Are you ready to start saving for your dream home, but you aren’t sure how? Or maybe you want to know where all your money goes so you have more at the end of the month?
It might be time to look at your financial situation. Whether you’re new to managing your own money or just need to manage it better, you can learn to budget and save money wisely to fund your best life.
Money management means budgeting. That is, balancing the money you earn and spend—as well as saving and investing. Whether you want to move to a new home, pay off your debt, or save for a big road trip, you will need to manage your money well.
If you’re not used to budgeting and saving money, don’t worry.
We’ve got seven key money management steps to help you get a handle on debt, save for things that matter, and cut what you really don’t need.
Table of contents
Step 1: Assess your finances
Before you can budget your money, you need to figure out what you have and where it goes. Make a list of everything you spend money on each month: rent or mortgage, electricity, internet, groceries, childcare, lattes, takeout—all of it.
Next, list the money you receive. That would include things like your paycheck, Social Security payments, and/or cash from your side hustle. Track your income and expenses with a free or low-cost app, in a spreadsheet, or with paper and pencil.
If you’re saving for retirement, note how much you contribute to your 401(k) each month. Also log how much you have in a savings account. Don’t have either? That’s okay. Right now you’re just taking inventory.
Step 2: Create a budget
Many Americans have credit card debt, and most of them have held this debt for at least a year. If you’re one of them, it will be easier to pay down those credit cards, if not pay them off completely, when you know how to budget your money.
To create a budget, start by comparing your monthly income to your monthly expenses, both of which you tracked in step one. If you’re spending more than you earn, you will need to make adjustments so you have at least a little left over to save.
There are many budgeting strategies to choose from. The 50/30/20 rule is a simple method that appeals to lots of people. Using this approach, you devote 50% of your take-home pay to your basic living expenses. The remaining 30% goes to extras like dining out, clothes, entertainment, and vacations. Another 20% goes to savings, retirement, and paying off debt.
Step 3: Cut nonessential spending
Smart money management involves living within your means. Before you buy that new outfit or splurge on a fancy dinner, ask yourself: do you want it or need it? If you don’t need it, and you don’t have the money in your budget, don’t buy it. Instead, think of how you could treat yourself without spending money. Game nights, picnics, and free museum days are all fun, affordable ways to spend time with friends and family.
Once you get into the habit of thinking before you spend, you may notice you have more money in your budget to save for a vacation or to spend on things and experiences that matter.
Step 4: Make saving easy
Managing your money well requires long-term thinking. To make sure you have enough money to pay for things later—from surprise home repairs to living expenses in retirement—you must set aside some money now.
“Building an emergency fund is a great start toward good money management,” said Todd Keffury, CRPC, EA, owner of Cadenza Financial Planning, a financial planning firm based in Las Vegas, Nevada. “While no one knows how much an unexpected event will cost, you can plan your saving process with concrete targets in mind.”
To make saving easy, set up automatic deductions from your paycheck (for your employer’s 401(k)) or from your checking account. If your employer matches 401(k) contributions, be sure to contribute enough to get the full match amount.
For example, if your employer matches up to 6% of your salary, contribute 6% if you can. But don’t worry if there isn’t room in your budget for that amount right now. If you can contribute only $50 a month, you’re still on the right track. Just aim to raise your 401(k) contributions each year as your income grows.
To build your emergency savings, deduct a set dollar amount from your checking account each month. Even $20 a month is a great start. By setting up automatic withdrawals, you won’t have a chance to change your mind or risk spending that money.
Step 5: Reduce or eliminate debt
Most recent graduates carry student loan debt, on average nearly $29,000. Many adults also have credit card debt, auto loans, and other debt. Make paying down debt a top priority. Always pay on time and pay extra whenever you can. If you’ve held your student loan debt for 20 years or more, you might explore student loan forgiveness programs.
If you have balances on one or more high-interest credit cards, consider combining those debts into one fixed-rate personal loan for debt consolidation. You may save on interest, which could also allow you to pay off the balance faster over time.
What’s more, many personal loans have one set regular monthly payment. And having only one bill to pay makes it easier to manage your money and stick to your budget.
Step 6: Review your credit score
Your credit score affects the interest rates you pay on loans and credit cards. Your credit score typically falls between 300 and 850. The higher the number, the better your credit health.
If you’re not in the habit of checking your credit score regularly, now is a great time to start. Your bank or credit card company may offer a free annual credit report. If not, you can get a copy of your annual credit report from each of the big three credit reporting agencies by visiting AnnualCreditReport.com.
Discover® Personal Loans also offers its customers a free Credit Scorecard* with your FICO® Credit Score, number of recent inquiries, and more.
You can establish good credit—and improve your credit health—by paying your bills on time, paying down debt, and disputing any errors you catch on your credit report.
Steep 7: Be patient
Fun fact: Warren Buffett made 99% of his money after age 50.1 Not only because he is a smart investor (which he is), but because he started investing early and his investments compounded over time.
Learning how to budget your money wisely takes practice. You’ll have months where you spend more, and that’s okay. “Your savings will be there for any of life’s unexpected twists.” said Keffury. “And there is little else that can bring more peace of mind.”
Just stay focused on your long-term goals. Before you know it, you will be well on your way toward living your best life well within your budget.
Want to learn more about managing your debt?How to Pay off Debt Fast