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Retirement

How To Manage Your Money

When you think about your money, how do you feel? Anxious? A little frustrated? Maybe you’re just downright scared and not sure what you’d do if your next paycheck didn’t hit your bank account.

You’re not alone. According to Ramsey Solutions’ State of Personal Finance study, nearly half (47%) of Americans are always worried they’ll have an emergency they can’t afford. In fact, 43% of Americans worry about their finances every single day, and 34% are literally losing sleep over their money troubles.

Whatever your feelings about money are, it’s time to take control again. It doesn’t matter if you make $25,000 or $250,000 a year—the only way to get money stress out of your life is to learn how to manage your money well. You have to happen to your money instead of letting your money happen to you!

If you do these five things, you can stop living with financial stress and finally experience some financial stability.

  1. Follow the Baby Steps
  2. Get on a Budget
  3. Set a Firm Financial Foundation
  4. Save and Invest for Your Future
  5. Live and Give Like No One Else

Sounds simple, right? It is! Money management isn’t rocket science—but it does take hard work and intentionality. It’s time to get serious! Let’s break down each of these money-management principles one by one so you can get back on track.

1. Follow the Baby Steps

To reach your financial goals—whether it’s getting out of debt, saving up for emergencies, investing for retirement, or all of the above—you need a plan that gives you a clear path. The good news is, we have a time-tested and proven money-management plan to help you win with money: Dave Ramsey’s 7 Baby Steps.

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The Baby Steps have helped thousands of people work their way out of debt and get on a path to building wealth. No matter where you are on your financial journey, this plan works.

So, what are the Baby Steps? We’re glad you asked! Here they are:

  • Baby Step 1: Save $1,000 for your starter emergency fund.
  • Baby Step 2: Pay off all debt (except the house) using the debt snowball.
  • Baby Step 3: Save 3–6 months of expenses in a fully funded emergency fund.
  • Baby Step 4: Invest 15% of your household income in retirement.
  • Baby Step 5: Save for your children’s college fund.
  • Baby Step 6: Pay off your home early.
  • Baby Step 7: Build wealth and give.

When you focus on one goal at a time, you’ll make real progress. Plus, when you follow the Baby Steps in order, you won’t fall into the debt trap again, because you’ll have your priorities in order.

For all of you who like to skip to the end of the book before you finish reading it (you know who you are), you’ll have to trust us on this one: Do not skip steps!

If you’re thinking, This sounds so simple, you’re right. Some of the most mind-blowing truths are simple to learn but hard to do. But when you have the right tools and the right plan, you’ll stay motivated to finish strong.

2. Get on a Budget

John Maxwell says, “A budget is telling your money where to go instead of wondering where it went.” If you’re not budgeting, you’re basically just winging it and hoping there’s enough money left over at the end of the month. That’s not going to fly, folks!

To get the momentum and focus you need to reach your financial goals, you’ve got to sit down with your spouse (if you’re married) or with an accountability partner (if you’re single) at the beginning of each month and create a budget. Without a budget, you’ll feel like a rat in a wheel—running and running and running some more but getting nowhere fast. You need a budget. Period.

Why Does Budgeting Work?

You can do three things with money: spend it, save it, and give it away. And if you’re managing your money with a monthly budget, you can do all three without breaking the bank. 

Budgeting works because it puts you in control of your finances. A budget lets you—not the government, the credit card companies or your mother-in-law—decide how you’re going to spend your hard-earned money.

A budget gives you peace of mind because it puts an end to that game of roulette you play with your bank account at the end of every month—the one that has you sweating bullets as you swipe your debit card at the grocery store.

Whether it’s saving up for that beach vacation or starting that side business you’ve always dreamed about, a budget gives you the freedom to pursue your dreams and your goals.

That’s the power of budgeting!

What Is Zero-Based Budgeting?

There are plenty of ways to budget, but a zero-based budget is head and shoulders above the rest. With a zero-based budget, your income minus your expenses equals zero. You’re literally telling every dollar where it needs to go, whether that’s spending, saving or giving!

To create your zero-based budget, set aside a few minutes at the beginning of the month and do these three things:

  1. Write down your monthly income.
  2. Write down all your monthly and seasonal expenses.
  3. Subtract your expenses from your income to equal zero.

That’s it! Budgeting really isn’t that hard. We’re talking addition and subtraction here. If you graduated from the fourth grade, you can make a zero-based budget. You’ve got this! But you can’t just set a budget and forget about it. You need to make sure you stick to it and don’t spend more than you’re making. 

What Budgeting Tools Should I Use?

Some people like to go old school with the pen-and-paper approach. If that’s you, we have some budgeting forms you can print out to help get you started.

But there’s another option for folks looking for an easy, simple and fun (that’s right, fun!) way to make a budget: EveryDollar! Our free online budgeting tool lets you can create a monthly budget in minutes and tracks your expenses so you can crush your money goals.

EveryDollar syncs across all your devices so no matter where you are, you can keep your budget up-to-date on your desktop or your phone. And with Ramsey+, you’ll get the premium version of EveryDollar! That way, you can connect your bank accounts and have all of your transactions streamed right to your budget.

3. Set a Firm Financial Foundation

You’ll notice that the first three Baby Steps are centered around two things: setting aside money for emergencies and getting debt out of your life for good. Why? Imagine being debt-free with three to six months’ worth of savings in the bank. Did we just hear you breathe a little easier there? Not only will you have a strong financial foundation to build on, but you’ll also be able to finally manage your money with confidence—not fear.

Building an Emergency Fund

An emergency fund helps you turn life’s major emergencies into minor inconveniences. If you’re in debt, start with an emergency fund of $1,000 (Baby Step 1). Eventually, you’ll beef up your emergency fund to cover three to six months’ worth of expenses (Baby Step 3). But before you do that, you’ll need to tackle the biggest threat to your ability to manage your money: debt.

Getting Out of Debt

It’s time to kick debt out of your life once and for all, and the best way to do that is with the debt snowball. The debt snowball method is simple: You pay off your debts from smallest to largest—no matter what the interest rate is. Before you know it, you’re knocking your debts out one by one and gaining momentum until you reach that debt-free finish line!

Give Your Emergency Fund and Debt Snowball a Boost

Want to speed up your debt snowball and fill up your emergency fund faster? You’ve got three options: raise your income, cut some expenses, or do both!

Have a garage sale. Deliver pizzas on nights and weekends. Cancel that gym membership you signed up for back in January but never use. There are plenty of ways to trim down your budget or make some extra money on the side. You can do this!

4. Save and Invest for Your Future

This is where the fun really begins. It’s time to shift your focus to the future!

While most folks say that investing for the future is one of their top financial goals, the truth is, we have some catching up to do. The State of Personal Finance says that about 4 out of every 10 Americans (42%) aren’t currently saving for retirement, and over half (56%) of Americans feel behind on their retirement savings goals. We’ve got to do better, America!

No matter how much or how little you have in your nest egg, the good news is, there’s still time to turn things around. Whether you’re 25 or 55, it’s never too early or too late to start! Retirement is coming. You need to prepare for your golden years now.

Here’s how you can make sure you’re saving enough for retirement and staying on track to reach your retirement goals:

  • Invest 15% of your gross income into tax-favored retirement accounts. If you get a 401(k) match at work, invest up to the match (free money!) and then fund your Roth IRA (tax-free growth!). If you max out your Roth IRA and still haven’t reached your 15% goal, go back to your 401(k) and bump up your contribution until you do.  
     
  • Invest in good growth stock mutual funds. Spread your investments evenly across four types of mutual funds: growth, growth and income, aggressive growth and international. That way, you’re not keeping all your eggs in one basket!
     
  • Work with a financial advisor. Guess what? You don’t have to figure out all this investing stuff on your own. You can connect with a financial advisor who can walk you through the good times and the bad and help you make wise decisions with your investments.

This is the plan that Dave and other Baby Steps Millionaires like him have followed to build their wealth. And the truth is that anyone in America can become a millionaire—including you! Dave’s new book, Baby Steps Millionaires, will show you exactly how millions of Americans used the Baby Steps to build wealth over time and become millionaires.

5. Live and Give Like No One Else

In the decades we’ve spent studying money management, we’ve seen a strong connection between those who win with money and those who are generous. The two go hand in hand like peanut butter and jelly!   

People who are generous with their time and their money are attractive—and we’re not talking physically attractive. They’re just more likable. Studies have shown that being generous leads to more happiness, contentment, and a better quality of life.1 Isn’t that the kind of person you want to be around? And the kind of person you want to become?

Don’t miss this: It’s not financial success that causes people to be generous. It’s being generous throughout their financial journey (even when it’s hard) that allows folks to win with money. Don’t wait until you have a certain amount of money in your bank account or time on your calendar before you start practicing generosity. Be intentional about making generosity a regular part of your life today.  

Whether it’s buying a meal for your friend who’s going through a really hard time or buying that single mom in your neighborhood a new car, the truth is that being generous is the most fun you will ever have with money.

Get Help Managing Your Money

Are you ready to become the boss of your money but not quite sure where to begin? That’s okay! Take our free three-minute assessment to find out where you stand. We’ll give you a list of next steps and resources to help kick-start your journey.

If you’re already saving and investing but need more help managing your money, it’s time to get in touch with a financial advisor. Our SmartVestor program will connect you with a professional in your area who will take the time to get to know you and help you build an investing strategy so you can reach your goals.

Find a pro in your area!  

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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