Money Management Techniques

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Top 10 Money Management Tips

Money management is a tricky subject. For many, the topic’s accompanied with a feeling of apprehension. Maybe you’ve put off saving for retirement for a bit too long. Or, perhaps you’re worried about not having an emergency savings cushion. Whatever your concerns may be, there’s no time like the present to get a handle on your finances. It’s best to get started – as soon as possible – on good financial habits. Luckily, we have 10 money management tips to get you started.

1. Know Your Money Priorities

Before budgeting, you need to determine your priorities. If you skip this crucial step, you won’t buy into your financial plan.

You need a focus to align your money goals with your money habits. That focus is what’s most important in your life, right now. Do you have credit card debt that makes your stomach churn just thinking about it? Paying that down might be your No. 1 priority.

Patrice Washington, a leading authority in personal finance, entrepreneurship and more, advises that money priorities align with your personal values. “The largest categories should reflect what matters most to you,” whether you value international travel or taking care of your body. Then you can cut back on other categories to “save at maximum capacity” for your true priorities.

Maybe it’s a wedding or a vacation you want to save for. Or, perhaps you want to establish an emergency fund so you’re not “up a creek without a paddle” when your car needs an engine overhaul or your pet needs surgery.

Whatever concerns you most, make that your priority, at least to start.

2. Determine Your Monthly Pay

As the saying goes, “what gets measured, gets managed.” How can you manage your money without knowing what you earn each month? If you don’t have a concrete number, determine your monthly income after taxes. This will be easier if you’re a salaried employee with a regular paycheck. Freelancers may have to estimate their monthly income.

Once you have a number, add in any extra side gig money. Maybe you babysit sporadically or have a blog that earns ad revenue, or you teach a weekly fitness class. Whatever extra income you earn, add it into your monthly take-home pay.

3. Track Where You Spend Your Money

Time to play detective with your own finances. In order to get the full picture of your spending habits, you’ll need to do some financial forensics on yourself. If it seems overwhelming, limit yourself to one month’s worth of expenses.

Pull out your credit card statements, housing and utility bills, bank statements including ATM withdrawals and any electronic payment records, such as Venmo or PayPal. Either open a spreadsheet or get out old fashioned paper and pen – it’s time to total your expenses.

It helps to categorize as you parse your spending. For example, you might label purchases as needs, wants or savings/debt. Or, you can get more detailed and add categories such as entertainment, food costs, travel and transportation. It’s up to you how much in the weeds you want to get.

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After you compile expenses into one spot, total each category to see where the bulk of your money goes. You might be surprised at how much you spend eating out. Or, how high of a percentage your housing costs are compared to your income.

4. Have a Plan – Any Plan

Now that you know how much you earn, as well as how much you spend, it’s time to make a plan. The best financial plans align your priority (money management tip No. 1) with your spending habits.

Let’s say you’re a fitness buff. When you totaled your expenses, you found that in an average month, you spend money on a gym membership, yoga class card and new athletic gear. If that’s important to you, you won’t have to cut it out. But, in order to meet whatever priority you’ve set — let’s say it’s an emergency fund — you’ll need to cut expenses elsewhere. That could mean shopping at a discount grocery store or brown-bagging your lunch instead of ordering takeout with your coworkers.

To meet your financial goal, maybe you set up auto-deposit to a special “emergency fund” savings account. When your paycheck is deposited, that money disappears before you can count it as spending money.

Whether you pay for a budget program like YNAB, or prefer a simple Excel spreadsheet, that’s up to you. This brings us to money management tip No. 5…

5. Stick to the Plan

Once you pick a plan, give it a try for at least a month. You need that long to see if it works for you. Anything less, and you won’t see the benefit of keeping an eye on your finances.

So find a budget you want to try, get started and stay with it. It’s that simple. If you want, Washington recommends you “surround yourself with visual representations” of your goals. So if you’re saving for your next international trip, you can put up pictures of your dream trip to keep your goal fresh in your mind.

6. Expect Emergencies

Regardless of what your priority is, you’ll want to have some easily accessible liquid funds.

Maybe you’re focusing on paying down your student loans, and you’re not concerned with building a hefty emergency fund. That’s fine, you don’t absolutely have to save six months of expenses. But you should save for at least three.

You never know what might happen. You or a partner could lose a job, or have a medical emergency or any number of circumstances. Whether you like it or not, life happens.

Having money to deal with problems as they come up will help you feel more secure, and a little more prepared. Most emergencies add enough stress as it is. Take away an element of worry with a financial cushion.

How you put money away for emergencies is up to you. Maybe you funnel all of your side gig money to an account you only touch in an absolute emergency. Or, it’s where any birthday or any gift money goes. It could be as simple as a small, monthly auto-deposit. It’s up to you.

7. Save Early and Often

This rule holds true regardless of your current priority. The sooner you save, the sooner you can build interest. You don’t even need an investment account to start earning interest. Most of the best savings accounts generate interest, and those accounts are FDIC insured. That means you don’t have the risk of losing your money, as with a brokerage account.

This rule also applies to retirement. The sooner you start putting money away in an IRA or 401(k), the better. Even if you’re years away from retiring, you still need to consider the future. Your money stands to grow the most if you start as soon as possible.

8. Take Advantage of Free Money

You don’t want to overlook what assets are available to you. If your employer offers 401(k) matching, you should absolutely take advantage of the benefit. It’s free money.

Another place to look is your health insurance plan. Are you paying for glasses or contact out of pocket when some of those costs are covered through your plan? Maybe your job offers a discounted gym membership. Take advantage of all the benefits your job offers; you might save some serious cash.

9. Relook Your Debt

Take a look at your total debt (money management tip No. 2). Is there anything you can refinance for a lower rate? Maybe it’s transferring a balance to a credit card with lower interest. Or, it’s consolidating student loans. It’s worth combing through your debt with a fine tooth comb to see if you can find a way to save.

10. Find What Works – And Keep Doing It

Another common maxim that applies to money management is “if it’s not broke, don’t fix it.” Once you find a system that works, don’t get distracted by new apps or conflicting financial advice.

It’s tempting to try the next best thing, especially if it promises to be easier, simpler or faster. However, if you’re in a rhythm that works — you’re saving money, meeting financial goals and building security — keep chugging along. Your focus will pay off.

Bottom Line

As financial expert Dave Ramsey says, “You will either manage money or the lack of it will always manage you.” The best way to build financial security is to get a grip on how and where you’re spending your income, and then make a plan — and stick to it! Of course, life can throw you off track sometimes, but that’s OK. As long as you get back on budget, a hiccup here or there won’t destroy your future financial success.

Money Management

What Is Money Management?

Money management is the process of budgeting, saving, investing, spending or otherwise overseeing the capital usage of an individual or group. The predominant use of the phrase in financial markets is that of an investment professional making investment decisions for large pools of funds, such as mutual funds or pension plans. Money management can also be referred to more narrowly as “investment management” and “portfolio management.”

The Basics of Money Management

Money management is a broad term that involves and incorporates services and solutions across the entire investment industry. In the market, consumers have access to a wide range of resources and applications that allow them to individually manage nearly every aspect of their personal finances. As investors’ increase their net worth they also often seek the services of financial advisors for professional money management. Financial advisors are typically associated with private banking and brokerage services, offering support for holistic money management plans that can involve estate planning, retirement and more.

Investment company money management is also a central aspect of the investment industry overall. Investment company money management offers individual consumers investment fund options that encompass all investable asset classes in the financial market. Investment company money managers also support the capital management of institutional clients, with investment solutions for institutional retirement plans, endowments, foundations and more.

In the growing financial technology market, personal finance apps exist to help consumers with nearly every aspect of their personal finances.

Key Takeaways

  • Money management broadly refers to the process of budgeting, investing, saving, and spending with one’s finances.
  • Financial advisors and personal finance apps are increasingly common in helping individuals manage their money better.
  • Sometimes money management refers more narrowly to investment or portfolio management.

Top Money Managers by Assets

Global investment managers offer retail and institutional investment management funds and services that encompass every investment asset class in the industry. Two of the most popular types of funds include actively managed funds and passively managed funds replicating specified indexes with low management fees.

The list below shows the top 5 global money managers by assets under management ($M) as of Q1 2020:

The Vanguard Group

The Vanguard Group is one of the most well-known investment management companies, catering to over 20 million clients across 170 countries. Vanguard was founded by John C. Bogle in 1975, in Valley Forge, Pennsylvania, as a division of Wellington Management Company, where Bogle was previously chairman. Since its launch, Vanguard has grown its total assets to $5.1 trillion as of October 2020. Of its 388 funds, 180 are U.S. funds, including the popular 500 Index and Total Stock Market funds.

Pacific Investment Management Company, LLC

Global asset management firm Pacific Investment Management Company LLC (PIMCO) was co-founded in 1971, in Newport Beach, California, by bond king Bill Gross. Since inception, PIMCO has grown its assets under management (AUM) to $1.77 trillion as of October 2020. The firm houses over 775 investment professionals, each averaging 14 years of investment experience. With over 100 funds under its banner, PIMCO is widely regarded as a leader in the fixed income sector.

BlackRock, Inc.

In 1988, BlackRock Inc. (BLK) was launched as a $1 division of the BlackRock Group. By the end of 1993, it boasted $17 billion in AUM. By October of 2020, that number swelled to a whopping $6.32 trillion, making BlackRock the world’s largest investment management firm, with over 12,000 employees, in 70 offices, across 30 countries. BlackRock’s ETF division, called iShares, has approximately $1.6 trillion in AUM globally, which amounts to 27% of the group’s total assets.

Fidelity Investments

Fidelity Management & Research Company was founded in 1946 by Edward C. Johnson II. As of October 2020, Fidelity had 24 million customers with $6.9 trillion in combined assets. The firm offers 386 mutual funds, including domestic equity, foreign equity, sector-specific, fixed-income, index, money market, and asset allocation funds.

Invesco Ltd.

Invesco Ltd. (IVZ) has been offering investment management services since the 1940s. In August of 2020, the firm announced that it had $987.8 billion in AUM, across its 100-plus mutual fund products. The firm offers over 100 ETFs through its Invesco Capital Management LLC division. In 2020, the company saw some decline in AUM. But despite the resulting dip in its stock price, Invesco remains one of the world’s top asset management firms.

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