Money Management Tips

Fact: Your money beliefs (not your paycheck) determine whether or not you will accumulate wealth. That’s because, for some, there is no amount of money in the world that would be enough to encourage them to save or invest. 

What you think about money ultimately determines how you use it, or, if were going to be honest, how it uses you. Money management skills are learned. You either learn from your environment or you learn it through a conscious money management plan. 

Nod your head if this sounds familiar: You know you earn well but you cant seem to scrape a few dollars together to open an investment account or grow your emergency savings. If this isnt you, but you take time off work to do financial admin, you might as well nod your head too. 

In both instances, your money doesnt work for you. 

Here is some advice to help you get control of your life and better manage your money. 

Tip 1: Define money management 

If the thought of money management conjures up an image of a banker in a suit carrying an expensive leather briefcase and discussing financial jargon that leaves you wondering whether its even English, youre right. Money management includes wealth-building principles such as savings and investments. 

Youre also right if you think that money management involves budgets and knowing where every dollar goes. 

Both of these can be boring as dirt, but it doesnt have to be. 

For starters, on the wealth-building side, there are a number of fintech giants making investments and savings easier and cheaper. Some of them allow you to invest from as little as a dollar. 

Your personal budget doesnt have to be a mission either. Gone are the days where you worship at the altar of the spreadsheet. Say hello to automated finances instead. And for that, you need systems.

Tip 2: Reach your goals with a system 

Dealing with a sandstorm of receipts and bills on a Saturday morning is not only a dreadful way to spend the day, but its also unnecessary. 

Almost every type of payment can be automated and almost any bank can help facilitate the move to automation. 

  • Moving money to your savings 
  • Pay bills such as utilities, rent, loans, education, etc
  • Squaring off your credit card debt every month (because youre averse to high interest)
  • Investing (yes, this can be automated!) 
  • Maxing out retirement
  • Allocating money for your guilt-free spending
  • The earlier you start, the better. Its the long term investment effect 

Setting up auto payments the first time shouldnt take more than an hour or two. Ramit spends less than an hour a month on his personal finances.  

Tip 3: Say goodbye to the budget and hello to conscious spending

Ramit has a friend that spends $21K just to go out. In one year. That seems bonkers when you consider the hourly salary in Iowa is $31K annually. However, this friend has discovered the cure to the budget. Shall we call it the anti-budget? 

That anti-budget has a name and its called conscious spending. Its where you finally understand that random spending doesnt serve you just because its cheap/popular/conventional. 

Conscious spending means you decide exactly where youre going to spend your moneyfor going out, for saving, for investing, for rentand you free yourself from feeling guilty about your spending. Along with making you feel comfortable with your spending, a plan lets you continue growing towards your goals instead of just treading water.

The simple fact is that as young people, most of us are not spending consciously. Were spending on whatever, then reactively feeling good or bad about it.

You’re going to start spending on the things you love instead. If you like going to the spa but can’t be bothered about streaming services, why would you have them? Just so you can say you do? Or maybe FOMO?

Heres the trick though. Before you can spend without guilt, its important that your bills are paid, retirement is funded, emergency savings is in place, and that youre building wealth. 

Tip 4: Plan for retirement

You cant talk about money management and not throw in a decent amount of effort into retirement. And no, this is not just a clever way to cave to societal pressure and wait until you retire to start living. Who came up with that nonsense anyway? 

Planning for your retirement is an important component of creating your best life because the goal is to work less the older we get, isnt it? 

So how much do you need to retire? While retirement planning is different for everyone, a quick calculation can use the 4% rule. This means if you need $50,000 per year, you should have $1.25 million stashed away in a retirement account somewhere. While you are still able to generate an income, you need to fund your retirement account. In fact, your ability to earn an income is your best asset. 

Check out our retirement guide that walks you through the ins and outs of the various retirement products. Some takeaways include: 

  • There are tax benefits to retirement savings 
  • Matching on your 401(k) is money for free (In other words, just do it!) 
  • Pay attention to restrictions so you dont pay the overfunding penalty
  • Know whether you qualify for a Roth IRA or not 

While youre free to build up your retirement fund in any other investment account too, its better to max out your retirement products first, because… tax. Compare quotes from financial advisors to find the product that will help you reach your goals. 

Tip 5: Start Investing, but keep it simple 

You cant talk about money management and not talk about investing. Okay, we said that about retirement savings too but its vital to your financial future. 

If youve been a fan of Ramit for a while, you might recall his Ladder of Personal Finance guide which lists every money move you need to make to optimize how your money works for you. 

Rung 1: 401(k)  max out matching, save at least 5% 

Rung 2: Debt  pay it off. Interest rates paid on debt dont serve you in the long term. Its also great not to max out your credit as it affects your credit score 

Rung 3: Roth IRA  if you qualify for this product use it. You simply cant miss out on the tax benefits 

Rung 4: Max out 401(k)  If you havent already, max this out. Once again, tax benefits 

Rung 5: Non-retirement account  Finally earned your stripes to dip your toes into other types of investments. 

There are a few things to consider with investing. For starters, just like your retirement savings, youre in this for the long haul. There are no shortcuts and quick wins here. Okay, there might be one or two, but dont bank on it. Your financial future rests on your ability to keep your hands off your investments for as long as possible. 

Its also important to know the risk of investing and whether the period youre investing in will cover the costs. 

If youre starting out, start small and cheap. A robo advisor also happens to be a good way to automate your investments. It also helps to know that an investment is not a great vehicle for an emergency fund. Youre going to want to stick those funds into a capital-preserving account such as a savings account at a bank. 

Your financial goals, along with a streamlined method for managing your personal finances, will determine your financial situation in the long run. Its important to know that every dollar that passes through your account is a potential seed, and you have the opportunity to plant it well. Clever money management allows you to live your rich life now and in the future. 

Budgeting is outdated. Build your conscious spending plan to take control of your finances and spend guilt-free on the things you love. Find out how in our FREE guide.

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Written by

Host of Netflix's "How to Get Rich", NYT Bestselling Author & host of the hit I Will Teach You To Be Rich Podcast. For over 20 years, Ramit has been sharing proven strategies to help people like you take control of their money and live a Rich Life.