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How to manage money better Your path to a solid financial foundation

Your finances can present a lot of questions. Rent or buy? What's the best stock to invest in? Before you get to all that you need to build good habits that can allow you to effectively budget and save.

Fact Checked: Cadeem Lalor


Updated: December 23, 2022

We adhere to strict standards of editorial integrity to help you make decisions with confidence. Please be aware that some (or all) products and services linked in this article are from our sponsors.

Fact Checked: Cadeem Lalor


Updated: December 23, 2022

We adhere to strict standards of editorial integrity to help you make decisions with confidence. Please be aware that some (or all) products and services linked in this article are from our sponsors.

We adhere to strict standards of editorial integrity to help you make decisions with confidence. Please be aware that some (or all) products and services linked in this article are from our sponsors.

Much like your daily commute or routine trips to the dentist, managing your money can feel like a necessary evil. And while you might not be enthusiastic about it, it’s an essential part of adulting. 

The good news is, once you establish good money management habits, you’ll reap the rewards. This could include a better credit score, a long-awaited vacation, or a sizable retirement nest egg.

But the first step in the journey is getting a handle on your earnings and expenses. After all, if you don’t understand your money, how can you begin to manage it or set financial goals? 

In this guide, we’ll take a deep dive into managing your money, offering advice and best practices to help you better your financial situation, all while breaking things down into simple steps.

What is money management?

Money management is the process of wrangling your finances. It’s about understanding your current money situation, setting goals for your cash, and establishing and maintaining solid financial habits. 

How to manage your money

If your overarching goal is to get a better handle on your money, some smaller milestones can help you get there:

  • Understand your current financial situation: Look at money coming in versus money going out, how much you have in your bank accounts or investment accounts, and what you might need to improve. Determine your personal priorities and goals to figure out what you'd like to work toward.
  • Create and stick to a budget: If your financial goals are the destination, your budget is like the navigation tool that’ll help you get there. Find a budgeting option that works and stick with it.
  • Establish an emergency fund: Prioritize building an emergency fund so you have a safety net you can tap into when unexpected expenses arise.
  • Save for retirement: Establish and contribute to a retirement account if your goals involve building a nest egg for the future.
  • Pay off debt: Figure out a debt payoff strategy and start chipping away at your balances.
  • Schedule regular progress reports: Track your progress so you know where you started and how you’re progressing toward your financial goals. 

Making a budget

Your budget acts as a roadmap for your finances. It shows where your money is coming from and going, and helps you navigate toward your overall financial goals. While building your budget might not be fun, it’s essential for effective financial management. 

The process for creating a budget will differ depending on your preferences, as several different approaches to budgeting exist. While each might work a little differently, they all act as spending and savings plans for your money. Here are some common types of personal budgets and how they work.

Type of budget
What it’s best for
Zero-based budget
Tracking your spending down to the dollar or cent
Envelope budget
Developing a more disciplined approach to spending
50/30/20 plan
Prioritizing essential costs, then discretionary (non-essential) spending and saving
Pay-yourself-first budget
Prioritizing saving, then essential costs and discretionary spending

The process for creating a budget will differ depending on your preferences, as several different approaches to budgeting exist. While each might work a little differently, they all act as spending and savings plans for your money. Here are some common types of personal budgets and how they work.

Zero-based budget

With a zero-based budget, you allocate every bit of last month’s income for a specific purpose in the following month. Budgeting apps like Rocket Money and Mint can help if this specific strategy sounds right for you.

Envelope budget

As its name suggests, an envelope budget involves putting your cash into different envelopes designated for specific expenses each month, and then using only the amount in those envelopes to cover each cost. It is also known as cash stuffing.

This budget typically uses actual cash and paper envelopes. But those who prefer to budget online might appreciate a tool like EveryDollar, which uses a similar type of system.  

50/30/20 plan

With a 50/30/20 budgeting plan, you allocate 50% of your income to essential costs like your rent or mortgage, utility bills, and groceries. Thirty percent goes toward non-essential expenses like entertainment, dining out, and travel. And 20% goes toward your savings or investments.

Pay-yourself-first budget

This simple budgeting method involves setting aside a certain amount each month for savings, investments, or debt payments. The rest can be used for essential and discretionary spending. 

More: Latest articles on Budgeting

Ways to keep track of spending

Once you’ve figured out how you’d like to budget, it’s time to determine the best approach for tracking your spending. Here are some common expense-tracking tools to consider.




  • Can add formulas to your spreadsheet to make it simpler to track your monthly savings or any deviations from your estimated costs.
  • Can customize your spreadsheet based on your needs
  • Provides an at-a-glance view of income and expenses


  • Requires some basic technical knowledge
  • Can be cumbersome to input data manually
  • Potential for error can be high




  • Tangible and cheap
  • Easy to transport and use


  • Manual tracking can be cumbersome
  • Hard to spot spending trends

Budgeting app



  • Several options available, including Rocket Money and Mint
  • Can be linked to your bank and credit card accounts, so you don't have to manually input your spending


  • Depending on the app, could cost money
  • May not be easily customizable

Envelope budget (cash stuffing)



  • Easy to see where you’ve allocated funds
  • Could reduce wasteful spending


  • Limited flexibility with making payments
  • Could get lost or stolen

Tips for paying off debt

While having no debt might seem like the ideal scenario, certain types of debt are considered better than others. Good debts have low interest rates and can help improve your financial situation in the long run. Whereas bad debts have high interest rates and make it harder to get ahead financially. 

Type of debt
Why it’s good/bad
Home could appreciate in value over time
Student loan
Degree could help increase your earning potential
Credit card
Debt may have a high interest rate, which could add to your costs
Payday loan
Debt has an exorbitant interest rate, making it difficult to repay
Auto loan
Car could help you get to work and earn income. Cars depreciate in value over time

If you’re struggling with managing your debt, it could help to embrace a debt repayment strategy. Two common options are the debt snowball and debt avalanche methods. 

Debt snowball method

The debt snowball method involves repaying your smallest debt first and making minimum payments on the others, then focusing on your next-smallest debt, and so on. This strategy gives you some quick wins, which can serve as essential motivation for staying on track with debt repayment. But it could result in hefty charges if your largest debts have high interest rates.

Debt avalanche method

Unlike the debt snowball method, the debt avalanche method involves paying off your highest-interest debt first and making minimum payments on the others. While it’s harder to see your progress with this strategy because your wins won’t be quick, your interest charges could be lower in the long run. 

More: Latest articles on Debt

Test your money management knowledge icon

Test your money management knowledge

What percentage of U.S. adults had a monthly side hustle in 2021?

Saving for an emergency fund

Another step on the journey to better money management is building an emergency fund. This is generally a savings account where you set aside money for expensive surprises, like unexpected trips to the vet, home and auto repairs, or a job loss.

Experts recommend saving at least three to six months’ worth of living expenses, though you might decide to save even more if you can. A high-yield savings account, or a savings account that earns a decent rate, is generally a good place to stash your cash. You never want to invest your emergency fund, or have it locked away. In general, the more easily accessible your emergency fund is, the better. 

The simplest way to start saving for an emergency fund is to automatically divert a portion of your paycheck to this account each pay period. You could have your employer add a set amount to your emergency fund account or schedule an automatic transfer on your own. 

You can even start small until you’re confident about your ability to save. Setting aside just $25 out of every biweekly paycheck will result in a total annual savings of over $650. 

Ask the eight ball

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Tips for earning extra income

Sometimes you might want to earn a little extra money to help pad your savings or meet a specific financial goal. Fortunately, there’s no shortage of part-time gigs and side hustles available. 

But the best way to earn extra income might be to start at home. Chances are you’ve got some extra stuff lying around that you don’t use, and services like eBay and Facebook Marketplace make it quick and easy to sell unwanted household items. 

Of course, there are other side hustles available too. A few popular options include driving for a rideshare service, delivering food, or walking dogs in your spare time. Companies like Instacart and Doordash let you make your own schedule delivering groceries or takeout, which can be convenient if you don’t have a ton of extra time. You can also look into Rover or Wag if you want to earn extra cash as a dog walker.

If you prefer a more passive side hustle, Neighbor or Turo might be worth considering. With Neighbor, you can rent storage space in your home, like an extra closet or a shelf in your garage. And Turo lets you rent out your car when you aren’t using it. No heavy lifting required!

More: Latest articles on How to Earn Money

Improving your credit score

Apart from saving, paying down debt, and padding your income each month, one of the best financial steps to take is improving your credit score. Doing so could make it easier to rent an apartment, get a mortgage, or access other types of financing. You could also get more favorable interest rates, making it cheaper to borrow money. 

There are different models for grading a credit score, but the most common is the “FICO” score. This model is named after Fair Isaac Corp., which introduced its modern credit scoring system in 1989.

To understand your credit score, it’s important to first understand the different FICO score ranges: 

  • Poor: 300-579
  • Fair: 580-669
  • Good: 670-739
  • Very Good: 740-799
  • Exceptional: 800-850

Once you understand the ranges, check your credit reports and score. There are three main credit bureaus in the U.S. — Equifax, Experian and TransUnion — and each one collects slightly different data. You can access all of your reports for free at After that, work toward improving your score using these strategies:

  • Make on-time payments: Your payment history accounts for a big portion of your credit score, so prioritize making on-time payments. If possible, also pay your balances in full each month. 
  • Focus on paying down debt: If you have significant credit card debt, that can negatively impact your score. Focus on paying down your debts to lower your credit utilization ratio, another factor that impacts your score. A lower credit utilization ratio may result in a better credit score. Ideally use no more than 30% of your credit limit. So if your limit is $10,000, try to keep the balance below $3,000.
  • Request higher credit limits: It’s also possible to request higher credit limits to lower your credit utilization, but only go this route if you use your credit cards responsibly. 
  • Become an authorized user: Those with a thin credit file might consider becoming an authorized user on a trusted family member or friend's credit card. As an authorized user, you could benefit from the responsible payment history of the primary card user, which could mean a boost to your score.
  • Consider a secured card: A secured credit card is another good option if you have limited credit. These cards generally require a security deposit, which is then used as your credit limit. Most card issuers will report your payments to the major credit bureaus, so you may see your credit score improve with responsible use. 
  • Track your progress: Improving your credit score takes time and dedication, but it pays off. Consider tracking your progress routinely so you can see how your score changes over time. 

More: Latest articles on Credit Score

How to start saving for retirement

No matter where you are on your career path, saving for retirement can put you in a better financial position in the future. If you’re just starting out, consider making small, regular contributions to your employer-sponsored 401(k) or an IRA account

Every little bit helps, and you might be surprised how much your retirement savings will grow thanks to compound interest. You can open an IRA account on your own with a financial firm like Fidelity, TD Ameritrade, Vanguard, or SoFi. 

How much should you save for retirement? According to Fidelity Investments, the rule of thumb is to retire at 67, you should have 10 times your income saved.

If you’re further along in your career trajectory, you may want to set aside more money for retirement. Following your budget, tracking expenses, and picking up a side hustle may make it easier to build your retirement savings

How to start investing

Another option if you’re already saving for retirement is to start investing your money using a taxable brokerage account. These accounts let you invest in common assets such as stocks, exchange-traded funds (ETFs) and mutual funds, depending on the market and other factors.

Taxable brokerage accounts are available through major investment firms and smaller financial companies like E*Trade, Ally Invest, Betterment, and more. Many offer apps that make investing easy.

While you’ll pay taxes — referred to as “capital gains taxes” — for withdrawals, holding your assets for over a year will help you minimize your capital gains tax rate. Certain taxable brokerage accounts offer no trading fees as well, meaning you get to keep more of your money in your pocket.

Start by researching the market and determining what you’d like to invest in. For instance, you could choose to purchase stock in a company you admire or opt to diversify by buying shares of an ETF or index fund.  

Investing your extra cash is a smart way to take advantage of compound interest, and you could earn more by investing in the stock market than you would with a traditional savings account. Here’s an example of how it works. Let’s say you put $5,000 into an investment account that earns 6% interest every year. After one year you could earn $300 on your investment. With your investment now sitting at $5,300, you could earn another 6% on top of the new amount. After 20 years, your initial $5,000 balance would be worth $16,035.68. 

More: A deeper dive into investing

Money management FAQ

  • How can I lower my bills?


    Whether you own or rent your home, utility bills likely eat up a portion of your monthly budget. To reduce these costs, consider installing a smart thermostat, swapping out old light bulbs for LED light bulbs, and being mindful of your electricity and water usage.

    You may also be able to negotiate with your TV, internet, and cellphone providers to get lower rates. Learn more about lowering your utility bills.

    You may also want to call your service providers every six months to negotiate lower prices. This can be done with your cellphone and cable provider but don’t forget your car insurance, home or rental insurance too.

  • How can I save money fast?


    Budgeting and expense tracking can help you understand where your money is going, and then you can take steps to rein in your spending. This is one fairly simple way to start saving money fast. Another option is picking up a side hustle that fits into your schedule, like rideshare driving, delivering food, or walking dogs. Here are some more tips for how to save money fast.

  • What is a debt validation letter?


    Debt validation letters are documents that collections agencies are required to send within five business days of calling you about a debt you owe. These letters should contain the name of your creditor, the amount you owe, a statement indicating the debt is valid unless you dispute it in 30 days, and a statement indicating you have the right to verify the debt within 30 days. Read on for more information about debt validation letters.

  • What is cash stuffing?


    Cash stuffing is essentially taking your paycheck in cash and setting aside certain amounts for specific purposes. It works like envelope budgeting. So you might put $150 in an envelope for gas, or $500 in an envelope for groceries, and that’ll be the total you can spend in that category for a given month. Learn more about cash stuffing.

  • What is debt relief and how does it work?


    Debt relief involves reducing your balances, or negotiating a lower interest rate or a lengthier repayment term. Debt consolidation and debt settlement are two common types of debt relief. Consolidating debt involves replacing high-interest debt with a lower-interest loan, while debt settlement involves working with a debt settlement company to negotiate your balances.

    For those in dire financial straits, bankruptcy is another option. Keep in mind that bankruptcy can have a severe, harmful impact on your credit. Learn more about how debt relief works.

About our author

Jess Ullrich
Jess Ullrich, Freelance Contributor

Jess is a financial writer who's been creating digital content since 2009. Before transitioning to full-time freelance writing, she was an editor at Investopedia and The Balance. Her work has been published on NextAdvisor by Time, Bankrate, Investopedia, and more. In her spare time, she enjoys gardening, spending time with family, and exploring the outdoors.


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