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How To Manage Your Money

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

You’re not alone. After all, four out of 10 Americans would struggle to cover a $400 emergency.1 Even worse, 78% say they’re living paycheck to paycheck every month.2 Is it any wonder that a lot of the stress we face on a daily basis comes directly from pressure that comes with money problems?

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—you need a plan to manage your money. You have to happen to your money instead of letting your money happen to you.

And money management doesn’t have to be stressful! If you follow these four steps, you’ll be able to move from financial stress to financial stability.

Step 1: Create a Budget

Step 2: Get on a Money Management Plan

Step 3: Set a Firm Financial Foundation

Step 4: Invest and Save for Your Future

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This is your life and your money we’re talking about! Here are some money management tips to help you get back on track.

Step 1: Create 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 not managing your money. You’re just sitting on the sidelines hoping there’s enough money left over at the end of the month. 

Sitting down with your spouse (or with an accountability partner if you’re single) at the beginning of each month and creating a budget will give you the momentum and focus you need to reach your financial goals. Without one, you’re going to feel like a rat in a wheel—running and running and running some more, but not really going anywhere. You need a budget.

Why does budgeting work?

There are three things you can do with money: Spend it, save it, and give it away. And if you’re managing your money with a monthly budget, you’ll be able to do all three. 

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 you’re no longer playing a game of roulette with your bank account at the end of every month, sweating bullets as you swipe your debit card at the grocery store.

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

That’s the power of budgeting!

What is zero-based budgeting?

Zero-based budgeting means making a budget where your income minus your expenses equals zero. Whether it’s saving, spending or giving, you are literally telling every dollar where to go.

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 income from your expenses 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. 

Still need some help? Check out our article on How to Create Your Monthly Budget!

What budgeting tools should I use?

Some people like to go old-school with the pen-and-paper approach. 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. Meet EveryDollar, our free online budgeting tool! With EveryDollar, you can create a monthly budget in minutes and track your expenses so that you can crush your money goals.

EveryDollar syncs across all your devices so that wherever life takes you, 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 so you can connect your bank accounts so all your transactions are streamed right to your budget.

Ready to make your first zero-based budget? Get Everydollar today and start showing your money who’s in charge! 

Step 2: Get on a Money Management Plan

Take a couple of minutes to write down some of your financial goals. Maybe you want to pay off all your credit cards. But wait, you also need to set aside some money for emergencies. Oh, and we haven’t even talked about investing in your 401(k)!

Those are all great goals, and there are probably a few more on your own list! But where do you start? To reach your goals, 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 Baby Steps.

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

So, what are the 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 accomplishing one goal at a time, you’ll start to make real progress. Following the Baby Steps in order will help you avoid falling into the debt trap again and keep 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’re going to have to trust us on this one: Do not skip steps!

You might be thinking, “This sounds so simple.” You’re right—it is! Some of the most mind-blowing things are simple to learn, but hard to do. The Baby Steps are more a marathon than a sprint, and everyone goes at their own pace. But when you have the right tools and the right plan in place to keep you on track, you’ll stay motivated to finish strong.

Step 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. I think we heard you breathe easier from here! Not only will you have a strong financial foundation to build on, but you’ll also be able to manage your money out of 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 method. The debt snowball method is simple: You pay off your debts from smallest to largest, regardless of interest rate. Before you know it, you’re gaining momentum and knocking your debts out one by one 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 fund 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 the subscriptions to those magazines you don’t read anymore. There are plenty of different ways to make some extra money on the side or trim down your budget. You can do this!

Step 4: Invest and Save for Your Future

This is where the fun really begins. It’s time to shift your focus to money management for the long term.

Almost a third (29%) of older Americans have nothing saved for retirement.3 No 401(k). No individual retirement account (IRA). No pension. Nothing.

No matter how much or how little you have in your nest egg, the good news is you have tools available to start saving for your retirement right now. Whether you’re 25 or 55, it’s never too early or too late to start! Retirement is coming. You need to prepare for it.

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 and then fund a Roth IRA. 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 mutual funds. You’ll want to keep your investments spread out evenly between four mutual fund types: Growth, growth and income, aggressive growth and international.
  • Work with a financial advisor. The stock market feels like a roller coaster sometimes, filled with ups and downs. But the only people who get hurt are those who jump off the ride. A financial advisor can walk you through the good times and the bad, and help you stay the course or make any necessary adjustments to reach your goals.  

You don’t have to figure this out on your own. You can connect with a financial advisor who can help you go over your options so that you can feel confident with your investment choices.

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 that’ll help you reach your goals.

Find a pro in your area today!  

Want to learn more? Dave's new book, Baby Steps Millionaires, will show you the proven path that millions of Americans have taken to become millionaires--and how you can become one too! Pre-order your copy today to learn how to bust through the barriers preventing you from becoming a millionaire.

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.

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