7 money management tips to improve your finances
These money management tips can help set you up for long-term financial success and help you manage money more effectively.
October 12, 2023 9 min read
If money’s a source of worry in your life, you’re not alone. The 2020 Capital One Mind Over Money study showed that most of the respondents—a full 77%, in fact—felt anxiety about their finances.
Here are some steps you can take today to build your confidence and help you manage your money more effectively.
- When you approach money management and financial planning in a smart and efficient way, it can help set you up for a bright and successful future.
- Money management is more than just budgeting.
- There are two proven methods to help you manage and pay off your debt.
What is money management?
Budgeting, investing, saving and even spending are all a part of money management. So how do you build money confidence and reduce anxiety about your financial goals? Finding ways to better manage your money—and your mindset—could help. You could do your own research or get professional advice to assist you with your financial plan.
How to manage your money better
You could use these seven practical financial tips and money management skills as a general guide for your financial journey.
1. Make a personal budget
People feeling the impacts of financial stress struggle more with budgeting—that’s one finding from the Capital One Mind Over Money study. They feel less in control and tend to spend their paychecks more impulsively.
Creating a budget is a great first step in developing healthier money habits and learning how to get the most from your money.
According to the Consumer Financial Protection Bureau (CFPB), “budgeting helps ensure that you’ll have enough money for the things you need and the things you want, while still building your savings for future goals.”
You could start by using a budgeting worksheet and following general steps like these:
- Add up your monthly income. This includes your salary at your job plus other sources of income like bonuses, tax refunds or income from side work.
- Add up your monthly expenses. These can include expenses in the major “buckets” like paying bills for housing, food, student loans and transportation. For monthly payments that aren’t always the same—food and utilities, for example—you could use an average from previous months.
- Subtract your expenses from your income. This amount will be the starting place for your budget. Anything left over is what you have to work with when you’re paying down debt and building up savings. If what’s left is too small, you may want to consider cutting costs for things like takeout food and subscriptions, if you haven’t already.
It may help to think of your budget as a living document that you look at often. That way, you can make adjustments if you need to, like when you eliminate a monthly expense by paying off a credit card. You might also consider popular budgeting approaches, like the 50/30/20 rule, when creating your budget.
2. Track your spending
The Capital One Mind Over Money study found that using healthy money habits when you feel confident about your finances can help you when things get more challenging.
Tracking your spending could be one of those good habits. After all, it may help you avoid overspending and stay within your budget.
How do you keep track of your spending? It’s simple. You could record your expenses digitally with one of the numerous apps available online.
If you have a Capital One card, you could use the free digital features that help you track your money. Or, if you prefer a paper-based option, you could simply save your receipts and track everything in a planner or notebook.
One how-to hint: You may want to separate your expenses into categories. That way, you’ll see exactly where your money is going and where you may be spending too much.
3. Save for retirement
Not surprisingly, the Capital One Mind Over Money study found that Americans are worried about their financial future. That includes saving for retirement. In fact, 68% of respondents said they’re worried they won’t have enough money to retire.
It may help to start small when it comes to retirement savings. In other words, you could save a small amount every month for now, and then add to it when you feel ready.
It may also help to open a retirement plan account that could supplement retirement income from pensions or Social Security. These types of accounts may include the following:
- 401(k) plan through your employer. With a 401(k), you can deposit pretax dollars through a regular deduction from your paycheck. Beth Sabin, an executive at Capital One, says, “If you have a company match through your 401(k), this can be a great place to start by contributing until you have your full match.” She also recommends upping your contribution by 1 percentage point to see if that’s doable for you. If it is, you might increase it by another percentage point to accelerate your savings.
- 403(b) plan. Like 401(k) plans, 403(b) plans are employer sponsored. One difference is that 403(b) plans are offered by public schools and some organizations that are tax exempt. Contributions to traditional 403(b) plans are tax deferred—just like they are with traditional 401(k) plans. So you don’t have to pay taxes on the contributions or earnings until you withdraw funds from the account.
- Individual retirement account (IRA). Contributions to a traditional IRA—an account that is generally self-directed and not sponsored by an employer—are tax deferred. Once you retire and start making withdrawals, the money will be taxed at your regular income tax rate.
- Roth IRA. While contributions to a Roth IRA aren’t tax deductible when you make them, you may be able to withdraw your money tax free during your retirement years.
You may want to consult your tax adviser for more information about these plans, though.
Keep in mind that compound interest can be an important reason to start saving early. As the CFPB explains, compound interest may help you accelerate your savings by earning interest on interest. To see how compound interest can add up, you may want to try this Compound Interest Calculator from the U.S. Securities and Exchange Commission.
4. Save for emergencies
Putting away savings in an emergency fund for unexpected life events—like needing major home repairs—may help you feel better about your financial situation.
Growing your savings might be one of your goals. If it is, you may want to consider these finance tips to help with unexpected expenses:
- Remember, interest rates can vary. So it may be wise to shop around. If you find a savings account with a better rate, the extra interest can add up over time.
- Put extra income into your account. When you get a tax refund or a bonus at your job, consider depositing it into your bank account. The extra money can help your savings grow.
- Buy what you need rather than what you want. That way, you can put the rest toward your savings.
- Set up automatic savings. With the help of your employer, you may be able to set up automatic transfers to your savings account to build your savings without the temptation of spending extra cash.
5. Plan to pay off debt
Paying off debt may also help you better manage your finances and reduce money-related anxiety.
Here are two plans recommended by the CFPB for becoming debt free:
- Snowball method: This method focuses on paying off your smallest balances first. You still make the minimum payments on all of your debts. At the same time, you use any extra money to pay off your smallest balance. Then you use the money you’ve freed up to pay off your next-smallest balance and so on. This could mean debts with higher interest rates might wind up taking longer to pay off. And that could cost you more in the long run.
- Debt avalanche method: In this method—also called the highest-interest-rate method—you list your debts based on their interest rates, from highest to lowest. You put your money toward the debt with the highest interest rate first. Once that’s paid off, those extra funds can be used to pay off the next loan on your list. You also still continue to make the minimum payments on all your debts.
6. Establish good credit habits
Working toward establishing good credit scores could also help improve your finances.
According to the CFPB, your credit scores are a snapshot of your creditworthiness. So these scores can affect many parts of your life—everything from renting an apartment to being considered for a job.
The CFPB recommends the following as part of a personal finance management plan to build good credit:
- Pay your bills on time—each and every month.
- Don’t get close to the limits on your credit accounts.
- Work at establishing a long credit history.
Regularly checking your credit reports for accuracy may help too. CreditWise from Capital One is an easy way to monitor your VantageScore® 3.0 credit score and TransUnion® credit report. It won’t hurt your credit scores. And it’s free for everyone, even if you don’t have a Capital One product. You can also get free copies of your credit reports from each of the three major credit bureaus at AnnualCreditReport.com.
As you work toward your financial goals, you could also consider how a Capital One credit card fits in. With responsible use, you could use one to build or rebuild your credit on your financial journey.
7. Improve your money mindset
What you do with your money is important. But how you think about it can be important too.
Taking on a more positive financial mindset while managing money could include things like keeping sight of your goals. It could also mean taking a solution-oriented approach and focusing on the things you can control—like repayment of your debts and your spending habits.
For more about these and other personal money management tips for a better money mindset, check out the Capital One Mind Over Money study.
Remember, you’re not alone if you’re feeling stressed about how to manage money, handle personal finances or hit your savings goals. But now you know more about strategies for managing your money, setting your monthly budget, repaying debts and building your emergency fund. If you keep working at them, they may eventually become habits. And that could help set you up for financial success at every stage of your life.