By Elliot M. Kass | American Express Credit Intel Freelance Contributor
5 Min Read | May 11, 2020 in Money
Stressed out about money? Join the club. According to a 2019 survey, one out of every three Americans are concerned about “Not having enough money to get by.”1 Still, some people are much better than others at making the most of what they have. What do they know that others don’t?
Probably not much. Money management is not a mysterious art known only to a chosen few. However, there are some rules you should follow, such as paying your bills on time and setting a realistic budget.
Here are a few guidelines that can help you learn how to manage your money and save for the future:
Think budgeting sounds difficult or tedious? It doesn’t have to be—and even if it takes you a while at first, it’s well worth the effort. Creating a budget is among the best ways to bring your finances under control. It will help you manage your money wisely. It will help you to stop spending money you don’t have, and to spend the money you do have on things that will make a real difference in your life.
The envelope strategy. There are many ways to make a budget, but one of the simplest and most effective is to label an envelope for each category of your monthly spending (e.g. food, rent/mortgage, auto payments, cell phones, nights out, etc.). Then take the total amount of money you have to spend that month and distribute it among the envelopes. When the cash in an envelope is gone—that’s it. You can’t spend any more money on that category until the following month. This will make you keenly aware of how you spend your money and encourage you to stay within your limits.2
The 50/30/20 plan. With this approach to budgeting, you spend 50% of your funds on necessities, 30% on things you want but don’t have to have, and the remaining 20% on savings or paying down debts.3 This method is a good way to set your spending priorities and then make progress toward your financial goals.
For a deeper dive into how to create a budget, read “How to Make a Monthly Budget, One Step at a Time.”
Want to live within your means and stay out of debt? Pay each bill in full as soon as it’s due. If you commit to that approach, then you won’t spend money you don’t have, won’t need to borrow, and will save significant sums on interest charges and late payments. Plus, your credit score will likely improve, making it easier to apply for a credit card, lease a car, take out a mortgage, and manage your money in general.
But most Americans (55%) spend everything they earn and sometimes more each month, according to The 2018 National Financial Capability Study,4 pushing them into debt and giving them very little leeway in the event of an emergency or unexpected expense. Setting a realistic budget and then staying current on your bills is a good way to avoid this trap.
Followed by paying your bills on time and creating and staying within your budget, the third key component of smart money management is to grow your savings.
Saving money is your way toward living a more comfortable life. It allows you to obtain the things you really want and to prepare for the future. There are four key steps to growing your savings:5
With practice, the ability to manage money wisely is a skill everyone can master. Following three simple rules—creating and sticking to a budget, paying your bills on time, and saving earnestly and regularly—will help just about anyone improve their financial outlook.
1 “25% of Americans Are Worried About Their Finances for 2019 — Here’s Why,” GoBankingRates
2 “5 Simple Budgeting Methods to Help You Live Your Best Life,” Student Loan Hero
3 “How to Choose the Right Budget System,” Nerdwallet
4 The 2018 National Financial Capability Study, Financial Industry Regulatory Authority
5 “How to Manage Your Money,” Nerdwallet