The 12 best money management tips they didn’t teach you in school
If you need a crash course on the basics, here's where you should start.
To keep this blog ad-free, this post may contain affiliate links and/or paid placement. Click here to read our full disclosure.
One of the most lamented facts about our modern education system is that it fails to teach kids key life skills—like managing finances. Today, only some schools teach any kind of financial literacy, and those that do usually only teach the bare basics.
As a result, millions of Americans have been left completely ignorant of how money works or how to manage it.
Instead, Americans have been left to figure out on their own how to manage their money and sort out strategies that work from those that don’t.
To help, we put together a list of things they didn’t teach you in school that can help you manage your finances, whether you’re just starting out or finally taking charge of your financial life.
Top 12 money management tips
What follows are some of the best tips we’ve got for helping Americans manage their money. None of these are required—in fact, plenty of people are successful without doing some of these items. But, doing at least some of them undoubtedly increases your odds of success—or at least decreases your odds of failing.
1. Know Your Income
Let’s start with a simple one. To properly manage your money, you should first develop a strong understanding of how much you have coming in every week, month, or year. You should also know where it’s coming from, when you’ll be getting it, etc.
Knowing these basics will also help you determine how reliable your income is, how much of it is active (from a job) or passive (like from rental properties).
Only after you understand your income can you make decisions about paying down debt, investing, or other long-range planning.
2. Set a Budget
If you’re here, it’s probably because you’re trying to take control of your finances and put yourself on the path to financial independence. How else are you going to do that if you don’t know whether your spending is appropriate relative to your income?
Successfully managing your money requires making a budget. It can be informal—even just a mental list of things you spend money on each month and an estimate of how much you spend on those things. But, you’ll have a lot more success if you memorialize your budget on paper and hold yourself accountable when you spend too much.
People say you should always live within your means, but people in the FIRE community know the real secret is to live BELOW your means. Making a budget is how you make sure you’re doing that.
Expert Tip: Lots of people use Quickbooks for making budgets and tracking spending. I personally preferred Quicken when I was in charge of tracking household finances, because I found it easier to enter future income and expenses to forecast balances. But, Quicken also facilitated my neuroticism about tracking money.
Once my wife and I got married, she took over our budgeting. She preferred setting up a spreadsheet showing our income and expenses in columns over time, broken out by pay period. Her system wouldn’t work for me, and mine wouldn’t have worked for her. But, we settled on a system that works for us, after many discussions about who would be responsible for what.
3. Maintain a Personal Balance Sheet
To manage your money over the long-term—especially if you’re planning for retirement or trying to achieve financial independence—it’s important to track how much of it there is. So, build a list of all your assets and liabilities (debts), and be comprehensive. Do this separate from your budget that tracks income and expenses, since this is a document you should refer to less frequently.
Having a personal balance sheet helps you gather a full picture of your assets and debts in one place. Updating it over time helps you stay aware of your financial circumstances and will help you make sure things are trending in the right direction—that assets are growing and liabilities are shrinking.
4. Build a Rainy Day Fund
Everybody knows they need to save and invest for retirement, but it’s also important to keep some savings in a rainy day fund, and to keep those funds separate from the accounts you use to pay your bills.
When setting money aside, you don’t want your emergency fund to be too big (thought that’s obviously a good problem to have). You’ll want to make sure that you are investing your savings in order to earn a return, and money sitting in an emergency fund won’t earn much of a return. But, it’s still best to have a few months of income easily accessible so that you have enough to cover unexpected medical or auto repair costs.
5. Maximize Your Match
If you have a full-time job and your employer offers a retirement plan, be sure to participate. If nothing else, this will help you lower your tax liability. More importantly, if your employer matches employee contributions, you should contribute at least enough to get the entire match. Employer matching is far-and-away the best guaranteed return you’ll ever earn—an instant 50% to 100% return on your contributions (depending on your plan specifics). It’s free money.
While you should contribute enough to maximize your match, that doesn’t mean you should go overboard on retirement plan contributions. For one thing, annual employee contributions are capped at about $20,000 per year (even less for certain plan types). And, don’t forget that participating in a retirement plan means locking up money in an account until your 59 ½. You’ll pay a penalty if you withdraw money before then.
6. Talk About Money
People hate talking about money today. They’ll talk about politics, religion, and whether or not a hotdog is a sandwich, before they talk about money. And yet, every single one of us is on a financial journey—so why not talk about it?
Talking about money helps you broaden your perspective, gain new insights, and generate new ideas.
More so than anyone else, it’s most important to discuss your finances with your partner. You have to in order to form coherent financial plans, map things out, and develop shared goals. It also allows you to keep each other honest—to be sure that you’re working together toward those shared goals and following the budget you develop together.
7. Use Debt Wisely
Debt can be an unavoidable part of life—if you want to buy a house, for example. But it’s also nearly impossible to achieve financial independence if you have a lot of debt. Debt increases your monthly cost of living—even a $100,000 loan amortized over 30 years will cost you more than $500 per month.
And, debt is often compounding. Once you have a little, it’s easy to take on more and more. So, it’s best to be extremely careful when deciding whether to take on debt, and to avoid it whenever possible. A good rule of thumb is to make sure your total debt is less than the total value of your assets, but if you’re trying to achieve financial independence it’s best to be even more conservative.
8. Track Your Credit Score
At the risk of being redundant, debt is sometimes unavoidable. And, while we don’t advocate the over-use of debt, you should know that you can get financing when necessary—for example, to take advantage of an investment opportunity or make another purchase without having to liquidate investments.
Tracking your credit also helps to make sure you haven’t forgotten any debts and that all of your accounts are current.
9. Invest in Yourself
Too cliche? Well, we don’t just mean spending on things like degrees or certifications, though we also mean those things (they can drastically increase your earning potential). We also mean to simply read books and learn new skills. These kinds of things keep your mind sharp. They can also open up new opportunities or help you to recognize existing opportunities.
And, investing in your own growth helps you better manage your money by not wasting it on things that don’t matter. Ask anyone working on an advanced degree and they’ll tell you there’s not much time for wasteful spending when you’re trying to balance work, homework, and tests.
10. Know Your Limits
A lot of people think that effectively managing their money means doing everything themselves and not paying for help, but that’s not always true. Sure, doing things yourself can be a great way to save some money if you’re confident in your abilities. But, if doing so is going to take time away from more profitable activities or potentially cause damage that will increase the cost of later repairs, call a professional.
This applies directly to your finances, too. If you feel confident filing your own taxes, then go for it. But, if it’s time consuming or you aren’t sure of your abilities, find a CPA to help you. If you want help managing your portfolio—or even just someone to bounce ideas off—find a financial advisor whose input you value.
11. Mind Your Ps & Qs
At the risk of sounding preachy, gluttony is expensive. As someone who spent the whole of his 20s with an active social life, I feel I can confidently say that excessive or even regular alcohol consumption is costly for both your health and your wallet.
So, sure, treat yourself and have fun with friends, but don’t overindulge. Doing so is not only a direct expense, but it can also lead to worse, more expensive troubles—like a DUI.
12. Buy Quality
When people shop, they usually consider cost when making a purchasing decision—as well they should. And, while cost is important, people forget that any savings are quickly eliminated if they have to repair or replace things.
So, be conscious of cost, but try to buy stuff that doesn’t break all the time. It may cost a little more upfront to buy nice things, but not when you factor in the cost of always repairing or replacing items of lesser quality.
But, also note that buying quality is different from buying a label. Designer wares are almost never worth the cost. They look good now, but they’ll be threadbare or out of style in two years. It’s hard to achieve financial independence when you’re constantly chasing the latest fashions.
Instead, find some other way to direct your efforts that is more productive, or at least less costly.
A Final Word on Money Management
It's easy to fall into the mindset that there's plenty of time to get a grip on your finances. With so many different things competing for our attention, it can seem daunting to sit down and crunch numbers, but the sooner you do it, the better financial shape you'll be in!
If you're looking to expand on your financial literacy, the following articles can help: