Personal money management for beginners

It’s easy to develop bad money habits over time, and you might think a bigger paycheck or winning the lottery is the only way to solve your financial problems. But there are practical steps you can take right now to make the most of the money you already have. In this guide, we’ll offer some simple steps to help you manage money better and take control of your finances.

Managing money is something we all do most days without even realizing. From saving coupons to use in the grocery store to figuring out how much to budget for a weekend getaway, every choice you make impacts your finances.

But it’s also about the bigger picture — like picking the right retirement plan or planning for a major purchase. All these decisions come together to shape your personal money management strategy.

Managing personal finances involves everything from budgeting and spending to saving and investing. It’s also about the way you use credit and keep debt in check. In a nutshell, managing your money is about making sure your money works for you, not the other way around.

Managing your finances gives you the confidence to make the right choices about your money. And when you’re proactive about managing your money, you can be better prepared for those unexpected bumps in the road without having to scramble for a loan or falling into debt.

Imagine if an unexpected expense came up—a sudden illness, a car breakdown, or a washing machine that bites the dust—would you have enough saved to cover it? And what if you suddenly lost your job? Do you have enough to cover your monthly expenses? It’s not nice to think about these scenarios, but planning for them is a key part of effective personal money management.

Even if you think your finances are in a tough spot, there are plenty of steps you can take to get back on track and hit those financial goals that previously felt out of reach. While there is no single best way to manage money, here are six ideas to help you improve your finances.

Keeping an eye on your finances is a key part of personal money management. By tracking your monthly spending, you avoid overspending and are more likely to stick to your budget.

This habit can be easily incorporated into any daily routine. You can track your spending using a digital app or writing it down in a notebook. Check your debit or credit card statements or receipts to see where your money is going. Categorizing your expenses—like dining out or entertainment—can give you a clearer view of your spending habits and help you spot areas where you might be overspending.

Now that you’ve started tracking your spending, knowing how to budget your money can help you allocate it more effectively. Whether you choose a classic pen-and-paper approach or a budgeting app, the key is to make sure your budget is realistic and not a huge change to your current spending habits.

Take a look at your monthly spending from step one. If you’re used to ordering takeout several times a week, try not to eliminate that completely. Instead, you might start by cooking at home more often. Making small adjustments that still allow you to enjoy life while working toward better money habits can make all the difference.

If you’re serious about cutting costs, you could look beyond small everyday expenses. Bigger savings can come from lowering your housing costs, buying a pre-owned car instead of a new one, or negotiating better deals on big expenses. This is one way to manage money with a more significant impact on your budget over time.

One popular method for budgeting is the 50/30/20 rule, which offers an easy-to-follow framework for managing money:

• 50% of your take-home pay covers essentials like rent, utilities, groceries, and transportation.
• 30% goes toward fun stuff — dining out, shopping, hobbies, and charitable donations.
• 20% is for your future — things like paying off debt, saving for emergencies, and building your retirement fund.

Once your budget is in place, you can measure whether it’s working by keeping an eye on two main things: how well you’re sticking to it, and whether you’re meeting your savings goals. If your budget allows you to cover your essentials, enjoy your life, and still put money away, you’re likely on the right track.

Setting aside savings for emergencies is a key part of managing your money. An emergency fund acts as a safety net, helping you cover unexpected costs — like medical bills, car repairs, or daily expenses if you lose your job — without having to borrow money at high interest rates or fall behind on your bills.

You could start by contributing what you can, even if it’s just a small amount. Ideally, you work up to saving three to 12 months’ worth of living expenses. Many people find it helpful to “pay yourself first,” which means setting aside savings as soon as you get your paycheck, before spending on other things. Some banks even offer automatic transfers to make monthly saving easier.

Once your emergency fund is fully stocked, try to keep up the savings habit. If you’re following the 50/30/20 rule, you might direct that 20% of monthly income toward other financial goals like retirement or a down payment on a home. Sticking with this habit will strengthen your overall financial security—both now and in the future.

Something else to consider is where you’ll keep your emergency money. A high-yield savings account (HYSA) or a money market deposit account might be suitable, since you can make deposits and withdrawals anytime while earning interest. Alternatively, you might consider no-penalty certificates of deposit, which offer a combination of easy access and predictable, fixed returns.

Paying off debt is an important step in managing finances and reducing money-related stress. There are various debt payoff plans available, but the common theme is to pay down balances over time.

Here are three common strategies that can help you manage and pay off debt:

• Snowball method: Here, you start by focusing on your smallest debt first, while making minimum payments on others. Once the smallest debt is cleared, use that money to tackle the next smallest debt. The idea is that you make quick wins that can keep you motivated, although it might not be suitable for larger debts with high interest rates.
• Debt consolidation: This is where multiple debts are combined into a single loan, potentially lowering your interest rates. While it tends to make managing debt easier, it doesn’t actually reduce the total amount owed. Plus, you may have to pay fees. Before choosing this option, it might be worth checking that it reduces your overall debt cost.
• Debt avalanche method: Store cards and credit cards typically have higher interest rates compared to personal loans from banks and credit unions. With this approach, you direct extra payments to the debt with the highest interest rate, while maintaining minimum payments on other debts. Once the high-interest debt is paid off, you move on to debt with the next highest rate. This method can save you the most money in interest over time.

Deciding how best to manage your debt depends on your individual situation and the terms of your credit. However, taking steps to reduce debt is a simple yet effective route to better money management.

Once you have any debt under control, you have more breathing room to look at ways to improve your credit score. Paying your bills on time is one habit worth getting into. In doing so, you avoid late fees, keep your essentials covered, and can even improve your credit score. A better credit score could mean better interest rates in the future.

To build strong credit habits, you could also aim to keep your credit utilization low — some suggest keeping it to under 30% of your available credit. Also, think twice before closing old credit accounts; a longer credit history can have a positive impact on your credit score.

In general, it’s helpful to consider whether taking out a loan is the best solution. While credit is often unavoidable for big purchases like a house or car, paying cash for other expenses can be a safer and more cost-effective choice. That way, you avoid interest charges and debt, and the money you save can earn interest in a savings account.

By sticking to these habits, you’ll ideally benefit from a healthier credit profile. And, because your credit can impact your ability to rent apartments or land a job, it’s worth keeping on top of your credit score.

While it’s important to manage your daily finances well, planning for the long term is just as important. Over half of Americans worry about not being financially secure in retirement.¹ To avoid being one of them, you could look into investing for the future.

Contributing to a retirement fund early lets you take advantage of compound interest. Your money has the potential to grow faster than it would in a savings account, and you build a nest egg that can provide a comfortable lifestyle in retirement.

If you opt to invest for the long term, keep in mind that there is no guarantee you will make a profit, and you may end up with less than your initial investment. That’s why it might also be worth exploring savings accounts as part of your retirement strategy.

Here are some retirement options you can explore:

• 401(k): A retirement plan where you contribute pre-tax dollars directly from your paycheck. If your employer matches contributions, it is worth taking full advantage as it’s essentially free money.
• IRA (Individual Retirement Account): Here, you contribute pre-tax dollars, with taxes paid when you withdraw in retirement.
• Roth IRA: Funded with after-tax dollars, but withdrawals during retirement are tax-free.

You can also boost your retirement savings with CDs. A retirement CD within an IRA offers steady, predictable growth along with potential tax advantages.

Personal money management isn’t a one-size-fits-all situation; what works for someone else might not be right for you. Always do your own research to figure out what’s best for you.

Ready to take control of your finances? Explore the savings products at Raisin and start improving your financial security today.

Raisin offers a simple, digital platform where you can access a range of savings products through one convenient account. All options on our platform are provided by federally regulated banks and credit unions.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Sources

¹ https://www.forbes.com/sites/dandoonan/2024/04/11/americans-are-worried-about-retirement-savings-and-they-should-be/