money stolen from their bank account (us, again!), or lost an asset that wasn’t insured can immediately understand how important protection is.
It’s way better to prevent BEFORE something happens than to prevent the NEXT TIME it happens.
Let’s look at a few things you can do to protect everything you’ve worked for and are working towards:
- Look at your risk level in your Investment Portfolio: Is your risk too high for how soon you’d like to retire, or too high for what you’re comfortable with? Is it right on par? Use your free Personal Capital account to assess what kind of risk exposure you have.
- Monitor Your Credit Reports: MyFICO offers a great service that lets you monitor your credit reports + gives you your credit scores. If you’d just like a free copy of your credit reports, you can do so using AnnualCreditReport.com.
- Change Your Passwords: It’s such a hassle to change your passwords online (I think so, as well!). But it’s totally essential. Use a free tool like LastPass.com to track all of your passwords automatically, and then periodically update each. That way you can sign in to any account you need, without having to remember new/old passwords.
- Update Your Beneficiaries on Each Financial Account: I've got an (embarrassing) confession to make: it took my husband, Paul, and I 2.5 years to change our beneficiaries after we tied the knot. We waited too long! We got a kitten together, honeymooned together, rearranged furniture and painted more rooms than I care to remember. But something that we failed to do in those first few years was to change our beneficiaries on our joint and individual financial accounts. Protect your assets, and your loved ones.