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How to Manage Money Wisely

(and still have a life while doing so!)

Sometimes it can seem like certain people just understand money. They have good credit. They have retirement savings. They (appear to) make smart decisions about spending and investing without agonizing. They seem to make enough money to enjoy financial security while also indulging in nonessential purchases. What’s their deal? Don’t worry; it’s not a secret club. You can learn how to manage money wisely, too.

It’s what we’ve been teaching at YNAB for almost 20 years—developing healthy spending habits and learning money management isn’t as difficult (or as stressful) as you might think.

How to Manage Money Wisely

Let’s puncture a couple of money management myths. Managing money doesn’t mean trying to save money with every fiber of your being. Spending money shouldn’t fill you with guilt or shame—life isn’t a savings contest. Personal finance is personal. Your money should support the life you really want, which means savings goals (and spending mileage) may vary from person to person.

Here are some money management tips for making a plan that fits:

Create a monthly budget

The first step is to get your life and financial goals out of your head. You’ll feel lighter, more inspired—and you’ll have something new to talk about with your optimizer friends.

Whether you use a spreadsheet, an abacus (don’t use an abacus), or an app like YNAB, you can track your monthly expenses, monthly income, and bank account balances and then start to make a plan for how your extra money can help you achieve exciting goals. Wedding! House! PS5!

Once you have the numbers in front of you, it’s no longer wishful thinking. It’s a budget, baby. And the awareness that a budget brings makes it easier to understand your financial situation, get clear about your priorities, and reduce overspending so you can put that money toward what matters.

What is budgeting? Learn everything you need to know in our comprehensive guide.

Reduce expenses

If you feel broke and are living paycheck-to-paycheck, reducing expenses seems obvious. It might feel like that’s the point of “personal finance.” Even if you’re living comfortably (i.e. paying for your own Netflix), lifestyle creep is real. If you haven’t already, look at the recurring living expenses that are attached to your life. What does it cost to be you?

Do you need that gym membership if the only time you work out is when you walk your dog? Do you have so many streaming channel subscriptions that your TV backlog is literally stressful? Is a year’s worth of takeout more important to you than traveling?

Maybe getting rid of some of those monthly payments could simplify your life and pad your savings account, or even help you start to build an emergency fund.

(Fact: people with emergency savings sleep better at night. Imagine having money set aside ahead for when your car goes into the shop? Budgets: they help you easily pay for stuff.™)

Learn more about how to save money.

Follow the Method

YNAB is built on four simple rules because, actually, you don’t need to watch CNBC all day to learn how to manage money wisely. You just need to:

Give Every Dollar a Job

Connect your dollars to priorities. No more amorphous piles of money that are too easy to direct to shiny, unsatisfying things. Looking at your checking account doesn’t really tell you how much money is available because a bunch of those dollars are already spoken for. When you practice the first rule, you’re being proactive about what needs to happen in the future. For instance, you set aside $2500 for rent, $250 for dining out, and $12 for “sad day pastry fund” *for instance.*

Rather than always looking backward and just focusing on expense tracking, you’ll be in a better position if you look ahead to what you want or need your money to do this month.

Embrace Your True Expenses

Notice how we said “month.” Months are a natural cycle for financial planning (and werewolves.) But, of course, expenses don’t always fit into a monthly cycle. Think: car registration, taxes, and emergency home repairs.

So YNAB’s second rule is to break up large, non-monthly expenses into monthly bills. Each month, you’ll set aside money in a category for taxes or Christmas shopping, so the money will be waiting right when you need it. Imagine not feeling stressed or guilty when you went to an amazing restaurant on your vacation because you already set the money aside. No more tasting notes of regret in your fine wine.

Roll with the Punches

Budgets aren’t set in stone; they change with your circumstances and priorities. You might decide that this summer is the best time to fly cross-country and take your kids to see family. This might mean moving money from the new patio category to your travel category to make it all work. No prob, Bob! Better to make an intentional choice with the money you have than plow ahead with the stress of wondering if this is a good idea.

Age Your Money

Speaking of not being worried about money, one good approach is to put some distance between your earning and your spending. The more you practice the first three rules, the more you’ll be putting money aside for things one or two months down the road. So, when a bill comes, you just pay it. The result? Breathing room. Less focus on today and more on tomorrow means bigger thinking, better decisions, and a happier you.

Set goals and align spending with priorities

After you take care of those necessary expenses like housing and utilities, you can look at the rest of your money and start to make some choices. What do you want to be able to do or buy in a year, in three months, in two weeks? Set a goal in your budget and start to put aside money monthly so you can enjoy these special things guilt-free.

One important piece of advice is to just start, don’t try to make the world’s most perfect budget. There is no such thing. As you become aware of your unexpected expenses and money habits, you’ll start to see what priorities your money is supporting. And you know what? They might not be priorities you actually want! Maybe you don’t want to be spending so much money on clothing right now, or maybe you’re not spending nearly enough and that really bums you out.

There is no exact script for managing money wisely, but there are a handful of rules that can point you in the right direction. Ultimately, your well-being, security, and enjoyment will tell you if you’re on track.

Ready to continue your journey to financial independence? Download our free Change Your Money Mindset budget planner workbook and (short) email series to learn more about how to manage money wisely. Also, don’t forget to sign up for a free month-long trial of YNAB.

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How to Manage Money Wisely