12 practical money management tips

Learning how to manage your money is a little like learning how to cook a new dish. You might be a little intimidated by the ingredients or the fancy instructions using French words you’ve never heard of. But you enjoy the end result, and the next time you make the dish, it’s even easier.

The same goes for budgeting, saving, and paying down debt. Practice really does make perfect, or something pretty near to it. 

If you're ready to hone your skills and reach your financial goals, we've got some simple tips you  could use to manage your money like a pro. 

Money management tips that can transform your financial life

Taking charge of your personal finances starts with knowing that you can do it. 

Money shouldn't be a mystery, and having a little confidence in your abilities goes a long way. So if you need to give yourself a little pep talk before diving into the tips, take a second to remind yourself that you control your money, not the other way around. 

Now, let's look at some practical ways to live your best life financially. 

1. Understand what goes in and what goes out

The first step to managing your money is to understand your income and expenses. You can do this with pen and paper, in a spreadsheet, or using an easy, free budgeting app.

Add up all your income, including: 

• Wages

• Side hustles

• Gig work

• Alimony 

• Child support

Next, look at where that money goes, and categorize your expenses:  

Fixed expenses don’t fluctuate much or at all. This includes things like your mortgage or rent payment, car insurance, cell phone bill, streaming subscription, childcare, and loan payments. 

Variable expenses are things you're obligated to pay for, but the amounts fluctuate from month to month. For example, your utility bills might be higher or lower depending on how much energy you're using.  Groceries, vehicle maintenance, and healthcare tend to go up and down, too. 

Discretionary spending is everything else you spend money on. So, think dining out, new clothes, travel, alcohol, and exercise classes.

Note that we aren’t talking about wants versus needs here. Discretionary expenses are wants by definition because they are at your discretion (i.e., your choice). But variable and fixed expenses can be wants or needs. 

2. Create a budget (and commit to using it)

Once you know what your expenses and income look like, you're ready for the next step. 

A budget puts the power of choice into your hands. When you have a budget in place, you're telling your money where to go and what to do. 

There are different budgeting methods you might try, including:

• 50/30/20 budgeting

• Envelope budgeting

• Zero-based budgeting

Testing out different budget systems can help you find one that works. 

The method you choose isn’t as important as your commitment to it. Scheduling regular check-ins and giving yourself a small reward for sticking to your plan can help you feel proud of yourself and motivated to keep going.

3. Prioritize expenses (and drop the ones that aren't as important)

Now’s the time to identify the needs and the wants in your budget. 

Some things you can't get around spending money on. Needs typically include:

• Housing

• Utilities

• Insurance

• Debt payments, including child or spousal support

• Groceries and personal hygiene items

• Transportation

• Healthcare

• Childcare

• Savings

Everything else is probably a want. That doesn’t mean you have to drop them from your budget. It just means you should take a hard look at them and decide if they deserve a seat at the table. Figuring out what you want to stop spending money on is one of the smartest money management tips to live by. 

Prioritizing expenses means you can put your money toward the things that matter most, like:

• Paying down credit cards faster

• Growing a bigger emergency fund

• Saving for retirement or another long-term goal

Now, you just need to go through your expenses one by one and decide which ones to cut. No amount is too small, since every dollar you don't spend is a dollar you can put toward your goals.  

4. Shop smart, pay with cash

Paying with cash might seem a little outdated. But there are proven benefits to shopping the old fashioned way. 

For one thing, making a large purchase with cash might just land you a discount. Your local furniture store, for instance, may be willing to waive delivery fees or discount the price if you're paying in cash versus a credit card. 

For another, paying with cash could keep you from overspending. You simply can't spend what you don't have. Even with a pocketful of money, studies show that we spend less when we use cash. 

You might test it out by switching to cash for one or two budget categories, like groceries and gas. If you find that using cash helps you spend less, try it with more spending categories. 

5. Maximize savings at any budget

Saving money can help you get ahead financially. But what if you're working with a tight budget?

Do what you can. That might mean saving just $5 to $10 each paycheck. It’ll add up over time. And if you get any bonus money along the way from a tax refund or something else, you can add that to your stash instead of spending it.

Here are a few other tips and tricks for budgeting and saving money:

• Save your spare change and $1 bills.

• Round up debit card transactions to the next dollar and transfer the difference to a separate savings account. There are apps that can help you do this automatically.

• Open a checking account that earns interest and transfer the interest earned to savings each month. You can find high-yield checking and savings accounts online. Just be sure to look for accounts with no monthly maintenance fees.

• Sell things you don't need.

Get creative. Make it fun. Put yourself and your goals center stage. Sure, saving money involves making some sacrifices. But you stand to gain even more. 

6. Build an emergency fund

Saving an emergency fund is one of the most-repeated money management tips you'll hear.  An emergency fund can help you avoid relying on credit cards to cover life’s curve balls.  

Unexpected expenses aren’t an “if,” they’re a “when.” Everybody has a big expense come along now and then. You might get stuck paying for new tires, a new water heater, a surprise trip to the dentist when your kid accidentally steps on—and breaks—their retainer, or a _____. Fill in the blank with your own most recent example.

Make sure that savings is a line item in your budget—just as nonnegotiable as putting gas in your car so you can get to work. Then, open a dedicated savings account and set up an automatic transfer for the amount you want to save each month. You can break it up by paycheck, but the goal is to make sure that money gets added consistently. The money is yours. You can always transfer it back to checking if you need to. 

7. Nurture your retirement

Retirement won't pay for itself, and you can't count on Social Security alone to keep you afloat. If you haven't given much thought to retirement yet, there's no time like the present. 

If you've got a 401(k) at work, that's a great place to start. If your employer offers a match, take it. That means that they’ll match your contribution with money of their own, in your account. The match is free money that your employer is offering you, and the only condition is that you contribute at least the same amount from your wages.

If you don’t have a 401k at work, open your own individual retirement account (IRA) and contribute to it regularly. Your own bank or credit union might be able to help you open an account, or you could connect with one of the big brokerages in the U.S. Fidelity, Vanguard, and Charles Schwab all offer free guidance to people who want to plan for the future.

8. Deal with your debt

If you have too much credit card debt, medical debt, or personal loan or other debt, make a plan for knocking that debt down.

The reason debt should be a priority is that it’s costly. The longer you wait to get a handle on debt, the more interest you’ll pay. That takes away dollars that could be directed to your financial goals. Minimum payments won't cut it, especially if you're stuck with double-digit APRs.

If you have a credit card with a $10,000 balance and a 24% APR and you make only the required minimum payment each month, it’ll take you almost 30 years to pay off the debt and you’ll pay more than $19,000 in interest. 

If you’ve got debt and you’d like to get rid of it, explore debt solutions to figure out which strategy is right for your situation.

9. Have a safety net

Working to improve your finances means thinking about the what-ifs. What if the apartment building where you rent burns down? What if you have an injury that leaves you unable to work for a time? What if you were to pass away unexpectedly, leaving your family to get by without you? 

Nobody plans on these things happening. 

Insurance can protect you from losses in case the worst happens. The types of insurance you might need include:

• Homeowner's insurance

• Renter's insurance

• Car insurance

• Life insurance

• Disability insurance

They all apply in different situations, but they serve the same purpose: to protect you financially. Research coverage and costs by having a conversation with a knowledgeable insurance agent.

10. Protect your credit

Your credit score tells lenders how likely it is that you’ll repay your debts. A low score could keep you from getting approved for new credit or make it more expensive to borrow. 

Good financial habits naturally lead to a strong credit profile:

• Pay bills on time

• Keep credit card balances low or at zero

• Avoid applying for new accounts unless you really need to

• Review your credit reports for errors 

• Sign up for free credit monitoring and set up alerts 

11. Get professional financial advice

Financial advice isn’t reserved for the rich. It’s for anyone who wants to feel good about their plan. Here are the upsides of talking to a financial professional:

• The initial consultation is usually free

• They can look at your situation to offer solutions for getting ahead

• Having a third-party perspective can help you figure out where you need to improve 

Financial professionals have specialties: credit, retirement, investing, budgeting, and so on. So you’ll want to seek one out who has the expertise to answer your specific questions. If you need help with debt, talk to a debt expert who can help you weigh your options for managing it.

12. Protect yourself from scammers

It's all too easy to be targeted by scammers these days. There are, however, some things you can do to minimize your risk:

• Choose secure passwords for financial accounts

• Set up multi-factor authentication on any site that offers it

• Be wary of unsolicited emails, texts, or phone calls that ask for your financial information

• Set up login and new transaction alerts for your bank accounts and credit card accounts

• Freeze your credit files at all three credit bureaus (Equifax, Experian, and TransUnion). It’s free, and it prevents anyone from accessing your credit without your permission. That makes it hard or impossible for someone to open a new account in your name.

If you believe you've been hit by a scammer, contact your bank and credit card companies right away. That can help protect you against any financial losses. 

Bonus tip—Keep the glass half full

What you think about your money situation is just as important as what you do about it. Having a positive attitude can make it a lot easier to overcome the inevitable hurdles that come your way. 

Remember that managing your money is an ongoing process, not just something you do once. Optimism, even when there are setbacks, can help you stick to it for the long haul.