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How to manage your money: 7 tips to improve your finances

Learning how to manage money starts with setting financial goals. this and other managing money tips will help you create and maintain a financial plan that’s right for you..

Personal finances are complicated. Big or small life events—as well as interest rate changes, inflation and other economic factors—can have an impact on how you manage your money. 

If you’re feeling overwhelmed by money management, it’s best to start with the basics. A good first step is to figure out your financial priorities. Once you’ve done this, you can start working toward each goal.

Here are seven tips for managing money more effectively.

Managing money tip 1: Define your financial goals

Creating and maintaining a financial plan rests on a foundation of your identified and prioritized financial goals. 

For example, your primary goal might be to save for a down payment on your own apartment or house, or perhaps it’s to pay off your school loans. Having a goal, and a plan to achieve that goal, will help you feel more in control of your finances.

Other examples of financial goals include:

• Paying off a school loan
• Starting an emergency fund
• Paying for a wedding or vacation
• Saving for retirement

A comprehensive financial plan that’s tailored to your situation should consider every financial element of your life, including your short- and long-term financial goals.

Managing money tip 2: Address your debt

It’s important to differentiate between debt that can help you achieve your personal financial goals and debt that can set you back. Not all debt is created equal. In some situations, using debt to help manage your finances can be a useful tool.

Most people can categorize their debt into productive and nonproductive (or good and bad debt). For instance, you might consider your mortgage productive debt: It can help you build equity (and your net worth) and may help you qualify for a tax break.

Student loans can also be thought of as productive debt — they may have been necessary to help you get an education that led to you earning your current income. ( Here’s some information on paying off student loans.)

On the other hand, credit card debt, especially if it was accrued by buying things that don’t contribute to your net worth or financial future, is often considered nonproductive. Make it a goal to pay down credit card debt as soon as possible.

Remember that productive debt can be nonproductive when it carries high interest rates. “High interest rate” can be a relative consideration, so it’s generally a good idea to consider whether the interest you’re paying on debt is higher than the return you might receive if you invested the same money.

Managing money tip 3: Build up your emergency fund

Having an emergency fund means you would be covered in the case of a change in your circumstances, such as losing your job or encountering unexpected medical expenses.

The amount in your emergency fund may vary based on your goals and financial situation. However, a general rule of thumb is to have at least three months’ worth of your household income set aside for emergencies—preferably six to nine, especially if you’re self-employed .

Next, think about where you’re keeping it. Consider products that might earn you a higher interest rate than a standard savings account, such as a certificate of deposit (CD) or money market account .

If you have an emergency that requires a smaller amount of savings, you may want to think about using a home equity line of credit to pay for it. Taking on low-interest personal debt would be better than selling assets or using a credit card to cover an unexpected expense.

Managing money tip 4: Have a plan for both saving and investing

How much money you set aside for saving and investing , and how you choose to allocate it, should also reflect your goals and timeline.

Consider saving for shorter term goals, such as buying a house, because you’ll have easier access to a savings account than you will money in investment accounts. Investing, on the other hand, might be more appropriate for your longer-term goals, such as retirement or paying for your child’s education .

When deciding how to invest for your goals, be sure to carefully assess your risk tolerance . Talking to a trusted financial professional can help you determine the right mix of asset classes and for you and your goals.

Having a tax-diversified portfolio that includes a combination of tax-advantaged, tax-free and fully taxable investment vehicles and investment accounts can help you manage the amount of taxes you pay.

Managing money tip 5: Factor in the fun

For most people, fun is more of a day-to-day interest than a goal, but it’s still incredibly important to your quality of life — and your budget.

Working with a financial professional can help, as they can look at your wishes objectively. Incorporating enjoyable activities into your financial plan year-round, whether it’s regular vacations or weekly date nights, can help you make sure having fun doesn’t derail your fundamentals.

Managing money tip 6: Plan for after you’re gone

You’ve worked hard for your money, so it makes sense that you should plan for how your assets are distributed after you die. As a first step, consider drawing up advance directives, which will empower a friend or relative to make financial and/or medical decisions on your behalf if you ever become incapacitated. Advance directives include:

• Durable financial power of attorney for financial decisions
• Healthcare proxy/medical power of attorney for medical decisions
• Living will to outline your wishes for end-of-life care

And no matter the size of your estate, make sure to create a will or a trust as part of your financial plan. Otherwise, state law will determine what happens to your assets after you die.

Managing money tip 7: Stay disciplined

Check in with your financial plan regularly, because just as markets are constantly moving, so are your life circumstances. Even if you and a sibling or friend have similar financial situations, what’s right for them might not be right for you.

Remember that a financial plan is tailored for you. How to manage money generally depends on your life stage and personal goals. Knowing where you want to be five years from now can make your big picture financial balancing act much easier.

If you’d like more information beyond these how to manage money tips, the financial planning professionals from U.S. Bank and U.S. Bancorp Investments can provide personalized advice and guidance.

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The information provided represents the opinion of U.S. Bank. This is not intended to be a forecast of future events or guarantee of future results.

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

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7 money management tips to improve your finances

December 19, 2023 | 9 min read

If money’s a source of worry in your life, you’re not alone. The Capital One Mind Over Money study showed that most of the respondents—77%, in fact—felt anxiety about their finances. 

The good news is that there are steps you can take to take control of your money and your financial anxiety . Here are seven tips to help you manage money more effectively.

Key takeaways

• Money management is all the ways you handle your finances through budgeting, spending, saving, investing, using credit and paying off debt. 
• Don’t let financial anxiety stop you from being intentional about your money. When you approach money management and financial planning in an informed, strategic way, it can help set you up for a bright financial future. 
• There are strategies and tools you can use to help you create a budget, track your spending, make a plan to save, pay off debt and establish good credit habits. 

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What is money management.

Money management is all the ways you budget, spend, save and invest your money. It also includes how you use credit and pay off debt. In short, it’s how you handle your finances. 

Finding ways to better manage your money can have positive effects on your finances and lower your stress about money.

How to manage your money better

These seven practical money management tips are here to help you take control of your finances.

1. Make a budget

According to the Capital One Mind Over Money study, people dealing with financial stress struggle more with budgeting. They also feel less in control of their money and tend to spend their paychecks more impulsively.

Creating a budget is a great first step in developing healthier money habits. 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.”

If making a budget feels overwhelming, start with these simple steps:

• 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 categories like housing, food, student loans and transportation. For monthly payments that aren’t always the same, like entertainment and utilities, 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 where you can start if you’re paying down debt and building up savings. 

Think of your budget as a living document. That way, you can make adjustments if you need to, like when you eliminate or add a monthly expense.

There are also some common budgeting strategies that may help, like the 50/30/20 rule . According to this approach, necessities like rent, insurance and food should take up 50% of your income. And 30% of your income can go toward things you want, like entertainment. The last 20% of your income should be put into savings.

The 50/30/20 rule is just one way to look at budgeting. If you want to learn more, check out these 14 budgeting tips . 

2. Track your spending

Tracking your spending may help you avoid overspending and stay within your budget. The Capital One Mind Over Money study found that sticking to healthy money habits when you feel confident about your finances can help you stay the course when things get more challenging.

Keeping track of your spending doesn’t have to be complicated. You can 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. If you prefer a non-digital option, you can simply track everything in a notebook.

It can also help 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

The Capital One Mind Over Money study found that many Americans are worried about their financial future. In fact, 68% of respondents said they’re worried they won’t have enough money to retire. 

Retirement accounts are one way to save for retirement. Here are a few types of retirement accounts it may help to know about: 

• 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 one 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 are tax-deferred. A traditional IRA is an account that’s generally self-directed and not sponsored by an employer. 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.

4. Save for emergencies

Making sure you have money put away in an emergency fund for unexpected life events, like needing major home repairs, may help you reduce your financial anxiety. 

Here are a few tips to help you start saving:

• Remember that interest rates can vary. It may be wise to shop around for a savings account. If you find an account with a better rate, the extra interest can add up over time. Some banks even offer high-yield savings accounts .
• Put extra income into your account. When you get a tax refund or a bonus at your job, you could deposit it into your savings account to give your emergency fund a boost. 
• Set up automatic savings. With the help of your employer, you may be able to set up automatic transfers from your paycheck to your savings account. That way, the money will still be accessible to you when you need it, but you may be less tempted to use it for nonemergencies. 

5. Plan to pay off debt

Paying off debt may also help you better manage your finances and money-related stress. Here are three strategies for paying off debt: 

• The snowball method focuses on paying off your smallest balances first. You still make the minimum payments on all of your debts. And 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.
• The debt avalanche method —also called the highest-interest-rate method—starts with listing 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 debt on your list. You also continue to make the minimum payments on all your debts.
• Debt consolidation rolls multiple debts into one account. It can help you simplify your payments and may also help you save on interest. Keep in mind that there may be fees associated with debt consolidation. It won’t erase your debt, and it doesn’t always make it less expensive. 

6. Establish good credit habits

Credit can be a major part of financial health. And working on improving your credit scores can help set you up for a brighter financial future. 

Lenders may use your credit scores to help decide whether to approve you for credit and what terms to offer you. Your credit scores can even come into play when it comes to things like renting an apartment or applying for a job. 

Here are a few good credit habits:  

• Pay your bills on time, every time. Late payments can impact your credit scores and trigger late fees and penalty APRs. 
• Don’t get close to your credit limits. The CFPB recommends keeping your credit utilization ratio below 30%. 
• Work at establishing a long credit history. Before closing a credit account , make sure to think through how it may affect your credit scores. 
• Only apply for the credit you need. Applying for a new line of credit can trigger a hard inquiry, which can impact your scores. And too many hard inquiries , especially in a short period of time, can have a larger negative effect on your credit scores. 

7. Monitor your credit

Regularly monitoring your credit is another important part of credit health. CreditWise from CapitalOne offers an easy way to access your TransUnion® credit report and VantageScore® 3.0 credit score without hurting your credit scores. 

You can even explore the potential impact of financial decisions, like getting a mortgage , before you make them with the CreditWise Simulator . CreditWise is free for everyone, whether you’re a Capital One customer or not.

Money management in a nutshell

Remember, you’re not alone if you’re feeling stressed about money. Reaching your financial goals takes time and consistency. And adopting a positive financial mindset may help you stick to your goals and better manage your money.

As you work on your finances, remember that CreditWise can help you monitor your credit and track your progress. For even more financial lessons, check out these free financial literacy courses from Khan Academy and Capital One. The courses are self-paced, and they cover budgets, credit and everything in between.

Khan Academy financial literacy

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How to Manage Your Money: 7 Key Strategies for Financial Success

Effective money management is essential for achieving financial success and securing your financial future. By understanding your financial situation and developing good spending habits, you can pave the way towards financial independence.

In this article, we’ll explore key money management tips that will help you manage your money wisely and achieve your financial goals.

7 Money Management Tips and Strategies

Whether you’re just starting your financial journey or you’ve been managing your money for years, there are always opportunities to enhance your financial well-being. The following seven strategies offer a roadmap to more effective money management.

1. Assess Your Financial Situation

Before you can effectively manage your money, it’s essential to understand your current financial situation.

Examine Your Expenses

Take a close look at your monthly expenses, including rent or mortgage, utilities, insurance, groceries, and discretionary spending. Identify areas where you may be overspending and consider making adjustments to reduce your overall expenses. Categorize your expenses into needs, wants, and savings to better understand your spending habits.

Evaluate Your Income

Review your income sources and ensure that you’re making the most of your earning potential. If you’re struggling to make ends meet or want to save more money, consider exploring additional income streams, such as freelance work, part-time jobs, or passive income opportunities . Assess your salary and compare it with industry standards to determine if you’re being paid fairly for your work.

Analyze Your Debt

List all your outstanding debts, including credit cards, student loans, and personal loans. Determine the interest rates, minimum payments, and remaining balances for each debt. This information will help you prioritize which debts to pay off first and create a plan to become debt-free . Calculate your debt-to-income ratio to better understand your overall financial health.

Review Your Credit Report

Your credit report provides a snapshot of your borrowing history and affects your ability to borrow money or secure favorable interest rates. Regularly review your credit reports for errors or discrepancies and take steps to improve your credit score by paying bills on time, keeping credit card balances low, and avoiding excessive debt. Understand the factors that impact your credit score, such as payment history, credit utilization, and length of credit history.

2. Create a Personal Budget

Creating a personal budget is a key step in managing your money effectively. A well-structured budget allows you to track your spending habits, allocate funds towards your financial goals, and make informed financial decisions.

Steps to Creating an Effective Budget

• Determine your monthly income from all sources, including salary, freelance income, and investment returns.
• List your fixed monthly expenses, such as rent, mortgage, or insurance, that do not change from month to month.
• Allocate funds for variable expenses, including groceries, utilities, and discretionary spending, which may fluctuate each month.
• Set aside money for savings goals, such as an emergency fund, retirement savings, and other long-term goals.
• Track your spending throughout the month using a spreadsheet or budgeting app , and adjust your monthly budget as needed to stay on track.

3. Build Savings and Invest

Building a solid financial foundation involves setting aside money for both short-term and long-term goals.

Building an Emergency Fund

An emergency fund is a key component of money management, providing a financial safety net for unexpected expenses, such as medical bills, car repairs, or job loss. Aim to save three to six months’ worth of living expenses in an easily accessible bank account, such as a high-yield savings account or a money market account . Set up automatic transfers from your checking account to your emergency fund to make saving effortless.

Planning for Large Expenses

Prepare for significant purchases, such as buying a car, making a down payment on a home, or funding a child’s education, by setting specific savings goals and regularly contributing to a dedicated savings account.

Saving for Retirement

Start saving for retirement as early as possible to maximize the benefits of compound interest and ensure a comfortable financial future. Contribute to tax-advantaged retirement accounts, such as a 401(k) , traditional IRA , or Roth IRA , and take advantage of any employer-matching programs. Aim to save at least 15% of your income for retirement, adjusting this percentage based on your individual retirement goals and time horizon.

Exploring Investment Options

Investing is an essential aspect of money management, helping you grow your wealth and achieve a lifetime of financial security. Consider diversifying your investment portfolio by including a mix of stocks, bonds , mutual funds , and real estate .

For beginners, consider starting with low-cost index funds or robo-advisors that provide automated investment management. As your knowledge and confidence grow, explore additional investment options and strategies to further optimize your portfolio.

4. Manage Debt Effectively

Effectively managing debt is necessary for maintaining a healthy financial standing and achieving your financial goals.

Prioritizing Debt Repayment

Create a debt repayment plan by prioritizing high-interest debts, such as credit cards, while continuing to make minimum payments on lower-interest debts, like student loans or mortgages. This strategy, known as the debt avalanche method , can help you save on interest and pay off debt more quickly.

Alternatively, consider the debt snowball method, which involves paying off debts with the smallest balances first while making minimum payments on larger debts. This approach can help build momentum and motivation as you work towards becoming debt-free.

Balance Transfers and Debt Consolidation

If you have high-interest credit card debt, consider transferring your balances to a card with a lower interest rate or a 0% introductory APR offer. This can help reduce your interest costs and simplify your monthly payments. Be aware of any balance transfer fees and ensure you can pay off the transferred balance before the promotional period ends to avoid higher interest rates.

Debt consolidation involves combining multiple debts into a single loan with a lower interest rate, simplifying your monthly payments and potentially reducing your overall interest costs. Research debt consolidation options, such as personal loans or home equity loans , and carefully evaluate the terms and fees before proceeding.

5. Obtain Adequate Insurance and Protection

Having the right insurance coverage can protect your financial position in the event of unexpected costs or emergencies.

Health Insurance

Ensure you have adequate health insurance coverage to protect you and your family from the high costs of medical care. Regularly review your health insurance policy, and consider switching to a more suitable plan during open enrollment periods if necessary.

Life Insurance

Life insurance can provide financial security for your dependents in the event of your death. Evaluate your life insurance needs based on factors such as your income, outstanding debts, and the financial needs of your family. Consider term life insurance for affordable coverage during a specific time period or permanent life insurance for lifelong coverage and additional benefits.

Home and Auto Insurance

Review your home and auto insurance policies to ensure you have sufficient coverage and are not overpaying for your premiums. Shop around and obtain multiple quotes to find the best rates and coverage options for your needs. Consider bundling home and auto insurance policies with the same provider to potentially save on premiums.

6. Seek Financial Planning and Professional Advice

As your financial situation becomes more complex, consider seeking professional advice to help optimize your financial strategies and decisions.

Financial Planners and Advisors

Financial planners and advisors can provide personalized guidance and recommendations to help you manage money effectively, based on your unique financial goals and circumstances. When selecting a financial professional, ensure they are qualified, have a fiduciary duty to act in your best interest, and charge a fee structure that aligns with your preferences.

Estate Planning

Estate planning involves creating a plan for the distribution of your assets and the management of your financial affairs in the event of your death or incapacitation. This process may include creating a will, setting up a trust, establishing powers of attorney, and designating beneficiaries for your retirement accounts and insurance policies. Consult with an estate planning attorney to ensure your wishes are accurately documented and legally binding.

7. Develop a Positive Money Mindset and Financial Habits

Developing a positive money mindset and cultivating good financial habits are essential components of effective money management.

Cultivate Good Credit Habits

Establishing good credit habits can significantly impact your life financially. This includes paying bills on time, keeping credit card balances low, avoiding excessive debt, and applying for new credit only when necessary. Regularly review your credit reports for errors and monitor your credit scores to ensure it remains in a healthy range.

Set Financial Goals

Setting clear, achievable goals helps keep you focused and motivated on your path to financial freedom. Break your goals down into short-term, medium-term, and long-term objectives, and regularly review and adjust them as your financial situation evolves. Remember to celebrate milestones along the way to maintain motivation and momentum.

Maintain an Emergency Savings Account

An emergency fund provides a financial safety net for unexpected expenses, reducing the need to rely on high-interest debt or compromise your overall financial plans. Aim to save three to six months’ worth of living expenses in a high-yield savings account or money market account, and replenish the funds as needed.

Live Below Your Means

Living below your means involves spending less than you earn, allowing you to save and invest more money over time. This may involve reducing discretionary spending, cutting back on expensive habits, or finding creative ways to save on everyday expenses.

Stay Informed and Educated

Continuously expand your financial knowledge and develop money management skills by reading books, attending seminars, or following reputable personal finance blogs and websites. Stay informed about current financial news and trends, and adapt your financial strategies as needed to respond to changes in the market or your personal circumstances.

Find an Accountability Partner

Having an accountability partner can help you stay on track with your financial objectives and provide valuable support and encouragement. This may be a spouse, family member, or friend with similar financial objectives or a financial coach or mentor with expertise in money management.

Bottom Line

To manage money effectively, you need to have a clear understanding of your financial situation, set and pursue clear financial goals, and cultivate good financial habits.

By following the money management tips and strategies outlined in this article, you can take control of your personal finances and work towards achieving financial independence and lasting financial success. Remember, the journey to financial freedom requires patience, discipline, and a commitment to continuous learning and growth.

Crediful is your go-to destination for all things related to personal finance. We're dedicated to helping you achieve financial freedom and make informed financial decisions. Our team of financial experts and enthusiasts brings you articles and resources on topics like budgeting, credit, saving, investing, and more.

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6 Ways Your Bank Can Help You Manage Your Money

Updated: Mar 1, 2020, 8:11pm

Bank accounts keep your money safe and easily allow you to spend and save. But if you think of your checking and savings accounts as nothing more than repositories for your hard-earned money, then you’re not using all the tools available to you via modern banking. In fact, your bank offers a number of built-in perks that can help you manage your money better so you can keep more of it in those accounts.

Whether you go with a traditional brick-and-mortar bank , you prefer an online-only bank or you use some combination of the two, your needs should be at the center of the banking experience.

Here are six features of modern banking that can help you get a better handle on your money.

1. Low Balance Alerts

Overdrawing your account has become much easier to do today than it was when you had to write a check or go to a physical bank branch to make a withdrawal. Between debit cards, click-to-pay options with online retailers and mobile payment systems like PayPal and Venmo, you can easily wipe out all the money in your account without realizing it.

As stressful as overdrafts can be in terms of getting your account back in the black, overdraft protection often comes with fees that can make the situation even harder. These fees average $35 per overdraft, even when the overdrafted amount itself is much smaller.

The better way to protect yourself from overdrafts is to avoid them in the first place, which your bank can help you do with low balance alerts. These real-time alerts can send you an email, a text message or even a push notification (which appears on your phone’s lock screen) when your balance goes below an amount that you set. When you receive a low balance alert, you will know to either refrain from spending or make a deposit to ensure you don’t overdraw your account.

To sign up for a low balance email or text alert, find either “manage alerts” or “go to alerts” on your bank’s website. These options may appear under either Profile or Settings, if they are not on the home screen after signing in. There are generally several options to choose from, including what dollar amount the balance has to reach to trigger the alert and whether you want email or text alerts. If you choose to receive text messages, you must opt in to receiving such alerts and will have to activate the service by entering a code that your bank will send to you via text message.

Not all institutions offer push notification alerts. If yours does, you will generally need to download your financial institution’s banking app onto your mobile phone and look for “manage alerts” within the app’s menu. You may also need to adjust your notification settings within your phone to ensure you receive them.

2. Online and Automatic Bill Pay

Missing payment due dates has always been a problem for anyone who struggles with time management. Back when your bills all arrived in the mail, however, you at least had the physical bill sitting on your kitchen table, reminding you of the upcoming due date. But now that many bills are issued and paid online, it can be much more difficult to stay on top of bill-paying.

If you often find that your out-of-sight financial obligations are also out-of-mind, then setting up online or automatic bill pay with your banking institution can help ensure you pay your bills on time, avoid late fees and improve your credit via your on-time payment history.

To sign up for this service with your financial institution, you will need to gather up all of the various bills you pay, including the account numbers and addresses associated with each one. On your banking website, navigate to Bill Pay, and enter each of your billers into the site. From there, you can choose when and how much you will pay each one, and you can choose to make either one-time or recurring payments. Recurring payments are perfect for any bills where you pay the same amount each month.

Many banks offer to send you reminders for each of your bills. For the nonrecurring bills, this will remind you to sign in and pay. For the recurring bills, the reminder can prompt you to check that you have enough money to cover the coming bill.

3. Sub-Accounts for Savings

You know that putting money aside is an important part of managing your finances, so you have been slowly adding to your savings account each month. But not saving for any specific goal can put a major dent in those savings, because a savings account that isn’t earmarked can feel more like a supplemental checking account .

If you struggle to build savings, your bank may have a solution for you: sub-accounts for your savings account. With sub-accounts, you can specify what you are saving for in each account. When you have labeled an account as your down payment savings, you are much less likely to want to dip into it to pay for a vacation. The process known as mental accounting, which causes you to value money differently depending upon how you label it, will encourage you to be more responsible with money that has a specific purpose rather than money that just sits in unlabeled savings.

While some banks will allow you to allocate funds to sub-accounts under the umbrella of your primary savings account, others will instead ask you to open separate savings accounts . Either way, you can nickname each account with its savings purpose (i.e., Down Payment, Vacation Fund, New Car Fund, Emergency Fund).

4. Automatic Savings Deposits

Once you have set up targeted savings accounts, automatically transferring small amounts of money to those accounts can help you to painlessly increase your savings without ever feeling the pinch. There are several banks, including Bank of America  and JP Morgan Chase, that offer automated savings programs specifically geared toward making small, regular deposits.

However, even if you bank with a different institution, you can still take advantage of automatic savings deposits. Simply set up an automatic transfer from your checking account to your savings account(s) that recurs every day, week, month or quarter. A common method for creating a sustainable automatic transfer is to schedule your transfers on the same day you receive your paycheck . This can help ensure that you do not overdraw your account with your automated savings deposits.

When you’re ready to automate your savings , find the Transfers tab or button on your bank’s site. Select the amount to transfer, which accounts you are transferring between and the frequency of the transfer.

5. Online and Mobile Budgeting Tools

It used to be that digital budgeting tools were only available through third-party apps, programs and software. If you wanted to track and categorize spending, set savings goals or create a spending plan, you had to do that separately from handling your banking.

But more and more banks are now offering budgeting tools that you can use either on your computer or your mobile device, so you can keep on top of your finances without ever having to log out of your banking portal or app.

These digital budgeting tools vary from bank to bank, but they all can help you to track expenses and plan ahead. Using tools that are native to your banking site and app reduces the number of steps required to budget, which makes it more likely that you’ll stick to it.

6. Mobile Check Deposit

Receiving paper checks is less common now than it used to be, but that doesn’t mean checks have completely gone the way of the dodo. According to the Federal Reserve , as of 2018, check payments accounted for 8.3% of payments by number. (This is down from the 58.8% of check payments by number as of the year 2000.) This means you probably still receive an occasional check that you need to deposit.

Unfortunately, since so much financial management is now handled digitally, most people have gotten out of the habit of regularly running to the bank as part of their errands. Which means paper checks can gather dust (or get lost), costing you money.

Most banks now offer check deposits via their mobile app, which allows you to digitally deposit your check without having to visit a bank branch or ATM. In most cases, you will need to endorse the back of the check with a special phrase like “For [BANK NAME] mobile deposit only” under your signature. (The app will specify the endorsement requirement.) You will then take a photo of the back and front of the check through the app.

With this perk, you can deposit any check you receive the minute you get it, which will certainly help your bottom line.

Let Your Bank Do More for Your Money

Money management is a complex skill to master. It doesn’t help that financial management has to change as the world changes, making it difficult to stay on a budget using old tools.

While banks in the past only had to hold your money and send you statements, modern banking is working to make managing your money easier for you. With online and mobile tools, automation and account personalization, your bank can help you manage and grow your money with ease.

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Emily Guy Birken is a former educator, lifelong money nerd, and a Plutus Award-winning freelance writer who specializes in the scientific research behind irrational money behaviors. Her background in education allows her to make complex financial topics relatable and easily understood by the layperson. She is the author of four books, including End Financial Stress Now and The Five Years Before You Retire.

How to Manage Your Money in Five Simple Steps

R.J. Weiss, CFP®

• Updated June 02, 2024

How does someone go from a complete novice in money management to someone who considers themselves good with money? 

On a similar level, how can someone who currently feels they’re bad with money become good?

What research has shown us is that when we set the right goals, then take action towards our goals, we change our beliefs about ourselves . 

That’s why I’m such a big proponent of financial goal setting and creating a financial plan . Done correctly, these two activities can be the first dominos to fall in developing better money habits. 

Learning how to manage your money — in other words, developing effective processes and habits of managing your income and expenses — is the next domino. 

When you manage your money in a way that allows you to achieve your goals, you transition from someone who feels they’re bad with money to not only believing you’re good but having the results to prove it.

It’s this confidence that allows you to achieve both your short-term financial goals (a big win in and of itself) and to accomplish bigger and better things in the future.

Table of Contents

The Basics of Money Management

There’s a lot more to money management and being fiscally responsible than just budgeting. Knowing where your money goes is important, but it’s just one small slice of the pie.

To become good at managing your money, there are five different steps you’ll need to go through. 

• Knowing where you’re at today.
• Knowing where to put your money.
• Designing a cash flow plan.
• Managing your living expenses.
• Tracking what’s important and making adjustments when necessary.

Step #1: Know Where You Are Today (Calculate Your Net Worth)

To manage your money effectively, you need to thoroughly understand your current financial situation. The most straightforward number you can calculate that will tell you how you’re doing is your net worth. 

You calculate your net worth by totaling up your assets and subtracting your liabilities.

Resource : Free Net Worth Spreadsheet Template .

If you’ve had your share of past financial mistakes, this exercise can be a bit disheartening. Shame is a word that’s often associated with this process, especially for those who have been afraid to open up their credit card statements. 

If that sounds like you, keep in mind that your net worth is only a number. There’s no need to pass judgment on yourself. You are where you are today, but from today forward, your goal is to see improvements in that number — even if that means going from a negative net worth of $75,000 to negative $74,750. 

Step #2: Know Where to Put Your Money

Once you know where you’re at today, the big question becomes what to do with your money. This includes managing your current assets and liabilities, as well as determining how to handle future income and debts.

Tracking Your Income and Expenses

One thing has to be true in order to see consistent increases in your net worth: you must spend less than you earn. Therefore, you’ll want to track what you earn vs. what you spend every month. 

There are a number of ways you can do this. 

Here’s some advice on how to approach the process, depending on your situation.

• When you’re living paycheck-to-paycheck, or on a very tight budget : If you’re consistently struggling to come up with enough money at the end of the month, it’s best to thoroughly track each and every dollar. You might try an approach like the allocated spending plan , which has you manually budget every paycheck. 
• When you have solid income but also high expenses : If you’re wondering where your money goes every month, even though you seem to be making plenty of it, consider an approach like the cash envelope system . This budgeting method has you separate your expenses into different envelopes; once you go through the money in that envelope, you can’t spend a single penny more in the given category. That makes it a good approach for those with a penchant for overspending .
• When you’re living below your means . If you know you’re living below your means each month, consider a financial tracking app that allows you to easily see a snapshot of what you’re earning vs. what you spend. Instead of estimating, the right app can help you get a quick, accurate analysis of what you earned vs. what you’ve spent for any given month. 

Developing Financial Goals

Here at The Ways To Wealth, we call the difference between your income and expenses “your gap.” 

Managing your money well comes down to:

• Growing the gap between your income and expenses.
• Allocating what’s inside the gap towards the financial goals that are most important to you.

In other words, the goal isn’t to have a $500 gap that just sits and builds up in your checking account each month. Instead, the objective is to put this $500 towards your personal finance goals. 

For some people, this may involve paying off credit card debt or student loan debt. For others, their goals might be retirement savings, saving for a car , a wedding, a house, or even all these things at the same time. 

To help you set financial goals, we created an entire workbook that can walk you through the process:

Master Your Finances

Get financial control with our step-by-step goal-setting workbook. Opt-in below to receive the free PDF guide instantly.

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Step #3: Make a Cash Flow Plan

In our post on creating a financial plan , we discussed how cash flow planning is the most important aspect of financial planning. 

Most people equate financial planning with managing an investment portfolio. But it’s far more important for most households to focus on cash flow planning — i.e., on deciding what to do with your income. The Ways To Wealth

It’s the proper allocation of your monthly income that’s going to drive your progress towards your financial goals. 

So far, we’ve focused on what you’ll do with your money. Now it’s time to get down to the how. 

Because it’s not enough to commit to the idea of building an emergency fund or saving money for retirement; you need to develop a plan for how to make that happen. 

Paying Your Goals First

Let’s say your goal is to start saving more money for retirement. 

The two options you’re considering are:

• Have your employer automatically deduct money from your paycheck.
• Wait until the end of the month to see how much extra money you have left over and then invest that.

If I was to place a bet on which of these strategies would lead to more money saved over time, I would go with the first option every time. 

Money without a purpose tends to get spent. On the other hand, when we allocate money to our most important financial goals up-front, the small stuff always seems to work itself out. 

In practice, this idea is referred to as paying yourself first . 

Specifically, that means that instead of waiting until the end of the month to fund your financial goals, you pay these goals first. 

And for even better results, you’ll want to automate the process. 

What this automation looks like depends on what you’re trying to do. However, here are some best practices based on common financial goals.

• Building an emergency fund : Schedule an automatic transfer from your checking account to a savings account for the day after your paycheck hits the bank. For best results, keep your savings account at a different bank than your checking account, so that it’s harder to withdraw the money. One of my favorite high-interest savings accounts is offered by CIT Bank . 
• Paying off debt : Create a debt snowball . For the debt with the smallest balance (not the one with the highest interest rate), set up an automatic payment that’s higher than the minimum. 
• Achieving short-term saving goals (car, house, wedding, etc.) : As with your emergency fund, set up a recurring transfer from your checking account to your savings account. If your bank allows you to have sub-savings accounts, you can even go as far as naming your accounts after your goals.
• Investing . Utilize a 401(K) or other employer-sponsored plan to make automatic contributions. For IRA contributions, set up a recurring transfer that goes from your checking account to your investment brokerage soon after each paycheck hits.

Step #4: Automate Your Bills

The vast majority of monthly bills, including credit card, cable, internet, cell phone, utilities and other subscriptions, should ideally be set to auto-pay.

This is a big time saver. But even more importantly, it helps you avoid late payments. And since one of the most influential factors in your credit score is on-time payments, this habit can boost your credit score significantly over time. 

At the same time, this can be tricky for those living paycheck-to-paycheck . If that’s the case, here are a few tips:

• Use auto-pay to make only the minimum monthly payment . This can help you at least avoid late fees for missing payments. Ideally, you can then go in and make a bigger payment on your own.
• Sign up for a bank account that doesn’t nickel and dime you for overdraft fees . Overdraft fees alone totaled $11 billion in the U.S. in 2019 . If you’re with a bank that has numerous fees, consider switching. One of our favorites, Chime , allows account holders to overdraft up to $100 without a penalty. 
• Utilize notifications . Use text or email notifications to stay on top of when bills are due throughout the month, as well as when your bank account balance gets low. 

Step #5: Track What’s Important and Adjust If Necessary

What’s known as Pearson’s Law states:

“When performance is measured, performance improves. When performance is measured and reported, the rate of improvement accelerates.”

For the best results, it’s important to keep continuous tabs on your financial situation over time. You want to know if progress is actually being made, as well as how much or how little.

Here are a few important areas worth tracking.

Monitor Your Credit Score and Credit Report

Most people don’t realize that your credit score can impact your financial situation by tens of thousands of dollars or more over your lifetime.

Tracking this three-digit number over time, and knowing simple steps you can take to improve it, is therefore a smart financial move. 

I recommend using a site like Credit Karma that can help you get your credit score and report for free, and which offers customized tips on how to increase your number.

Learn more about how it works in our Credit Karma review .

Track Your Net Worth

The first step in managing your money is tracking your net worth. To get the most benefit out of this exercise, however, you’ll also want to constantly monitor your net worth.

Personally, when I started to pay attention to my finances, I was tracking my net worth on a monthly basis. Over the years, the time between calculations has increased. Today, I only calculate my net worth twice a year.

Know the Day You’ll Be Debt-Free

One of the more motivating numbers to track, for those looking to pay off debt, is the exact month they’ll become debt-free. 

What I like about this number is that it encompasses income, expenses and current debt, providing an overall snapshot of your situation. Best of all, it tends to be very motivating knowing that you’re X Months away from being debt-free. 

Our post on how to get out of debt explains the step-by-step process for calculating this number, even giving you a free template to help you do it.

Strive For Financial Independence

If you’re in the wealth accumulation stage, consider tracking the date you’ll become financially free .

Specifically, that’s the date the income from your investments will allow you to maintain the same standard of living you enjoy now. 

As with tracking your debt-free date, this number encompasses both your income and expenses, as well as your investment portfolio. 

Plus, seeing that cutting $500 from your monthly expenses means you’ll reach financial independence X Months or Y Years sooner can be quite motivating. 

Final Thoughts on Managing Your Money Better

Learning how to manage money is a skill. Don’t expect all systems to fire perfectly each and every week. However, if you commit to the process, you can expect to get better and better over time. 

Things may be difficult at first. It doesn’t always go as planned. 

When things do go wrong, stick with the fundamentals of:

• Knowing where you are today so that you can make intelligent decisions about how to improve.
• Managing your cash flow to help you accomplish your goals.
• Prioritizing your most important financial goals by paying yourself first.
• Automating as much as possible.
• Tracking what’s important so you know whether you’re making progress.

These fundamentals will help you take control of your finances and lay the foundation for a solid financial future. They can even help you live without a job , if your goal is full financial independence.

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Managing your money with the chase mobile® app.

Money plays a major role in most aspects of our lives, and let’s be honest, it’s often a little daunting. Managing your money can feel like a full-time job. You might even have early memories of your parents hunched over kitchen table with their bills, figuring out different ways to stay on top of their finances.

That approach might’ve worked for your parents back in the day, but modern times call for modern solutions. These days, you can get a better handle on managing money on your terms — with the convenience of the Chase Mobile ® app . Here’s how:

Chase Snapshot℠

When you log into your Chase account via the Chase Mobile ® app, one of the first things you’re likely to notice is a section marked Chase Snapshot℠. This feature provides a quick overview of your account so you’re always aware of the broad strokes, including things like:

• Credit and debit usage
• Major spending categories
• Checking and savings balances

One of the first pages you can access after logging into your Chase Mobile ® app is your “Accounts” page. Of all the pages essential to managing money effectively, this may be the most important. It’s where you can access several essential features :

• Account information: The “Accounts” page can be used to view and manage your existing Chase accounts, as well as open new ones. You can also link your external accounts, so you have all your finances available in one convenient location.
• Savings features: In addition to seeing and managing your accounts, you also have access to a variety of savings features. For example, you could use Autosave with your Chase checking account to automate your contributions to your Chase savings account.
• Credit Journey: Monitoring your credit is an essential part of improving your credit score and empowering your financial planning and management. Having a good credit score helps you finance bigger purchases like a car or home, or when applying for a credit card. Typically, the higher the score, the better the rate, which can help save you money over time. Credit Journey offers a one-of-a-kind feature where you choose your goal, set a time frame and get a personalized score improvement plan powered by Experian™. You can also keep track of your credit activity and get updates regularly to help protect your accounts and personal info. Best of all, Chase Credit Journey is free for everyone — no Chase account is required.
• Planning and budgeting tools: There was a time when planning a budget would’ve involved a lot of paperwork (and legwork). Thankfully, the budgeting tools you have access to on the Chase Mobile® app streamline the process for you, all you need to do is enter a few key details to get started with a budget that’s tailored to your goals.
• Chase MyHome : Helps you at every stage of homeownership — from seeing how much you can afford and searching for homes and loans, to managing your mortgage and understanding the value of your home. All things home , all in one place.
• All things auto: Get financing and tailored insights to help you buy and own a car.

Pay & transfer

The “Pay & transfer” page serves as your one-stop payments portal. Here, you can:

• Pay bills: Paying your bills can be a chore, but it’s one you can potentially automate with the bill pay features found in your Chase Mobile ® app.
• Transfers funds: This feature lets you transfer money between your Chase accounts. This can come in handy if you need to move some money from savings to checking to cover an emergency expense, for instance.
• Deposit checks: Did you know you can deposit your paper checks with just a few clicks using mobile deposit? Gone are the days of having to schedule time to deposit a check on a busy day — now you can get it done at your own convenience.
• Make wire transfers : If you’re trying to send a payment to an external account, or to send money overseas , you can use the mobile app to conduct a wire transfer.
• Send and receive money fast with Zelle ® : Instantly access your money — no fees — with Zelle ® . Pay and get paid back instantly from almost anyone you know and trust who has a bank account in the U.S. (no matter where they bank) with Zelle ® .

Plan & track

The “Plan & track” page is another essential part of the arsenal when it comes to effectively managing money. Some of the key features found here include:

• Account aggregation: Along with the “Accounts” page, you can also use the “Plan & track” page to link and monitor your external accounts. This useful feature lets you access all your financial information in a single place so you can see where your money is going.
• Spending summary: Seeing your spending summary can reveal a lot of different trends and patterns in your spending. This may help you identify an opportunity to adjust your spending. You might find, for instance, that you’ve been spending far more on takeout than you realized.
• Planning tools: Finally, there's a full suite of tools designed to help you improve your budgeting and saving. Additionally, the app features home and auto tools to estimate rates, manage your financing and more.

Benefits & travel

The “Benefits & travel” page is your portal to view and manage the Chase Ultimate Rewards ® points you earn with every purchase from your qualifying Chase credit cards, and then some. Here you’ll find:

• Points balance: Instantly view your current points balances across your Chase credit accounts, including pending balances from transactions that haven’t cleared yet.
• Redemption options: There are several ways to redeem your Chase Ultimate Rewards ® points, including buying gift cards, giving yourself cash back as a statement credit or account deposit, paying for purchases with points, booking travel and transferring points to other partners’ loyalty programs. Redemption rates may vary based on card type and ongoing promotional offers.
• Perks and benefits: Your Chase Ultimate Rewards ® credit card comes with a slew of perks and benefits worth checking out, including access to exclusive travel rewards, exciting dining options and more.
• Chase Offers: Take advantage of great deals at the places you love in the Chase Mobile ®️ app and Chase.com. With no coupons, codes, or registration required, it’s as simple as finding your favorite brands and adding the deals right to your card.
• Exclusive shopping deals: Chase cardmembers additionally have access to the Shop through Chase ® portal, which often features additional discounts and points incentives at merchants across all different categories.

Security center

Last, but by absolutely no means least, is the “Security center,” which can be accessed via your profile settings. This is your hub for customizing alerts that notify you when there’s a purchase or withdrawal from your account that’s over a certain amount. Alerts like these are essential to managing money in the digital era, as they can give insight into potentially fraudulent activity or balances that are going over budget. You can also use the security center to keep track of which apps and companies you're sharing your account information with.

The prospect of managing your money can be daunting to some, but it doesn’t have to be. Whether it’s tracking your expenses, setting a budget or building your credit (and enjoying its perks), the Chase Mobile ® app takes your finances off the kitchen table and puts them squarely in your hands, so you can manage money in a way that works for you.

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I’m a Financial Planner: 9 Ways To Manage Money When Your Income Level Changes

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Managing your money seems relatively simple when you know you can count on the same amount of income each month. When money fluctuates, however, decisions can feel much harder.

How much should you save or invest? Which debt should you focus on paying off first? What’s your budget for eating out or entertainment? All of these are valid questions when you’re unsure of how much you’re making.

GOBankingRates spoke with Abid Salahi, finance expert and co-founder of FinlyWealth , to discuss how income changes — whether positive or negative — require thoughtful financial adjustments. Here’s how to navigate these shifts effectively.

When Income Decreases

Reassess your budget.

Salahi advised to immediately review your expenses. Categorize them into essential and non-essential. Look for areas to cut back without compromising your quality of life. “The first step is to gain a clear picture of your new financial reality,” he explained.

List all your expenses and rank them by necessity. He said this process often reveals spending habits you weren’t fully aware of. “I had a client who realized they were spending $300 monthly on subscriptions they rarely used. Cutting these immediately freed up funds for more critical needs.”

Build or Bolster Your Emergency Fund

If you haven’t already, start an emergency fund. Aim for 3-6 months of living expenses.

“An emergency fund is your financial safety net,” said Salahi. “If your income has decreased, try to set aside even small amounts regularly. One effective strategy is to ‘pay yourself first’ — treat your emergency fund contribution as a non-negotiable expense, just like rent or utilities.”

Explore Additional Income Sources

Salahi highly recommended considering part-time work, freelancing or selling items you no longer need. Diversifying your income streams can provide financial stability during uncertain times.

“I advise clients to leverage their skills or hobbies. For instance, a teacher client of mine started online tutoring, which not only supplemented her income but also opened up new career opportunities.”

Negotiate Bills and Debt

Contact creditors to discuss payment plans or hardship programs.

Make your money work for you

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“Many companies offer flexibility if you’re proactive,” Salahi added. “One client saved $150 monthly by negotiating with their cable and phone providers and transferring high-interest credit card debt to a 0% introductory APR card.”

When Income Increases

Resist lifestyle inflation .

Salahi advised maintaining your current lifestyle for a few months before making any significant changes. “It’s tempting to immediately upgrade your lifestyle when your income increases,” he explained. “However, I advise clients to wait at least three months before making any major changes.”

This allows you to thoughtfully plan how to allocate the additional funds and avoid impulsive decisions.

Increase Your Savings Rate

Another crucial tip from Salahi is to use this time to boost your retirement contributions and other savings goals. “If your income increases by 20%, try to increase your savings by at least 10%.” 

This strategy, he noted, allows you to enjoy some benefits of your increased income while significantly improving your long-term financial health.

Pay Down High-Interest Debt

Use extra funds to accelerate debt repayment, focusing on high-interest debts first.

“Paying off high-interest debt is one of the best investments you can make,” said Salahi. “A client who received a $10,000 bonus used it to pay off credit card debt with 18% APR. This decision saved them over $1,800 in interest over the year and improved their credit score by 50 points.”

Invest in Yourself

This is a big one. Salahi recommended considering using some funds for education or skills development to further your career.

“Investing in yourself can lead to even greater income potential. One client used her raise to fund an advanced certification in her field. Within a year, this led to a promotion that doubled her initial raise.”

Rebalance Your Investment Portfolio

As your income and savings increase, Salahi advises ensuring your investment strategy aligns with your new financial situation. “Higher income often means you can take on more investment risk for potentially greater returns.” 

However, he said this should be balanced with your overall financial goals and risk tolerance. “Regular portfolio rebalancing is crucial to maintain an appropriate risk level as your financial situation evolves.”

The Bottom Line

Overall, regardless of whether income increases or decreases, Salahi believes maintaining clear financial communication with your partner or family is crucial.

“Regular ‘money meetings’ can help ensure everyone is on the same page and working towards common financial goals,” he said. “Remember, income changes are often temporary. Developing adaptable financial habits and maintaining a long-term perspective will serve you well through various financial seasons.”

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10 Money Management Tips to Take Control of Your Finances

11 Min Read | Aug 5, 2024

Let’s be real. The only “money management” most of us learned growing up was how to balance a checkbook (which is right up there with learning how to send a fax). But money management is important because if you don’t intentionally manage your money, it will manage you .

The key to good money management is having the right habits in place—like creating a budget, tracking your expenses, paying off debt, saving for the future, and being generous. All things that helped me go from broke and in debt to debt-free millionaire over the course of a decade.

So, if you want to learn how to manage your money better, listen up! I’m giving you my best money management tips to help you take control of your finances for good .

What Is Money Management?

Money management is the process of handling your finances by budgeting, spending, saving, investing and giving.

Now, there’s corporate money management (sometimes called investment management). Just picture people in suits talking about things like “capital expenditures” and “retained earnings.”

But then there’s personal money management—that’s what I’m talking about here. Simply put, money management is how you manage your money. (Shocking, I know.)

Good money management is just as important as brushing your teeth (and flossing daily, if your dentist asks). Like good oral hygiene, how you manage your money affects your quality of life. And trust me, it can keep things from being super painful later on.

10 Money Management Tips to Help You Make the Most of Your Finances

Thankfully, personal finance is 80% behavior and only 20% head knowledge. So that means anybody can learn how to manage money well.

Here are my top 10 tips to help you start managing your money like a pro:

• Take financial inventory.
• Do a monthly budget.
• Track your expenses.
• Build an emergency fund.
• Pay off and avoid debt.
• Lower your spending.
• Save up for large purchases.
• Invest for your future.
• Protect yourself with insurance.
• Be generous with your money.

1. Take financial inventory.

The first step to managing money is knowing what you’re dealing with. That’s right, it’s time to be brave and look in the financial mirror.

Start by logging in to any financial accounts you have (bank accounts, credit card accounts, student loan accounts). Then make a list of every unpaid bill, any recurring expenses, debts, credit cards, auto loans . . . everything. Leave no subscription or payment unturned. You need to know exactly how much money is coming in, how much debt you owe, and what you’re paying for every single month.

I know this part can be a little intimidating, especially if you’ve made some money mistakes you’d rather not think about (hey, we’ve all been there—me included). But you’ve got to face the brutal facts if you want to make progress.

2. Do a monthly budget.

The best way to manage your money is with a budget . Without one, you’re basically just winging it every month, hoping there’ll be enough money to keep the lights on and food in the fridge. But that just leaves you broke, anxious and stressed.

A budget puts you in the driver’s seat. You get to be the one deciding how to spend your hard-earned money—not the government, the credit card companies, or even your mother-in-law (she means well . . . probably).

There’s a lot of budgeting methods out there, but a  zero-based budget works best. It’s where your income minus your expenses equals zero. That doesn’t mean you have zero dollars at the end of the month. It just means you gave every single dollar a job to do . . . whether that’s giving, saving, paying off debt, or spending!

And if you’re not sure how to start budgeting, don’t worry. There’s an app for that—it’s called  EveryDollar . Download it for free, plug in your numbers, and tell your money where to go for the month.

Save more. Spend better. Budget confidently.

Get EveryDollar: the free app that makes creating—and keeping—a budget simple . (Yes, please.)

3. Track your expenses.

When it comes to budgeting, sitting down and doing the actual budget is only the first step. You also have to track your expenses .

Because if you just put some numbers down but never actually track your spending throughout the month, how will you know if you’re where you need to be? You won’t. You’ll just end up with an overdrafted bank account (which is the financial version of a charley horse).

The easiest way to track your expenses is with EveryDollar . You can even connect to your bank account so your transactions stream right into your budget. Then all you have to do is drag and drop. Boom! Tracking done.

4. Build an emergency fund.

Emergency fund, rainy-day fund, disaster fund, never-go-into-debt-again fund, or my personal favorite . . . oopsie-daisy fund. No matter what you call it, it’s important to have one. An  emergency fund  gives you peace of mind because you know you’re financially prepared for whatever comes your way.

If you’re in debt, save up $1,000 for your starter emergency fund . Over time, you’ll beef up your emergency fund to cover 3–6 months of expenses. But before you do that, you’ll need to tackle the biggest threat to good money management: debt.

5. Pay off and avoid debt.

Debt is dumb. There, I said it. And I’ll say it again and again as many times as I need to. While social media and your broke friends tell you that“debt is a tool to build wealth,” it’s actually what keeps you from building wealth. It steals your income and your peace. Debt causes you to pay for the past instead of building for the future.

Avoid debt like it’s lava—or spam (the edible kind  and  the email kind). Once you allow it into your life, it’s hard to get rid of it. And anyone trying to sell you debt as a good way to manage your money is just straight up scamming you (and probably spamming you).

If you already have debt, focus on paying it off using the  debt snowball method . Here’s how it works: You list your debts from smallest to largest balance (not worrying about the interest rates). Then pay minimum payments on all your debts but the smallest one. You’ll throw any extra cash you can get at that smallest debt until it’s paid off. Then you’ll roll what you were paying on it into the payment on your next-smallest debt.

Keep going until you’re completely debt-free. Then get yourself to the Ramsey Solutions Headquarters in Tennessee for your  Debt-Free Scream !

6. Lower your spending.

You may not think you spend that much, but every grocery run and overpriced latte adds up (a dollar more for oat milk?). Remember that budget we talked about? Chances are, you’ll have trouble sticking to it the first couple months. But cutting back on your spending can help you live on less than you make and give you more margin.

Instead of eating out at restaurants when you don’t feel like cooking, start preparing your meals in advance. Rather than dropping $50 at the movies, plan a fun date night at home. Choose generic brands in the grocery store or cancel subscriptions you don’t use. There are plenty of ways to save money !

Not going to lie, it’ll probably be hard at first. But as soon as you train your brain to stop spending at the drop of a hat, you’ll realize you can do it. And when you see how much extra money you have at the end of the month, it becomes addicting. Pretty soon, you get more and more creative with other ways to save.

7. Save up for large purchases.

A new guitar. The latest Apple product. The Peloton you just know will get you to work out more (been there, sold that). It’s tempting to swipe a credit card or split it up into “ four easy payments .” But we’re avoiding debt, remember?

A key part of managing your money well is knowing when to buy something. Because you want to own your stuff, rather than your stuff owning you . That means, if you don’t have enough to pay cash for it, it’s not the time to buy it. There are two words for that— delayed gratification .

If you’ve got your eye on something you can’t afford right now, you can create a sinking fund for it. Sinking funds are a great way to save for large purchases because you can budget for them over time to spread out the cost. And the best part? You won’t get stuck making payments for something you bought months ago.

8. Invest for your future.

All right, this is where the fun  really  begins. Because investing isn’t just about making sure you’ll have enough for retirement (though, that’s definitely the main reason to invest). It’s also a way to build some serious wealth—enough to live the life you want and be outrageously generous!

Here are some investing basics to remember:

• Invest 15% of your gross income into tax-favored retirement accounts like your  401(k) or a Roth IRA . 
• Invest in good growth stock  mutual funds . 
• Work with a  financial advisor . 

Whether you’re 24 or 54, it’s never too early or too late to start! The sooner you prepare for your golden years, the better.

9. Protect yourself with insurance.

A big part of managing your money is playing defense—by having the right insurance . Basically, insurance transfers the expensive risks to someone else. Because the last thing you want is for your savings to get wiped out by a medical emergency, car accident or flood.

There are eight types of insurance everyone needs at some point: auto, health, life (if you have people depending on your income), homeowners or renters, long-term disability and identity theft protection, as well as long-term care (when you turn 60) and an umbrella policy (if your net worth is more than $500,000). Just watch out for companies that try to scare you into buying insurance you don’t need (like cancer insurance, burial insurance or whole life insurance).

If you need help figuring out what insurance to get, you can take this free Coverage Checkup quiz . And don’t forget to add those insurance premiums to your monthly budget!

10. Be generous with your money.

There’s no denying the connection between those who win with money and those who give back to others. The two go hand in hand like peanut butter and jelly (or peas and carrots, if you’re a Forrest Gump fan).

Studies have shown that being generous leads to more happiness, contentment and a better quality of life. 1   Isn’t that the kind of person you want to be around or become ?

It’s not financial success that causes people to be generous. It’s being generous throughout their financial journey (even when it’s hard) that allows them to win with money. So, don’t wait until you have a certain amount of money in your bank account or time on your calendar before you start practicing generosity. Be intentional about making generosity a regular part of your life  today.   

Learn the Best Way to Manage Your Money

If you want to reach your financial goals —whether it’s getting out of debt, saving up for emergencies, investing for retirement, or all of the above—you need a clear path to success. Good news: I have just the money management plan for you: the 7 Baby Steps .

The Baby Steps have helped thousands of people work their way out of debt and get on a path to building wealth (myself included). No matter where you are on your financial journey, this plan  works .

If you want to learn how to follow the Baby Steps plan and manage your money the right way, Financial Peace University (FPU) will show you how. This class will teach you how to budget, pay off debt, save for emergencies, build wealth—and so much more!

Managing your money doesn’t have to be complicated, but you do have to put in the work. Find an FPU class near you and set yourself up for financial success!

Did you find this article helpful? Share it!

About the author

George Kamel

George Kamel is the #1 national bestselling author of Breaking Free From Broke, a personal finance expert, a certified financial coach through Ramsey Financial Coach Master Training, and a nationally syndicated columnist. He’s the host of the George Kamel YouTube channel and co-host of Smart Money Happy Hour and The Ramsey Show, the second-largest talk radio show in America. George has served at Ramsey Solutions since 2013, where he speaks, writes and teaches on personal finance, investing, budgeting, insurance and how to avoid consumer traps. He’s been featured on Fox News, Fox Business and The Iced Coffee Hour, among others. Learn More.

How to Create Your Budget With EveryDollar

Learn how to create a monthly budget in four basic steps—plus get tips on how to make a budget that actually works for you.

How to Start Investing in 2023: A Beginner’s Guide

Got questions about how to start investing in today’s economy? Let’s discuss when the right time is to begin your investing journey and ways you can maximize your investing potential from day one!

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Chapter 43 Sections

• Section 1. Planning and Writing an Annual Budget
• Section 3. Handling Accounting
• Section 4. Understanding Nonprofit Status and Tax Exemption
• Section 5. Creating a Financial and Audit Committee

• Main Section

Why does your organization need a money management plan?

What does the everyday management of your money include, how do you create a money management plan, what issues are involved in being tax-exempt, how do you handle cash flow, what are some day-to-day money management issues, what are some investment issues.

Families need to keep control of their finances to make life flow smoothly. The same is true in spades for organizations.

In order to manage money properly, you need:

• A budget that's realistic and accurate, so that you can start with a good idea of what you have available to spend, where that money will come from, and what you want to spend it on
• A variety of ways of gaining access to cash so it can be used (a checkbook, credit cards, an ATM card, etc.)
• A way to keep track of cash so you don't overdraw your account or spend more than you have
• A system for paying your bills on time, and for making sure that you have enough money to do that
• A steady stream of income so you can afford the things you need
• Good relationships with the people who pay you for the work you do, and whom you pay for the things you need, so that you can make arrangements with them for advances, loans, or more time in emergencies or difficult situations

If your organization is tiny, and its finances come from bake sales and occasional ten-dollar contributions - in other words, if your income and expenses are only one or two thousand dollars a year - you may not need a money management plan beyond keeping your checkbook balanced and paying your bills on time. But if there's any complexity at all to your financial situation, a money management plan is necessary for several reasons.

• It will enable you to continue to fulfill your purpose - i.e. make sure that there's enough money to provide services, keep your initiative going... whatever it is your organization was founded to do.
• It will help to ensure that you get the most out of your money . Good money management will stretch your dollars by helping you use them as effectively as possible.
• It will make it possible to keep control of your finances , and particularly of your cash flow.
• It will help you maintain good relationships with your landlord, your suppliers, and anyone else whom you pay for goods and services . Life is much easier when people and organizations pay their bills on time. Landlords and others are much more likely to make repairs, fill special orders, and generally be friendly to those who make their lives easier.
• It will establish your credibility in the community . Your organization will get the reputation of one that takes care of business, and is serious about its financial commitments as well as its mission. This kind of reputation can add greatly to your fundraising success, since people want to put their money where they know it will be well-managed to do the most good.
• It will save you time in dealing with money . You'll spend far less time trying to track down a missing receipt, or redoing something because you didn't do it right the first time, or engaging in other forms of waste motion.
• It will save you a great deal of worry , because you'll know exactly how much money you have and how it's being spent.
• It will give you more time to devote to the actual purposes of your organization . Money is a means for you to reach your goals. The more effectively your money is managed, the more effectively you'll be able to use it.

Many directors of organizations, especially in such areas as human services, health, or education, find money management boring, or even frightening. They see it as all about math, and worry constantly about whether they understand algebra well enough to handle finances, or whether a simple error in addition will push their organizations over the edge. But good money management is actually about systems and decisions. The systems are the ones you set up to keep track of and actually handle your money. The decisions are those you make about where to get and what to do with your money. Whether and how well you set up those systems, and the information and assumptions you use in order to make your decisions - not your background as a theoretical mathematician - will determine how well your money gets managed.

If you really find handling money difficult, it may be possible to delegate the money management part of the organization to someone who has the desire and the skills to take it over. Large corporations almost always have a CFO (Chief Financial Officer) who deals with the financial side of the operation. If your organization has a large enough budget, or can find a volunteer who is both competent and reliable, you may be able to do the same. A word of caution, however: even in an organization where there is a CFO or other person who manages the money, it's important that the director at least have a clear understanding of what's going on, and know what questions to ask in order to be sure that money is being used properly. This kind of financial help can come from within the organization, in the form of a Board treasurer or a Board member or volunteer who is an accountant. It can also be found through other organizations, such as SCORE (Service Corps of Retired Executives), whose members volunteer their professional services to non-profits and others in need.

Some systems you might want to put in place:

• An accounting or bookkeeping system, that will enable you to get whatever financial information you need quickly and easily, and that will make any required reporting as easy and accurate as possible.
• A banking system that affords the organization as much flexibility and as little cost as possible through the use of one or more accounts in one or more banks,
• A money-handling system that clarifies who in the organization has the physical responsibility for various money-related tasks - making deposits and withdrawals, writing checks, paying bills, etc.
• A petty cash system that makes it possible for staff to gain access to small amounts of money for purchasing everyday items: stamps, coffee, etc.
• A payroll system that assures that everyone gets timely and accurate paychecks, with the proper fringe benefits, deductions, etc. included.
• A payables and receivables system that defines the procedures you use to pay bills and to bill for the goods and services you provide.
• A grants management system that allows you to keep track of the finances of each grant or contract separately, and to spend funders' money in the ways you've agreed to.
• A system for handling cash flow issues

"Cash flow" is a term you'll see many times in this section. It refers to the actual flow of money through the organization, as opposed to what's on paper. If you're owed $500.00 by your friend, but he hasn't paid you yet, and you only have $5.00 in the bank, that's a cash flow issue. You can't pay your electric bill with the fact that your friend owes you money. Organizations deal with this issue all the time. Money from grants and contracts often flows slowly, and fundraising is unpredictable. Bills, on the other hand, come regularly, and salaries have to be paid. How well your organization manages cash flow can make a tremendous difference in its health, financial and otherwise.

Some examples of decisions you need to make:

• What kind of accounting system will you use, and will you computerize your accounting?
• What types of bank accounts and banking are best for your organization?
• Who has the authority to make day-to-day money decisions and to sign checks?
• What constitutes full-time employment and what constitutes part-time? Who gets what kinds of benefits?
• Will you use purchase orders for your ordering and buying? Which suppliers - for phone, office and program supplies, equipment, etc. - will you use?
• Will you set up a separate bank account for each major grant? How will you handle reporting to funders?
• Which bills and obligations will you settle first if you're short of cash? How long will you wait before you borrow money?
• What will you actually spend your money on?

Most organizations will find that if they think carefully about the decisions they make, and set up - and continually fine-tune, if necessary - systems that work for them, the math will usually take care of itself.

Another important aspect of money management lies in the attitude that goes into it. It is possible to be too concerned with money, and too careful about it. This kind of over-cautious attitude may lead to an unwillingness to take risks or to change, an attitude that can stultify an organization. By the same token, a too-casual attitude can lead to financial and even legal difficulties for the organization. It's important to understand just how important money is to what you do, and also to realize that it's not the only thing that's important. Keeping a clear perspective is key to managing money rationally.

• What does tax-exempt status have to do with money management?
• How do you handle cash flow issues?
• What are the day-to-day decisions and concerns you'll face in carrying out a money management plan?
• Investing extra money?

Every organization needs a money management plan. The nature of that plan depends upon the size and scope of the organization's finances, however. Much of the material in this section is admittedly geared toward organizations with five-figure or larger budgets. If your organization's budget is only a few thousand - or a few hundred - dollars, your money management may consist of little more than a checkbook and a calculator. It is important to understand what kinds of systems may be needed, however. Small organizations often grow, and even if they don't, they still have to manage their resources effectively in order to do their jobs. So if your organization is small, you may not need to use all, or even most, of the money management strategies described in this section. But you will need some of them, and understanding money management in a larger sense should help you to make the most of what you have.

The discussion of accounting here is meant only to help you approach setting up an accounting system and some of the issues an organization must face in the process; none of the information about accounting in the Community Tool Box should substitute for conferring with an accountant or other financial professional.

If your budget is very small - only a few hundred or a few thousand dollars - you may not really need an accounting system at all; but you'll still need to balance your checkbook, keep track of money in and money out, and pay attention to cash flow. A basic understanding of the issues here will still be necessary for you, even if your accounting system is no more than a check register and a stack of receipts in a desk drawer.

When setting up an accounting system , you will need to determine whether you will use a cash basis or accrual system to keep your books.

Cash basis/Modified cash basis accounting

Many small not-for-profits use cash-basis rather than accrual-basis accounting to record expenses and revenues. This means that they only record revenue when the cash is received, and only record expenses when they are paid. Some not-for-profits use modified cash-basis accounting, where they will record payroll taxes withheld from employees or large revenue or expense items on an accrual basis.

Accrual basis accounting

Accrual-basis accounting reports income when it is earned and expenses when they are incurred. Most businesses track all expenses and revenues using accrual accounting. If you get public money (and, quite possibly, even if you don't), the accrual method is more accurate and more effective. It tracks line items better, and tells you how much of your annual budget you've actually spent. If you go purely on a cash basis, it's a little like not recording the checks you write from your personal checkbook, but only checking the balance occasionally. Doing that, you can end up overdrawn with no trouble at all, since your balance rarely matches the amount you've actually recorded in your checkbook. If you use accrual, you always know when you can spend and when you can't; it makes sense in that circumstance to keep track of cash as well, but not necessarily to keep books on a cash basis.

Another one of the most important elements of an accounting system is the working relationship between the organization's accountant or bookkeeper and the rest of the staff. Words that mean one thing in common English mean something slightly - or radically - different in accounting language, and this situation can lead to massive confusion and incorrect or incomplete financial information. One nonprofit director struggled to get from his organization's bookkeeper a statement of how much real money came in and went out in a particular year. It literally took years to determine that the bookkeeper meant something different by "cash" than the director did. Once the language problem had been solved, the information was easily obtainable.

This issue can cause errors in the other direction as well. An accountant or bookkeeper may not get the information she needs because of the language barrier, or because other staff members don't perceive the bookkeeper's requests as important, and, as a result, the books may not be accurate.

Yet another potential concern lies in the difference between nonprofit and for -profit enterprises. The bookkeeper in the anecdote above had never before worked in a nonprofit business, and therefore didn't realize that it was important to stick to the budget. He didn't understand why the director was so insistent on finding out where the organization's income and expenses were in relation to what was projected. The result was frustration on all sides.

The bottom line here (pardon the pun) is that the relationship between the accountant or bookkeeper and the rest of the staff is incredibly important in determining whether an organization's accounting system will work well or not. It is more than worth it to take the time to bring language and other differences out in the open, correct any misunderstandings, and clarify what's necessary on both ends in order for the organization's financial management to function smoothly.

If your organization or initiative has a small budget - only a few thousand dollars - a single checking account may be all you need from your bank. But if your budget is large and complex, with a number of funders, you may need more than one account, or more than one kind of account, as well as some other services. Before you start looking for a bank, you need to decide what you want from your banking system.

Some of the possibilities include:

• The best interest rates you can find, including interest on your checking account
• The availability of high-interest accounts (Money Market, for instance) for times when you have extra cash that you expect to hold on to for a while
• Overdraft protection (essentially a short-term loan up to a certain amount), so you can pay your bills when you're short of cash
• The willingness of the bank to loan your organization money if needed
• A different - and perhaps even a different kind of - account for each of your major grants or contracts (Do you want these all in the same bank?)
• Payroll direct deposit for employees
• A banking package giving you favorable rates - your organization may be passing large sums through that bank every year, so consider what you should get in return

Other issues might include security (Are the bank's deposits federally insured?), convenience (Is the bank close by? When is it open? How many ATM's can you use without a fee?), how easy the bank's services are to use, how the bank treats people from your organization, the bank's relations with the community (Does it encourage small business development?), the bank's philosophical stance regarding the issues your organization addresses (Does it lend to low-income and minority homebuyers, for example?), and personal relationships with bank officers.

You should shop for a bank the same way you'd shop for a car. Arrange an interview at each bank you're interested in, explain what your needs are, and discuss how those needs can best be met by that particular bank. Pick the one you think can do the best job for your organization. If you carefully make decisions about what you need, and choose your bank equally carefully, you'll come up with a banking system that's right for your organization.

Money handling

Having a banking system implies that someone has to be authorized to use it. Who in the organization has the authority to make final decisions about spending, and to sign checks and other financial documents, such as loan agreements or contracts? There are several ways to answer these questions, and the answers are different for different organizations.

Who makes financial decisions?

The answer here is usually the director, the Board of Directors, or some combination of the two. In many organizations, the director presents an annual budget to the Board for its approval, but, once the budget is approved, makes the day-to-day financial decisions without Board permission. If there are major deviations from the budget, the director comes back to the Board with a new budget, explains the changes, and has the new budget approved. This model is probably the most common among nonprofit organizations of all kinds. It allows for Board input and oversight through the budget process, but gives the director the freedom to make the decisions that go with her responsibility for the running of the organization.

In some organizations, the Board makes all financial decisions, and the director carries them out. In others, the director makes all financial decisions, and either no Board exists, or it has only a consulting role. This last model is unusual in larger organizations, where large sums of money are at stake.

There are other variations on all of these themes. Directors and Board finance committees or treasurers may share fiscal responsibility, Boards may hold veto power over directors' decisions, or other officers - the accountant or chief fiscal officer (CFO), for instance - may hold decision-making power about money. The best advice about this issue is to choose a system that gives everyone the powers that go with his level of responsibility, and that allows him to carry out that responsibility as effectively as possible.

Who signs checks?

The person(s) designated to sign checks for the organization usually reflect who makes decisions about money. It makes sense to have at least two people able to sign checks (in case someone is sick or on vacation). In organizations where the financial decisions are shared between Board and director, a check may require the signatures of both the director and either the chair or the treasurer of the Board.

In some organizations, payroll and payables checks - or even all checks - are signed by the accountant or bookkeeper, rather than the director. In larger organizations, where there are several separate programs, the director of each program may have a separate account, and may be responsible for spending - and for reporting, both to the funder and to the organization's accountant - for her program.

One standard procedure, often required by auditors, is that checks over a certain amount - usually several thousand dollars - be signed by two people, even if most checks get only one signature. This is to assure that large expenditures have been properly approved, and to keep someone from heading for Rio with the bank balance of the organization.

Who can use ATM cards and credit cards?

Who has access to the appropriate PIN numbers and cards? In most cases, these will be the people who make financial decisions and sign checks. Sometimes, however, convenience is also a factor: the bookkeeper or a staff member who lives across the street from the bank may be an obvious choice.

Who signs documents for the organization?

Most organizations choose an official signatory, the person whose signature commits the organization to a contract or other legal document. In most organizations, this is usually either the director or the chair of the Board, or, in some cases, both. As with check signing, who you choose as your organization's signatory probably should reflect who makes the decisions about money and the organization's functioning.

Petty cash is the money you keep in a drawer for when you realize there's no aspirin in the office, or when someone needs paper towels. The amounts of money covered by petty cash are by definition tiny compared to the overall budget of the organization (you might easily spend less than $100.00 a year). If they're not handled and recorded properly, however, they can drive bookkeepers and auditors insane. If your books are going to balance, you need a system to make sure that both who spent any petty cash and what they bought with it are recorded accurately.

One possibility is to simply start with a petty cash line in your budget. A certain amount of cash is drawn against this every month, and either distributed as needed, or distributed in set amounts to those who need petty cash. A way of reporting on spending is agreed upon by all concerned, and every expenditure gets recorded as soon as it's made. As long as everyone follows the system, it all works fine. The reality is that petty cash is almost always a pain. The easier and simpler your system is, the more likely it is to be followed.

Payroll is the largest expense for most non-profits. It may seem that no real system is necessary: after all, you just have to write out a check every week or two for the amount of an employee's pay, right? Well... not exactly. There are a number of questions to answer before you make out and distribute your payroll.

• Most organizations pay either every two weeks (the most common) or every week, but some pay monthly or on some other schedule.
• Most school systems and other educational organizations that take summers off pay their employees on a 52-week schedule, but other options are certainly possible.
• Does everyone get the check on the same day regardless of whether that's a work day for each person or not? Can employees decide individually on their yearly pay schedules?
• Some organizations give everyone the same benefits, or a share of benefits, regardless of how many hours a week they work. Others don't give benefits to part -time employees. Benefits are often denied to employees working fewer than 20 hours a week, and full-time is often defined as 30 hours a week or more
• Will those who don't need health insurance, for instance (because they get it through a spouse or some other source), be given the equivalent in some way? Will you hire a professional to prepare and administer a benefit program?

Remember that even if you don't offer any benefits at all, you're still responsible for paying - on a regular schedule - half of employees' Social Security and Medicare taxes, as well as for withholding all relevant federal and state income tax. In most states, you're also responsible for Unemployment and Workers' Compensation. If you fail to pay any of these on time, you get hit with both interest and penalties (worst on the federal taxes). The IRS may not inform you of your error for a year or more, and they charge interest and penalties for that whole period, even though you may have had no idea that you owed them anything.

• Many banks and accountants offer regular payroll services, which may include direct deposit, mailing checks directly to employees' homes, or other possibilities. One of the advantages of hiring out payroll is that the payroll service may take responsibility for errors in withholding, etc.
• There are a number of payroll software programs on the market that include Social Security and Medicare taxes, and can easily be programmed to withhold appropriate amounts from each paycheck. They can also then print out the whole payroll - checks and records alike - saving a great deal of time. The drawback is the expense of both the software and the checks - specially printed and connected to be fed through a computer printer. Generally, the larger your organization, the more likely a software system is to be cost effective.
• Check-writing systems - paper-and-pencil packages that allow you to make copies of checks and record payroll journals on the first writing, without having to resort to copiers or recording numbers by hand in two or three separate places - can be cost- and time-effective for some smaller organizations.

Payables and receivables

Payables are those expenses which you owe, but haven't paid yet. These include outstanding bills for goods you've bought, rent or mortgage payments, bills for last month's utilities, bills for services you've already received, etc.

Receivables are those items of income that you're owed for services or goods you've already supplied, or regular payments from funders which are due, but haven't arrived yet.

If your accounting system is computerized, then your payables and receivables system essentially has to be. Some questions to think about while setting up a system to handle payables and receivables:

• Who actually pays the bills? The director? The bookkeeper?
• When do bills get paid? As soon as they're received or due, or simply on a regular basis (e.g. every two weeks, or once a month)?
• Will you use a purchase-order system to buy things? Purchase orders are printed forms, numbered in sequence, on each of which you record a particular purchase. The seller gets a copy, and you keep one yourself, allowing you to track the things you've ordered or bought, and when and how much you've paid for them. Purchase orders provide a record for your organization of what it's bought from - and what it owes to - whom, and they give the seller a record to bill from. Whether or not a purchase order system makes sense for your organization probably depends on how tight your fiscal controls are. Some accounting software can print out purchase orders automatically when you record an order, and make the process much easier.

Receivables:

• Who actually sends out bills?
• When does billing get done (or, in the case of grants, when do you apply to "draw down" - i.e. receive - money)? As soon as you've provided the goods or services, or simply on a regular basis (monthly, for instance)?
• How long will you give people to pay, and how do you communicate with people whose payment is late?

Grants management

If you receive grants or contracts, from public or private sources, they generally come with some clear expectations from the funder about what you'll do with the money. A grant is a gift of money which you usually must agree to spend in particular ways. A contract pays you for goods or services you provide, generally after the fact (i.e. you supply the goods or do the work and then bill the funder for your costs at a rate you've both agreed upon).

In the case of public money - and, to a large extent, of private money as well - the greatest difference between grants and contracts can be when you get paid. With a grant, you generally receive money on a regular basis, or all at once, whether you've spent it yet or not. With a contract, you often don't get any money until you've actually spent your own to provide goods or services. Many organizations would agree with an adult education provider who was asked the difference between a grant and a contract. He answered, "Life and death." There are advantages to contracts as well. Often, a contract gives you more control over how you can spend your money. And not all contracts require that you spend money before you can receive it; some call for money to be provided on a regular schedule, or allow it to be drawn in anticipation of services. But in general, the grant/contract distinction holds.

With most grants and contracts, the terms of how your organization can spend its money are laid out very specifically. The funder and the organization will agree on amounts for particular line items (a line item is an expense category, which occupies a single line in a budget: "salaries," for instance, or "office supplies "). The funder then expects the organization to stick to these amounts, either exactly, or within specified limits (say, 10%). If the organization fails to fulfill its commitments without renegotiating the grant or contract (which is usually possible, at least within reasonable limits), it may be asked to return some or all of the money. It is therefore obviously crucial to be able to track each grant and make sure that spending is within the limits agreed upon, and that the called-for work or service is provided.

How will you track line items? The answer to this question can be complicated, because it often means juggling several different grant budgets. Your organization's overall budget for office supplies may be $300.00, for example, but that may be divided among three different grants, with different amounts in each. Not only do you have to be careful not to spend more than the $300.00 you've budgeted, but you have to be careful to assign your spending to the right grants. If you have accounting software, it may be helpful here.

How will you track separate grants? One possibility is to keep a separate bank account for each grant or contract. While this is probably the most efficient way to handle the issue, in practice it's often difficult because of cash flow. Keeping a separate set of accounting journals for each grant or contract is usually a much better option. With good accounting software, you can set up a system that will record your income and expenses by grant, and integrate them into the general ledger (the books of the organization as a whole) at the same time.

Most non-profit organizations are tax-exempt, but tax-exempt status doesn't come automatically. The organization has to first apply for and obtain non-profit status from the state, and then apply to the federal government for tax-exempt status. After federal tax-exempt status is granted, the organization can apply for a tax exemption from the state. Got that?

This discussion here of non-profit and tax-exempt status is primarily focused on the number of ways those issues can affect money management in your organization and make some demands on you if you want to take advantage of it.

First, there's that matter of obtaining tax-exempt status in the first place. You'll probably need to work with an attorney or CPA in order to fill out and submit the applications for non-profit and federal tax-exempt status. But once those are granted, your job isn't over. There are still several things you have to do - some of them only once, and others continually - in order to make sure that you actually don't pay any taxes (thus saving your organization a good bit of money, which you can then use to further your mission).

• Apply for state tax-exempt status . This has to be done after you receive notice of your federal status, but you will need to supply copies of your federal tax exemption, your articles of incorporation (if you're incorporated), your latest tax form, and some other information as well. While federal tax-exempt status excuses your organization from paying any income taxes, state status not only includes exemption from state income tax, but also covers sales tax, property tax, and any other state and local levies. State tax exemptions generally have to be renewed at regular intervals (every five years is common).
• Make sure that the correct forms are used when purchases are made . In order to avoid sales tax, in most states an official representative of your organization must fill out and sign, at the time of purchase, a form provided by the state that specifies the amount of the purchase, the amount of the tax, etc. You also need a form if your organization sells to others. It is contingent on someone in the organization to make sure that whenever anyone buys or sells anything taxable for the organization, he has copies of the appropriate form signed by the appropriate person.
• Remove taxes that you've been paying on your phone, utilities, and any other regular payments . The fact that you've received federal and state tax-exemptions doesn't mean that everyone automatically takes the taxes off your bill. Getting the electric company, the gas company, the phone company and others to remove your taxes can be an annoying process. All of them require documentation, and it's not unusual for each to require something different. It's a pain, but your organization will save a good deal as a result.
• Fill out tax forms . Even though you have tax-exempt status, you still have to fill out forms for both the IRS and the state . The IRS form is the 990, and has to be filed just like a for -profit tax form. Furthermore, failing to file - or failing to file on time - incurs the same penalties as if you were a for-profit business. Many non-profits have their taxes done by a CPA as part of their yearly audit.
• Arrange and undergo a yearly audit . An audit is the careful checking by a CPA, according to federal regulations, of an organization's books. Any organization receiving public funds over $25,000.00 must undergo an annual audit of a certain type, and there are particular guidelines for non-profit audits in general. Among other things, such audits generally must confirm that any granted or contracted money was spent in the way agreed upon in the grant or contract, that Board meetings actually took place, and that the organization provided whatever services it said it was providing.

As explained above, cash flow has to do with the availability of cash at a given moment. The organization may be owed a great deal of money from funders and other sources, but if it doesn't have cash in the bank, it can't pay its bills. Community based and grass roots organizations deal with this problem constantly. While there's almost no way to avoid it completely, there are ways to minimize it. The first step is to understand and anticipate why cash flow problems might arise for your organization.

Causes of cash flow problems

There are numerous reasons that an organization may experience cash flow problems. The most common probably stem from late payments by funders. Some of the reasons that a promised grant or other payment hasn't arrived yet might include:

• The money hasn't been released to the funder yet - this is particularly likely in the case of public money, which is subject to funding approval at a number of levels

In Massachusetts in 1999, for instance, the state budget wasn't approved until November, five months after the June 30th end of the previous fiscal year. Until the budget was approved, no state agency could receive any funds from it, and the agencies' grantees and contractors in turn could get no funds, either.

• The funds are simply late - the funders are backed up, their computer system crashed, they're understaffed, etc.
• The funding is still in process. Perhaps you haven't gotten the funder a crucial piece of information, or they're still checking something in your proposal, or you're still negotiating about particular line items - in any case, you won't see any money until the process is completed.
• You're on a payment schedule, and the next payment isn't due for another month
• You applied for payment late (perhaps because your billing system is less than efficient)
• You may be awaiting payment for services already performed, and for which your organization has already spent a lot of money
• You may be waiting for revenues from a planned event - a carnival, a benefit concert - that hasn't taken place yet
• You may be waiting for a fundraising appeal or membership drive to take effect
• You may simply not have enough money to do what you're trying to do. If this is indeed the issue, it's not really a cash flow problem, and you have some hard choices to make.

Ways to address cash flow problems

While you may not be able to stave off cash flow problems altogether, there are number of things you can do to reduce their impact and prepare your organization to weather them.

• Try to anticipate when cash flow problems may occur . Summer and early fall, when the state budget may still be in deliberation, could be a problem if you 're dependent on public funding, for instance. If you have a fundraising event or drive planned in September and another in May, March and April might be a time when you're running short. Because of a difference in funders' fiscal years, there may be a lull in funding at a particular point.
• Set your priorities beforehand . What do you have to pay - or to buy - and what can you defer when you're waiting for cash flow to catch up with your bills and obligations? All but the most necessary office supplies can probably wait until you have some cash. The phone company will usually continue your service as long as you make some payment - often as little as $10.00 - on your bill. Figuring out ahead of time what you have to pay or buy and what you can put off will both make it possible to get through shortages of cash and contribute greatly to your peace of mind.
• Negotiate beforehand with your major suppliers, utility companies, landlord, etc. to explain your situation and work out an arrangement that's agreeable to both of you. If your landlord, for instance, understands that there are months when paying full rent will be difficult, she may be willing to take partial payment at those times, and wait for the rest until you have it. In general, informing your creditors beforehand of the possibility and negotiating some mutually acceptable arrangement will buy you both time and goodwill.

What do you pay first, and what do you put off if you can't meet all your obligations because of cash flow? In almost all cases, payroll has to come first. The organization has an absolute obligation to its employees to maintain their livelihood if it possibly can. What comes next depends to a certain extent on who will let you slide how much. Landlords who rent to community based organizations are often sympathetic, for instance, whereas large utilities may not care who you are or what you do - they just want their money. At the same time, they want to keep you as a customer, and are usually willing to negotiate. It's generally easiest to put off those who don't provide goods or services upon which the life or death of your organization depends. There are ethical issues here as well, however: while the phone company won't go broke if you don't pay your bill on time, the local printer who produces your brochures might, even though he might also be more willing to wait for payment. What's your ethical obligation here?

• Arranging with your bank for short-term loans - at favorable rates, if possible - at the times you need them
• Putting aside a certain amount of money whenever it's available as a hedge against later cash flow problems
• Making absolutely certain that you apply for as much of your funding as possible from each funder as soon as it's allowable to do so

A temptation in a bad cash flow situation might be to put everything on a credit card, and take the benefit of the 30-day period before payment is due, or simply use the debt as a short-term loan. Remember before you take that route, however, that if you don't pay within the specified time, you'll be charged an exorbitant interest rate on your balance - usually 18% a year (you can get a much better deal on a short-term bank loan). Be aware also that different credit card contracts are different. Somewhere in the fine print in your credit card contract, it may mention that if you use your card to withdraw cash, every other purchase you make in that month from that moment will be charged interest at the maximum rate. Or there may be rules about what happens if you don't pay your minimum balance on time. Make sure you know exactly what's in your contract before you use a credit card to deal with cash flow problems.

Once you've set up your systems and everything's in place, you have to deal with the everyday tasks of actually using and keeping track of your money. Day-to-day handling of money, in addition to cash flow, involves the same kind of comparison shopping, looking for bargains, and negotiating for the best deals that careful families do. It also means maintaining your systems and making sure they're actually being used. Having great software doesn't help if no one enters the numbers, or if no one records them in the first place.

An important element of everyday money management that we won't discuss in detail here is the building and sustaining of personal relationships between people in your organization and landlords, suppliers, customers, and funders. It's always easier to negotiate, to get something done quickly, to get a break on a payment time, etc. if you have a personal relationship with the person you're appealing to. It also makes doing business in general smoother and much more pleasant. The reality is that the world runs on personal relationships: the more and the better you can cultivate, the better for your organization and the simpler your financial management will be.

Shopping for goods and services

You obviously want to make your money go as far as possible. One way to ensure that is by comparing the prices of different suppliers, and looking for the best deals on goods and services.

Some other things to consider:

• Looking carefully at stores or service firms you might want to do business with , and comparing not only their prices, but what kind of support they offer, and exactly what you're getting for the money. Cheapest is not always smartest.
• Using catalogues . Sometimes, catalogues contain items that aren't sold in stores, and may also feature specials, or simply be cheaper in general than store prices. With most catalogue orders, you have to figure in the extra shipping and handling fees; but some catalogue houses ship free if you order more than a certain amount. In addition, you can figure in the amount the organization saves by not having to pay someone to actually go out and shop.
• Becoming part of a buying collaborative . Nonprofit organizations often band together - sometimes joining with larger entities, such as school systems or city governments - to negotiate large-volume deals with suppliers. You may be able to get office supplies, furniture, or other items at greatly reduced rates if you're part of a group that orders these things in huge quantities.
• Sharing equipment, positions and services . Two or more organizations may be able to save money by sharing a copier, a receptionist, or trash pickup.
• Using the Internet . Major bargains often appear on-line, especially if your needs aren't state-of-the-art. You may be able to get the one- or two-year-old version of a dynamite accounting software package (which will probably be more than powerful enough for your needs into the distant future) for a small fraction of its original cost. Discontinued lines of furniture, computers and other electronic equipment, toner for copiers and printers, or just plain low prices on things you need can often be found with a little searching. Once again, you have to add shipping and handling fees, but you'll save on person-hours.

With any of these strategies, remember that it's important to balance the money you save with the value of what you get - the level of service, for instance, or free technical support - and the time and effort you spend. If it takes someone in the organization a day to find a bargain on a new computer, what's the difference between that day's pay and the amount you saved? If it's not considerable, it's probably not worth it. By the same token, if you buy an inexpensive piece of equipment that's constantly out of the office being fixed, or you get a deal from a CPA firm that regularly messes up your tax returns, you haven't found a bargain.

Negotiating with funders

As mentioned above, you're obligated to fulfill the terms of a grant or contract. Those terms aren't necessarily cast in stone, however, and most funders are willing to negotiate, at least within broad limits, about such things as payment schedules and uses of money. After all, the funders are concerned that you do what you've been funded for as well as possible. They're usually willing to do whatever they can, within reason, to make that happen.

Renegotiating your payment schedule may mean that you can stave off cash flow problems. The ideal is being able to ask for money whenever you anticipate needing it. It will take the funder a certain amount of time to deal with the request for funds - anywhere from a few days to months, in the case of some state or federal bureaucracies - and you have to leave enough time so that you'll actually receive the money before you run out of what you have.

Most funders have a mechanism that allows them to approve changes in your line -item budget (although not in the total amount of funding) up to a certain point in the fiscal year. This gives you the opportunity to address unforeseen circumstances, or simply to respond to the real expenses of your project. As long as you can justify the changes, and as long as the changes are directed toward accomplishing what you 're funded to do, funders will almost always approve.

Maintaining systems

As you use your money management plan day-to-day, you have to make sure that all the systems you so carefully designed continue to work properly.

Some of the areas that have to be maintained:

• Data entry and backup. Any systems that are computerized - accounting, payables /receivables, payroll - need the right numbers put into them constantly so that they'll always be up to date. In addition, they should be backed up regularly - ideally every day - so that you won't lose all your data if the power goes out or if your hard drive crashes. If those systems aren't computerized, the data entry - using pencil and paper - is still just as important, and can be even harder to maintain, because it takes longer.
• Paying bills and billing . Your system is useless unless someone actually does the paperwork on a regular basis, and keeps careful records.
• Payroll and payroll taxes . Someone has to make sure that Social Security, Medicare, state and federal taxes, unemployment, and workers' compensation are all paid correctly and on time. In addition, whoever is in charge of payroll has to keep up with changes in the tax laws, as well as with any changes in employee benefits, so that he withholds the proper amount from employees' checks in either case. W-4 forms (employees' declarations of the number of their exemptions) have to be on file, and W-2 forms (the employer's declaration of how much was withheld and paid in all categories of taxes from each employees' pay for the year) have to be issued to employees, with copies sent to the federal and state governments, between January 1 and January 31.
• Audit and organizational tax requirements . An audit has to be arranged each year, for which someone in the organization has to gather and provide all the necessary financial and other records, often including Board meeting agendas and minutes, actual contracts and grant agreements, and records of services provided or activities conducted. In addition, the Form 990 (for the IRS) and any relevant state tax forms have to be completed and sent to the appropriate agencies within three and a half months of the end of the organization's fiscal year.
• Printed forms . If you use purchase orders or other printed forms for financial systems, they have to available when they're needed, whether that means buying generic ones, running them off on a computer printer or copier, or ordering them from a printer.

In addition to general system maintenance, it's important to evaluate systems continually to make sure they're working efficiently, and to make changes where necessary to make your money management as effective as possible.

If your organization is one of the lucky - or well-run - ones whose cash flow is healthy, you may find yourself with extra money in the bank. Rather than letting it sit around gathering dust in a no- or low-interest checking account, you might consider investing at least part of it in a something that yields higher interest.

A Certificate of Deposit (CD) gives you a high rate of interest in return for leaving your money in the bank for a specified length of time - usually from three months to five years. A three- or six-month CD provides high interest, but doesn't tie up your cash for too long. If the organization needs cash, the money can be withdrawn before the time is up, but there is a substantial interest penalty (i.e. the CD's final interest rate will be considerably lower than if you kept it for the full period).

A Money Market Account yields high interest in return for keeping a certain minimum balance. While Money Market interest is lower than that of a CD, cash in a Money Market Account is available without any penalty as long as the minimum balance (usually about $5,000.00) is maintained.

Both CD's and Money Market Accounts provide good ways of putting aside money for short periods of time to deal with anticipated cash flow problems. They also provide the opportunity for longer-term high interest opportunities.

For most organizations, investing in the stock or bond markets makes less sense, since these are by nature long term propositions that carry a certain amount of risk. Because of ups and downs in stocks, cautious investment strategy means staying in the market for at least ten years, which may defeat your organization's investment purposes. In addition, your investment needs managing, and management fees are charged whether you're making any money or not. Unless your organization has an endowment or some other amount of money large enough to generate significant income (and which you can afford to have tied up for a long time), investing in stocks and bonds is seldom useful.

If you have a larger amount of money to play with, you might consider a capital investment. A capital investment means taking some of your capital - the worth of your organization - and using it to buy something which itself becomes part of the capital of the organization. For instance, you might consider, as many non -profits do, buying a building.

Some of the advantages of this course of action:

• There are numerous federal and state programs available to provide low-interest mortgages for non-profits
• You can lock in your rent (i.e. your mortgage payment - as a tax-exempt organization, you'll pay no property tax) for the period of the mortgage, typically 20 years. This allows for easier financial planning, since you know exactly what you'll be paying for space.
• The building itself is an asset of the organization which can be sold if necessary, or can be kept until the organization owns it free and clear
• You may be able to generate income - perhaps enough to cover the mortgage and upkeep - by renting out the parts of the building you don't use yourself. If you can eliminate your space costs in this way, you'll improve your cash flow situation tremendously.

Other possible capital investments, depending upon the needs and purposes of your organization, could include buying vehicles, major pieces of medical equipment, land, etc.

Good money management is largely a matter of making good decisions and setting up good systems to manage your financial operation. If you can set up systems that work for your organization to handle your daily accounting, payroll, payables/receivables, and grants management issues; if you can anticipate and deal with cash flow problems; and if you can invest wisely when you have money to spare, then you'll have your money management under control. This will allow you to do a better job at whatever it is your organization is trying to do, and thus to provide more benefit for your target population and for society.

Online Resources

The Alliance for Nonprofit Management provides answers to FAQ's about financial management and other issues, as well as links to other nonprofit management sites, and membership possibilities.

Free Management Library  is from the Management Assistance Project for Nonprofits and provides indexed access to information on a huge number of management topics, including nonprofit financial management and accounting, cash flow, budgeting, audits, etc. It also provides a free on-line 12-course nonprofit management program.

Guidestar Nonprofit  links to many organizations, resources, etc. for nonprofits.

StrongNonprofits.org provides best-practice guidance and hands-on tools to help you understand and manage your non-profit’s financial health. The site offers helpful resources in the areas of financial planning, operations, monitoring, and governance.

5 Ways to Manage Your Personal Finances

by Rakshitha Arni Ravishankar

Summary .   

Talking about money can feel awkward, uncomfortable, and even scary. Here are five pieces of advice from our authors on how to feel in control of your personal finances.

• Let go of your limiting beliefs about money.
• Take ownership of your money.
• Always set a timeline for your money goals.
• Build an emergency fund.
• Create a diverse portfolio of investments.

Money can evoke a range of difficult emotions for many of us. This anxiety only grows when we’re living through economically fragile times or don’t come from wealth . It can feel awkward, uncomfortable, and even scary to navigate these feelings when they show up. But know that it’s still possible to make smart decisions that will help you become financially stable .

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How I'm Teaching My Clients' Teens About Money Management

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In today's digital age, teaching teenagers about money management is crucial yet challenging, especially when many parents weren't appropriately taught themselves. As a financial advisor, I'm helping my clients navigate this important task by focusing on relatable technology, practical experience, and fostering a positive money mindset. By starting early, we're setting these young people up for financial success and reducing stress in adulthood.

Key Takeaways

• Utilize technology like the Greenlight app to make money management relatable for teens.
• Implement a job system with clear allocations for saving, spending, and investing.
• Encourage teens to invest in companies they understand and use.
• Foster a positive money mindset to reduce future financial stress.
• Start financial education early to set teens up for long-term success.

The financial landscape for today's teenagers is vastly different from what their parents experienced. With the rise of digital payments, online shopping, and easy access to credit, young people are faced with financial decisions earlier and more frequently than ever before. At the same time, many schools still lack comprehensive financial education programs, leaving parents as the primary source of money management knowledge. 

The Council for Economic Education 2024 Survey of the States revealed that 35 states require high school students to take a personal finance course to graduate. While this is an improvement over the last few years, this gap in financial literacy can lead to poor financial habits and increased stress as teens transition into adulthood. As a CFP and founder of a modern family office, I've seen firsthand how early financial education can set the stage for lifelong financial well-being.

One effective tool I recommend to my clients is the Greenlight app. While I'm not affiliated with the company, I find it an excellent resource for families looking to teach financial literacy. The app offers a comprehensive platform for learning about budgeting, saving, spending, and investing – all in one place. It's handy for parents who may not have a strong financial background themselves.

What I'm Telling My Clients

Beyond recommending tools like Greenlight, I advise my clients to implement a job system for their teens. Here's how it works:

1. Assign tasks with monetary values (e.g., $10 for yard work).

2. Allocate earnings: 50% goes into a long-term investment account (we call this "taxes"), and the remaining 50% is for the teen to manage.

3. Guide teens in setting savings goals for larger purchases like computers or cars.

4. Introduce investing by letting teens buy stocks in companies they know and use (e.g., Disney, Amazon, Netflix).

5. Regularly review investments to teach about market fluctuations and long-term thinking.

For example, when Amazon's stock recently took a hit, one client's son wanted to sell. This presented a perfect opportunity to explain the concept of buying low and holding for long-term growth .

I emphasize to my clients the importance of open conversations about money. Hiding financial matters or avoiding these discussions can disadvantage teens. By involving them in money management early on, we're preparing them mentally for the financial realities of adulthood.

Teaching teenagers financial habits is about more than just wealth creation – it's about setting them up for a less stressful, more joyful life. By using relatable technology, providing hands-on experience, and fostering a positive money mindset, we can help the next generation develop a healthy relationship with finances. As financial advisors, guiding our clients in this crucial aspect of parenting not only benefits their children but also contributes to breaking the cycle of financial illiteracy.

The Council for Economic Education. "2024 Survey of the States," Page 2.

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