Your no-nonsense guide on how to manage money

Here we’ll be covering tips on how to manage money and make smart money moves.

Understanding how to manage personal finances

Personal finance is the management of your money and financial decisions. It involves everything from your mindset, goals, saving strategies, and investment to retirement planning.

How to manage money

Start with a growth money mindset

Your mindset will affect your relationship, choices and habits with money. This mindset is usually developed from a young age of how you see people talk about, be affected by or manage money. It may require breaking limited beliefs you may have inherited from your past. It’s moving from fear or inexperience over money to a place of intentional growth.

Set your financial goals

Decide what you want to achieve when it comes to money. Are you looking to save more, pay off debt, buy a home or retire early? Determining your goals will keep you motivated on your financial journey.

Choose financial security, independence or freedom

No one likes daily hardship and feeling overwhelmed when it comes to money. The three areas we often hear people talk about when it comes to creating the financial life you want are:

Financial security – when you have enough financial resources to cover your needs.
Financial independence – when you have enough passive income to cover your living expenses without needing to work.
Financial freedom – when you can live freely without any financial constraints.

Decide which one you value the most. The strategies here can then help you achieve the financial security, independence or freedom you want.

What is the best way to manage money?

Create a clear budget

You can only achieve your financial goals with a clear budget that tracks your money coming in and going out. Your budget must be realistic to stick to each week or month. Overspending leads to debt, and underspending leads to having enough money to help you build wealth.

Establish an emergency fund

During the pandemic, 1 in 5 Brits reported having no emergency savings. Unexpected expenses aren’t things we like to think about but inevitably happen. Start by building an emergency fund to cover smaller emergencies like car breakdowns or home repairs. Gradually, increase it to cover 3-6 months of your monthly expenses for when things really hit the fan, like losing your job or income. How big of a buffer you need in your emergency fund will depend on your individual or family situation.

Put insurance in place

Paying for insurance is always a pain in the ass, but when you need it, you’ll be glad you have it. The type of insurance you need will vary from rental, home and mortgage to accident, sickness and employment should you lose your ability to work or generate income. Meanwhile, having life insurance is helpful to leave some financial protection for your loved ones.

Pay off debt

Debt is often the biggest barrier to achieving your financial goals. It takes a significant portion of your income making investing and building wealth difficult. Whether it’s student loans, credit card debt or a mortgage, too much debt will limit your financial options and increase your financial stress. Have a plan for getting rid of debt. The debt snowball method is when you focus on paying off your smallest debts first. Alternatively, the debt avalanche method is when you prioritise paying off debts with the highest interest rates first. The avalanche method saves you more money on interest in the long run. But, the snowball effect has proven more effective by giving you a greater sense of accomplishment and motivation when you see your smaller debts paid off faster.

Aim for multiple sources of income

One of the fastest ways to pay off debt and build wealth is to get your side hustle on. That could be taking on extra jobs, starting businesses, getting rental income, or having other assets and investments. Diversifying your income streams reduces your dependency on one source of income. It, however, will mean learning new skills.

Invest in your future early

As early as in your teens, learning to save could prevent you from drowning in debt later. The average student starting university this year is expected to graduate with a student loan debt of £45,800. Saving early through part-time jobs could help reduce this debt so you can focus on other investments.

In your 20s, after your education, you may want to save for a home. And in your 30s, you may want to save aggressively for retirement. The best way to grow your savings is through investing to take advantage of compound interest.

For example, if you were to start working full-time at 21 years old and invest £150 each month (with average rates of return of 7%), that could accumulate to £25,000 for a house deposit by the time you’re 31 years old.

Meanwhile, for retirement, if from 31 years old you invest £600 a month (with your employer’s contributions) over 30 years, your retirement pot could grow to £705,000 by the time you’re 61 years old.

And if you were to invest £50 each month from the day your child is born to 18 years old, that’s a potential £21,000 built up, which could pay off nearly half of their student debt.

Planning for your future is becoming more critical. The earlier you can start, the better.

Take advantage of tax savings

Individual savings accounts (ISAs) are saving or investment accounts you never pay tax on up to a maximum allowance of £20,000 (but check the allowance each year in case it varies). Choose from different types of ISAs, from cash, stocks and shares to lifetime ISAs that go towards your first home or retirement providing you open one up before you hit 40 years old. The other types of ISAs are innovative finance to lend to others and a junior ISA to save for a child.

Surround yourself with experts

Financial literacy is one of the biggest lessons we never learn in school. Only as adults, through trial and error, do we eventually get to grips with it. Luckily, a lot of information is available, from speaking with financial coaches and advisors, enrolling in courses, reading books to listening to podcasts. By surrounding yourself with those who know more than you on this topic, and with discipline and dedication to lifelong learning, you can lead the financial life you’ve always dreamed of.

Resources and books on how to manage money

The below aren’t paid advertisements or promotions, just our personal recommendations:

Our best personal finance books

Rich Dad, Poor Dad by Robert Kiyosaki (still an all-time favourite)
Rich Dad, Poor Dad Cash Quadrant by Robert Kiyosaki
Total Money Makeover by Dave Ramsay
The Richest Man in Babylon by George S. Clason
Think and Grow Rich by Napoleon Hill

Our best personal finance podcasts

Our favourite personal finance blogs and channels

You can also sign up to some of these programmes using our links below:

What are some of your favourite personal finance books, channels or tips? Do share in the comments.