7 Money Management Tips to Consider

Key Points – 7 Money Management Tips to Consider

Reviewing the Basics of Money Management Tips
What Are Your Needs, Wants, and Wishes?
Giving the Word “Budget” a More Positive Connotation
How Do You Know If You Have Enough?
6-Minute Read

Money Management Tips That You Need to Know

Does talking about money management make you feel uncomfortable? There are a variety of factors that can cause financial stress, which is why we prioritize planning for those factors at Modern Wealth Management. We’re going to review seven money management tips that can hopefully be helpful for you.

Outline Your Goals
Review Your Expenses
Build a Spending Plan
Plan for the Unexpected
Start Saving Early
Maximize Retirement Account Contributions
Reduce High Interest Debt

Schedule a Meeting Get the Retirement Plan Checklist

7 Money Management Tips

1. Outline Your Goals

When many people hear the term “money management,” they tend to think it has something to do with budgeting. We’re going to get to that, but there are other money management tips that you should address first. Let’s start with outlining your goals.

We’re not just talking about how much money you want to make over your lifetime. If making as much money as possible is your number one goal, we encourage you to think about what’s important to you. For so many people, the most important things to them usually involve spending time with family and friends, traveling, or a combination of the two.

So, what are your goals and how much will it cost to accomplish them? Don’t put off your goals if you’re concerned about having enough savings for the long run. Instead, design a financial plan that’s tailored to your goals so that you’re living the life you want to live. Hopefully you’ll continue to think of and accomplish bigger goals as you build your wealth.

2. Review Your Expenses

Another money management tip that can help you set and accomplish those bigger goals is regularly reviewing your expenses. For starters, gather your bank statements from the past month. Is there anything that caught you off guard? Did you spend more money than you expected dining out or have an abnormally high utility bill? Eating at home more often and having more self-awareness about certain expenses like utilities could make a significant difference over time.

After you review your expenses from the past month, review your expenses from the previous two months to gauge your quarterly spending. Were there any other costs that jumped out at you? Keep in mind that there are annual expenses such as insurance, car registration renewal, and memberships/subscriptions that you need to plan for as well.

3. Build a Spending Plan

Now that you’ve reviewed your needs, wants, and wishes, let’s bring it all together by building a spending plan. We like to say “spending plan” instead of “budget” to put a more positive perspective on our money management tips. Money management is all about cash flow, especially as you head into retirement. What income sources are you going to use to pay for your expenses?

As you’re building your spending plan, don’t just look at your past expenses to determine how much you currently need to live your desired lifestyle. Think about how your lifestyle could change as you approach and go through retirement. That process typically involves a big change in identity. Rather than focusing on retiring from your job, think about what you’re going to retire to. That’s why our first money management tip was outlining your goals so that you can begin to define your ideal lifestyle.

Also, it’s important to plan for inflation as you’re budgeting for your future needs, wants, wishes. Different expenses will have different inflation rates. For example, your mortgage is at a fixed rate, meaning that it won’t inflate. But then you have healthcare costs, which have historically inflated at a higher rate than many everyday expenses.

As you’re thinking about how to go about building your spending plan, make sure that you have a copy of our Retirement Plan Checklist handy. It consists of 30 yes-or-no questions and age-and date-based timelines that highlight several retirement planning considerations.

Retirement Plan Checklist

4. Plan for the Unexpected

Let’s talk a little bit more about healthcare costs as we move on to our fourth money management tip. Hopefully you’re in great health right now, but it’s critical to be prepared if you take a turn for the worse. The same goes for your partner if you’re married. What’s your plan when it comes to health insurance? Do you want to wait to retire until 65 when you become eligible for Medicare or do you want to retire before that?

Once you become Medicare eligible, do you know what Medicare actually covers for you? One thing that Medicare won’t cover is long-term care.₁ Have you considered long-term care insurance? Planning for a potential long-term care stay is a prime example of planning for the unexpected.

Obviously, there are many other unexpected expenses that aren’t health related that can sneak up on you. What if your house gets damaged or destroyed following a natural disaster? Homeowner’s insurance can help in certain situations, but some appliances simply need to be replaced due to wear and tear. Rather than letting a substantial expense like a new HVAC system catch you off guard, plan for it to help lessen the financial burden.

5. Start Saving Early

This is without a doubt one of the most important money management tips to consider. Being diligent about saving in your 20s, 30s, and into your 40s isn’t always easy, but the power of compound interest shouldn’t be ignored. The earlier you begin saving, the greater your potential for earning interest may be.

6. Maximize Retirement Account Contributions

Our sixth money management tip to consider ties right into number five on our list. We recently aired a series on America’s Wealth Management Show that covered retirement planning in your 30s, 40s, 50s, and 60s. Two of the first things that Logan DeGraeve, CFP®, AIF®, and Chris Rett, CFP®, AIF®, touched on in the Retirement Planning in Your 30s show was the importance of saving early and maximizing contributions to retirement accounts. If your employer offers a match to your 401(k), 403(b), or 457(b), it’s advisable to take advantage of it. They’re giving you free money just to save for retirement.

Another money management tip to consider is weighing the option of saving to Roth accounts. With contributions to a traditional 401(K), keep in mind that the money in that account is growing tax-deferred. That means that you won’t be taxed when you contribute to a 401(k), but you will be when you take money out of the account. It’s the opposite with a Roth 401(k). You’ll be taxed when you contribute to a Roth 401(k), but there’s the potential for the earnings and distributions to be tax-free.

The tax-free component of Roth accounts can be a very powerful wealth-building tool, but make sure that you’re aware of the potential taxes and penalties—specifically the two different Roth five-year rules. Whether you’re saving to Roth or traditional, make sure you are up to date on the contribution limits and the Roth IRA income limits and traditional IRA deduction limits.

7. Reduce High Interest Debt

So far in these money management tips to consider, we’ve discussed topics such as inflation, taxes, healthcare costs, and procrastination. Those can all be wealth-destroying factors. Another wealth-destroying factor that’s important to mitigate is high interest debt.

Examples of high interest debt can include credit card debt and personal loans. That’s debt that you want to pay down as soon as possible. However, there are also examples of good debt. Let’s circle back to mortgage rates as an example. If you bought a house in 2020 or 2021 and have a mortgage rate that’s around 3% or lower, that’s very low-interest debt relative considering mortgage rates have been more than double that since November 2022.₂

If you’re thinking about buying a new home, is potentially taking on more debt something that you’re comfortable with? As always, it depends on your situation as you’re making the decision that’s best for you.

Bonus Money Management Tip: Work with a Team of Professionals

There are many money management tips involving topics such as estate planning, when to claim Social Security, and various investment strategies that we didn’t even dive into. The point is that managing your money is no simple task to do on your own.

At Modern Wealth, we don’t just put the responsibility of managing a client’s money on one advisor either. We have a team of professionals—including CFP® Professionals, CPAs, CFAs, retirement plan advisors, estate planning specialists, and risk management specialists—that work together on a client’s behalf.

Our team looks forward to the challenge of applying these money management tips (and many more) to each client and prospective client’s unique situation. If you have questions about these money management tips or about our team approach to money management, start a conversation with our team below.

Schedule a Meeting

Don’t let financial stress control your life. It’s our goal to give you more confidence that you’re making informed decisions with your money, freedom from financial stress, and time to spend doing the things you love.

7 Money Management Tips to Consider : Watch Guide

00:00 – Introduction
01:57 – Outlining Your Goals
04:58 – Setting Up a Spending Plan
06:50 – Reviewing Your Expenses
10:27 – Planning for the Unexpected
15:55 – Start Saving Early
17:06 – Maximizing Your Retirement Account Contributions
20:23 – Reduce High Interest Debt

Past Episodes of America’s Wealth Management Show

Downloads

Retirement Plan Checklist

Other Sources

[1] https://www.medicare.gov/coverage/long-term-care

[2] https://fred.stlouisfed.org/series/MORTGAGE30US

Investment advisory services offered through Modern Wealth Management, LLC, a Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management a Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.