You know what they didn’t teach in high school, but probably should have? Money management.
Sure, the Pythagorean theorem was an important discovery. And we don’t regret knowing that Au on the periodic chart is gold. But it would have been just as practical to have learned how to set financial goals or balance our income and spending, or save or manage our (at the time, impending) student loan debt.
But knowledge is better gained late than never (or right on time, if you happen to be in high school and reading this!). And with that in mind, we’ve put together the money management skills you should master right now. Consider it extracurricular.
7 money management skills you should sharpen
Money management is important. It helps you achieve financial security and financial confidence. Here are seven key skills for successful money management:
1. Set S.M.A.R.T. financial goals.
Before you jump right into the nitty-gritty money management tactics and create your budget, you need to answer two very important questions: What do you want to achieve with your money, and why? Enter S.M.A.R.T. financial goals.
Adhering to the S.M.A.R.T. acronym helps you set and achieve realistic financial goals. Here’s what the acronym stands for:
For instance, consider the goal “Pay off credit card debt.” That’s a good goal, but it’s too vague to be actionable. Are you adding more debt as you speak? What’s your payoff date? Do you have the income/expenses ratio you need to achieve this goal?
The S.M.A.R.T. version of that goal might be “I will pay off $15,000 in credit card debt by August 2022.” That goal is specific and tells you exactly what you want to achieve. It’s also effective because it’s measurable by dollar amount, tailored to your specific needs, and come with a real (and reasonable) deadline!
We recommend setting three to five S.M.A.R.T. financial goals, but they’ll change over time, so you may need to revisit them periodically.
2. Organize your money with a budget.
Not everyone loves budgeting, but the results are worth it. At Simple, we’re big fans of the 50/30/20 budget. You aim to spend 50% of your income on ‘needs’, 30% on “wants,” and 20% on paying off debt and saving.
To create your 50/30/20 budget, start with the following steps:
- Add up your income, expenses, and savings. Here’s a budget calculator to help you do just that.
- Calculate dollar amounts of how much you can spend on needs, wants, savings, and debt each month. These can be estimates, you can adjust the real numbers as you go!
- Track your spending every week by looking at your account activity to ensure that you stay on budget. (Plus, with Simple, the budgeting is built in!)
- Budget for the next month at the end of the previous month. You might need to update spending categories based on monthly events, variable expenses, upcoming life changes, etc.!
Another budgeting strategy is zero-based budgeting. Check out this overview to see if it’s right for you!
Tip: To help you stick to your budget, set a reminder on your phone or calendar appointment to quickly check it once a week (e.g., 12:30 p.m. every Friday)!
3. Build and Maintain an emergency fund.
Emergencies happen: losing a job, dealing with a car that goes kaput, struggling with medical bills. That’s why it’s a good idea to have money stored away to fall back on if things get tight.
Also called an emergency fund, experts recommend that you save enough to cover three to six months of your expenses. So, if your monthly expenses are $2,000, then you’ll want to set aside between $6,000 and $12,000. Don’t forget, it’s an emergency fund, not an I-really-want-it fund. Try your best to avoid using money squirreled away for emergencies on the things you want instead of the things you need. Money spent on what you want falls into the discretionary spending portion of your budget—that “wants” 30%.
If saving this much seems overwhelming (after all, you have other things to consider, such as paying down debt), start by building up $1,000 first. It’s okay if it’s slow going. Sock away what you can from your paycheck each month.
4. Make conscious spending decisions.
It’s so easy to spend money unconsciously, especially when purchases can be completed online in a single click. But think of it this way: when you don’t pay close attention to the money you spend, you’re taking money away from your future self.
Your budget should help guide your spending decisions, but here are a few ways to become a conscious spender:
- Ask yourself a few questions before purchasing an item (e.g., “Why am I buying this?”).
- Look at where you have multiple subscriptions (e.g. Netflix, Hulu) when one could do.
- Try batch spending, where you create a 30-day list of items you have your eye on. If you still feel strongly about an item after 30 days, you can buy it.
- Identify and avoid your spending triggers. For instance, if online shopping is your Kryptonite, unsubscribe from retailer emails, and unfollow on social media.
The point is is to make informed purchasing decisions based on your budget, not on a whim.
5. Diversify your income.
“Diversifying your income” simply means to create multiple income streams. Why? While it’s not possible in every situation, it’s a good idea to not rely solely on your full-time or part-time income since you never know what the future holds. Instead, find ways to make an extra $50-$100 per month or however much you can. Every little bit helps you reach your goals.
Here are a few ideas to get your wheels turning:
- Become an online tutor.
- Sell your used items on eBay or Facebook Marketplace.
- Walk dogs in your spare time.
- Sell digital products like printables on Etsy.
Even if you can spend only a couple of hours a week to work on an extra income stream, every little bit helps.
6. Create a debt payoff strategy.
Ah, debt. Not only can it feel overwhelming, but it’s also a roadblock to achieving your savings goals. Whatever type you have (e.g., student loans, car loans, credit cards), a debt payoff strategy will help you crush your debt as quickly as possible.
To get started, tally up your debt and the interest rates (it’s normally best to pay off loans with high compounding interest rates. Make the minimum payments on all of your debt to avoid defaulting and incurring late fees. Set up automatic payments to ensure that you never miss a payment.
Also choose a payment strategy: avalanche vs. snowball method. The avalanche method means you pay off debt with the highest interest rates first before moving on to debt with lower interest rates. The snowball method means you pay off your smallest debts first before moving on to bigger debt.
Determine how much extra you can put toward debt each month. The minimum is a great start, but the more you pay off now, the less interest you’ll pay over time.
If you have debt on multiple high-interest credit cards, a personal loan may help you consolidate and pay it off!
7. Pay yourself first.
Save or spend? That is the question. But is it? We all have good intentions to save money, but after paying bills and buying groceries, we often find there’s nothing left at the end of the month.
That’s why you should put aside savings BEFORE it’s time to pay bills. Automatically move 20% of your paycheck (remember the 50/30/20 budget?) to savings every month. Consider saving in the following accounts:
- Retirement account
- High-yield checking account
- Money market account
If you don’t think you can spare 20% of your paycheck, start by saving a smaller percentage, even just 1%. That might not sound like much, but 1% is better than nothing—you can build from there. It’s is still a step toward supporting your financial future and, over time, you can slowly build up to a larger percentage.
How to manage your money: Be consistent
Of course, these money management skills require a little work on your end. You have to be consistent in your efforts to ensure that you become and stay financially healthy. But mastering them will help you feel like a financial pro in no time.
Simple makes money management easy with a built-in budget tracker, spending analytics, goal setting features, and more.
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