Home » Guides » A Beginner’s Guide to Smart Money Management

One of the best things anyone can do for their financial health is to learn how to gain control over finances and to keep it. Unfortunately, many people have no idea how to get started, and many others feel as if they don't have the time. We have devised this beginner's guide for those who want to manage their money in the best possible way.

Much of personal finance is about behavior. For that reason, we won't pretend that this guide will get you complete mastery over your financial life, but it will show you how to recognize bad habits and to learn how to replace them with better habits that will eventually change your financial fortunes.

What we have here are the basics; the steps you need to take in order to gain control over your finances.


Set Up a Budget

Without a doubt, the first step for anyone trying to control their finances is to know exactly how much you have and how much you spend, which means making a budget. It takes some time, but it's an excellent way to find out what money you have coming in and how much is going out every month.

By setting up a budget, you are less likely to spend more than you make, which means you're less likely to end up in debt. You will also be less likely to be surprised and thrown off course by unexpected costs. You will be more likely to have a high credit score and more likely to be accepted for a loan. Just as importantly, you will be in a position to see where you can save money, which means you'll be able to put money away for that great vacation, or that home entertainment center your family wants.

Starting a budget requires recording every dime that either comes in or goes out. That means carefully tracking everything, including your monthly bills, to get a real sense of how much you spend. Then, after you get that done, you can decide what you can live without.


Get Your Budget Back on Track

When people set up a budget by tracking all of their expenses, they often find that they are spending more than they have. Of course, this also allows them to know what they spend on things they can do without. Sure, that gym membership is "only" $15 per month, but if you never go, it's $15 you can use for something else. At the very least, you can out that $15 towards reducing your debt.

By logging all of your spendings, most people are surprised at the many places where their money is going. When they are thinking about it, they realize how much they spend on things that are pretty much unnecessary.

Suggestion Get everyone in the family involved in budgeting. You can work out how much everyone in the family spends now and decide how much spending money each family member may have going forward.


Reduce Your Bills and Debts

For most people, household bills make up the most substantial part of their monthly spending. However, there are many ways to reduce those. If you have a mortgage, for example, it might be a good time to refinance your current one or shop around for a new one that will save you money every month.

Again, if you have a mortgage, it might be worthwhile to consider a consolidation loan in the form of a second mortgage, as a way to eliminate much of your high-interest debt and replace it with a single budget-friendly payment at a much lower interest rate. This is a great way to eliminate a number of debts and monthly bills on such things as credit card debt, personal loans, car loans and any debt that accumulates interest at a rate higher than a mortgage.

Suggestion It's always a good idea to do a regular review of your budget and finances and discover which debts you can get rid of.


Set a Savings Goal and Invest

While many people have a hard time getting excited about saving, that can often change when they use their budget to set a realistic goal. The first step to establishing savings is to set up some emergency savings. One of the most-cited statistics in this country is that most middle-class families would be sent into a financial tailspin by an emergency that cost just $400, but you should think higher; we recommend three months’ pay. Everyone needs to have money to fall back on if something unexpected happens.

It's not a tragedy if you can't save this immediately; many people can't. But once you have saved money in your emergency fund, you can set other savings goals. For example, if you can save enough to take a vacation without using the credit cards, so you can come home and not face massive bills. You can also set money aside to buy a car without having to take out a loan, or to buy a better car and finance less of its cost.

Suggestion You should also invest your savings (except the emergency fund), by putting more into your retirement account. Create an investment plan that is based on your goals and on your time frame and consult with experts on the best ways to do that.

Your Financial Autonomy

This is just the beginning of your journey towards total financial freedom and financial autonomy, but you're a beginner, and these tips represent a great start. Learning how to manage your money better can save you hundreds or even thousands of dollars every year, which means it can pay off for you and everyone who depends on you. If you can save money every month, you can pay off your debts, put them into your retirement or buy that car or furniture you have always wanted. You don't just want to plan for your retirement; you want to prepare for whatever comes next.

Financial Literacy Incentives
Financial Literacy is your own responsibility that needs to be taken care of with each decision impacting money matters. We strongly recommend you to benefit from each occasion that arises intended at helping you build your financial knowledge.