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Looking to improve your finances? Start with these wise money management steps that will help you achieve financial freedom.
Most people grow up never learning about money management. In fact, it's something most don't learn until their later years in life.
I wish finances were taught in high school and college as I believe the world would be so much better off! However, that's where I come in.
I've put together a list of wise money management steps I've taken that you can also take to improve your financial journey and help conquer your dreams.
Disclaimer: I am not a financial advisor. This is not financial advice and is just for educational purposes. These are things I did that helped me reach financial freedom.
In this post, I explain the exact steps I took to reach financial independence, in the order I recommend doing them in. You will learn how to manage money, how to protect your money, how to save your money in the most effective ways, and how to ensure your money!
This post will walk you through the steps to take for wise money management that can help you reach financial independence.
How to Protect Your Money
1.) Freeze Your Credit
The first thing I recommend doing is freezing your credit.
Freezing your credit is extremely important as it can help prevent someone from opening credit in your name. Let me tell you, this is very helpful.
My friend had a situation recently where someone bought a car in her name. She had no idea and it completely ruined her credit.
You're able to freeze your credit at all 3 credit bureaus.
I walk you through the steps to do that in my post on freezing your credit.
Related:
- How to Freeze Your Credit: A Financial Task You Need to Do ASAP
2.) Set Up 2-Factor Authentication
Now, I'd recommend taking the time to go through all of your accounts and set up 2-factor authentication for every single account.
This includes not only financial/banking accounts but credit cards, emails, social media, mortgages, etc. I would recommend protecting every account you have. Period.
There is no reason any of your accounts shouldn't have 2-factor authentication.
This will help prevent hackers from getting into your accounts.
Therefore, although the process can be tedious to deal with, it's so worth it to protect your accounts.
3.) Sign Up for Text Alerts
I highly recommend setting up text message alerts for all of your financial accounts.
This is one of my favorite financial tips that everyone should be doing, but hardly anyone does.
Go into your credit card or banking account and set it up so that it sends you a text message about any charge over a penny. When a purchase is made, you will get a text message immediately.
This is great for multiple reasons because you can do the following:
- Cnfirm the purchase you just made is the correct amount.
- See duplicate charges in real time.
- Notice fraudulent charges immediately and can call the financial institution to get it cancelled right away.
- Easily track your expenses for the month in real time so you don't need to reconcile at the end of the month.
- Able to catch small charges easily. Fraudsters often charge $30 at Target or something like that because it's something you most likely wouldn't notice on your statement at the end of the month if you frequently go to Target. This way, you can see the charge in real time and can cancel the card immediately.
4.) Have a Good Password Strategy
Speaking of fraudsters, let's talk about your password strategy.
You want to make sure your passwords are challenging and filled with different characters.
I'd recommend making every single password different for every account and keeping a password tracker for your records.
There are also password managers, like LastPass, that can help you with password management.
5.) Monitor Your Credit
Did you know you can check your credit score at any time without hurting the score?
You can!
It's a common misconception that checking your score hurts your credit. It doesn't!
Check your score often and monitor your credit report often.
In fact, I'd highly recommend setting up credit monitoring alerts so that you're notified every time your score goes up or down, notified of new credit that is opened in your name, and of any late payments/delinquencies. The best part is, you can do this all for free!
Learn 10 steps to increase your credit score in my post here!
Related:
- How to Increase Your Credit Score: Ultimate Guide with Credit Sesame
How to Manage Your Money
6.) Start Budgeting
Budgeting will change your life if you let it.
It can be hard to get used to at first, but I've seen it transform people's financial situations so many times.
The truth is, the majority of people have no idea how much they are actually spending.
Every monthly payment, coffee, nail salon visit, blouse, and happy hour adds up over time. People just don't realize how much it's happening. I realized I was spending a ridiculous amount on my nail salon visits. When I calculated what that money would be at retirement if I invested it instead, I found that those nail salon visits were worth $1 million at retirement!
That's insane!
This blindness to spending we all have causes many people to go into debt and to constantly have this keeping up with the jones' lifestyle, without even realizing it.
We can manage this. Start with budgeting.
I have an entire post dedicated to teaching you how to budget, complete with a full (and free) budgeting binder to help you get on track fast! This strategy is proven to work!
Related:
- FREE Printable Expense Tracker: The Downloadable Budget Binder You Need
- How to Do Professional Looking Gel Nails at Home to Save $1,000 a Year
- How to Do Dip Nails PERFECTLY at Home to Save $1,000 a Year
7.) Set Up an Emergency Fund
If you don't have an emergency fund, your homework today is to figure out how much you need in your emergency fund.
An emergency fund is the money you'll use if things hit the fan.
For example, if you lose your job or your dog gets sick or you break your arm, those unexpected things will come out of your emergency fund.
It's very important to have 3-6 months of funds (at the very least) that can cover you if you need it in an emergency. In fact, I'd recommend 6-9 months if you can manage it.
I have a free printable to calculate your emergency fund for your personal finance binder here!
That brings me to my next step!
Related:
- Ultimate Guide to An Emergency Fund: Why You Need It
- How to Make Your Own FREE Personal Finance Organizer
8.) Get a High Yield Savings Account
A high yield savings account is where I put my emergency fund and 5-year goal money. I don't keep it in a normal savings account.
Why?
A normal brick-and-mortar savings account gives us practically no interest. In fact, most banks ARE giving zero interest.
Since that money is just sitting, waiting to be used, I like to make sure it makes interest.
A high yield savings account will give you 10-16x as much interest as a normal savings account. It is essentially an online bank with caveats, but in exchange for those caveats, you get to make interest on your saved money.
This is why I only recommend putting your emergency fund and 5-year goal money in the HYSA.
My ultimate guide to HYSAs will answer all of your questions, explain how it works, and offer some of the best HYSA recommendations on the market.
Related:
- What is a High Yield Savings Account (HYSA)?: Ultimate Guide
- 5 Things to Look for In a High Yield Savings Account
- Want to Achieve Your Goals? Why Writing Them Down Will Make You More Likely
- New Year’s Resolution Checklist and Goal Achievement Binder: Free Printable
9.) Decide on a Debt Payoff Strategy
If you have debt, it's very important to come up with a debt payoff strategy that works well for you.
Paying off your debt will be one of the biggest accomplishments in your financial journey and once you do so, you'll free liberated. Trust me!
I paid off $90k in debt in just 2 years and life started to propel itself soon after! It's amazing how much money you save when you no longer have debt! You can then take that money and invest it to make more money!
Therefore, you'll want to work toward paying off that debt as quickly as possible.
I have free debt payoff printables along with two debt payoff strategies to choose from that are proven to work: the debt snowball method and the debt avalanche method. I go into detail on both and explain what type of person would be best suited for each method.
Related:
- Free Debt Payoff Printables: Exact Steps You Need to Know to Get Out of Debt FAST
10.) Set Up Autopay
I am all about automating anything and everything in my life.
Any time I save is truly cherished as I believe time is money and my time is so extremely valuable to me.
One of the best ways to ensure you don't miss a payment is to set up autopay on your accounts.
I have always done this and it helps me to never miss a payment, even when life is crazy!
I make sure that I either get text message alerts from my accounts in real-time or I check the monthly statements on my own to make sure everything looks correct.
Automating my payments is one less thing I have to do and it makes my life so much easier.
If you can manage it and be responsible for checking your statements (or setting up text message alerts), you may enjoy the freedom it brings as well!
How to Save Your Money
I'm going to reveal the logical order of steps I personally save and invest my money in. You'll notice a few things on the list twice and there's a reason for that, which I'll explain. However, my list is geared toward maximizing the amount of tax benefit opportunities available to us, so there's a method to the madness. =)
*As a reminder, I'm not a financial advisor. These are just the steps I have seen success with that make logical sense to me in managing my own money. View this as getting ideas for how to save your own money and then do what is best for your personal financial situation!
11.) Aim to Save 15%
Financial experts typically recommend saving at least 15% of your income.
I would recommend saving as much as humanly possible. If you're able to save more than 15%, then do it!
I try to save as much as possible by spending as little as possible. The more you can save in your younger years (20s and 30s), the more financially healthy you will be in your retirement years. Those young years are actually the most important when it comes to saving because of a little thing called compound interest!
Unsure where to save that money? My next steps will explain the order I save and invest my personal money.
Related Articles on Saving Money:
- 9 Money Saving Tips to Increase Your Savings Immediately
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12.) 401K Company Match
Once you determine how much you can save per month, you'll want to come up with a strategy on where to save that money.
If your company offers a 401k Company Match, you'll want to take advantage of that since that is FREE MONEY!
I absolutely love 401k company matches and am always shocked when people aren't taking advantage of it. WHAT?! This is free money people!!
Most employers don't offer retirement packages anymore. In exchange for that, they offer 401K company matches. This is your retirement!
Therefore, if you aren't taking advantage of it, you're missing out on free money that will help you reach retirement.
Usually, companies will offer anywhere from 2-6% in matching money.
Therefore, I would recommend contributing as much as you can toward that company match and fully meeting it, if you can. (But don't contribute over the company match percentage…yet. I'll explain why in the steps below.)
I can't recommend doing this enough.
Not all companies give a match and some people don't have the option of a 401k, so if you do, you'll want to take advantage of it!
Always do your research before investing though!
Extra credit: If your company offers a Roth 401K, you may want to consider doing that instead of a regular 401k so that it grows tax free!
Related:
- What is a 401k and Do You Need it NOW?
13.) Contribute to a Roth IRA
If you have additional funds available to save after you contribute the full 401k company match, the next step I would take is to contribute to a Roth IRA, if you're eligible.
You are eligible to contribute to a Roth IRA if your modified adjusted gross income is less than $129,000.
If you are under age 50, you can contribute up to $6,000 a year and if you are over age 50, you can contribute up to $7,000 a year.
The advantage of a Roth IRA is that it's taxed upfront so when you take out the money at retirement, it doesn't need to get taxed again.
This is such a HUGE advantage.
When you invest money into an IRA or Roth IRA, you will choose positions in the stock market. The stock market has an average annual rate of return over time of 7% so ideally, your IRA account would grow by 7% per year. However, there is no guarantee.
Most people believe taxes will only rise, but you'll need to decide if you think your tax bracket will be lower or higher when you retire than it is today. If you believe you'll be in a lower tax bracket, then you'll want to do a regular IRA.
Again, I'm not a financial advisor so always do your own research and consult a financial advisor before making any investment decisions.
After you've maxed out your IRA or Roth IRA, you'll move to the next step.
IRA Tip: Don't forget to choose your positions in your IRA or ROTH IRA.
I see this all too many times where someone opens an IRA and puts money in, but never selects positions.
Therefore, the money is just sitting and not growing at all. In fact, it's losing money due to inflation.
Make sure to choose positions!
14.) Get a Health Savings Account (HSA)
After contributing the 401k company match and maxing out an IRA, the next step I would do is get a health savings account.
If your employer offers a health savings account, I would personally enroll in it if the financials make sense.
The benefit of a health savings account is that it's triple tax-advantaged.
Yes, you read that right!
A HSA is triple tax-advantaged because:
a.) All of the post-tax money that is put into a HSA is tax-deductible. Any payroll deductions are pre-taxed.
b.) It's free to use for any qualified medical expenses so you won't incur additional fees or taxes on those purchases.
c.) The money in the HSA is investable so it grows with you over the years. It can roll over year over year and that growth is tax-free as well! WHATTTT??? Amazing!
The maximum contribution limit for an individual HSA in 2022 is $3650. Once that is maxed out, go to the next step.
Keep in mind, HSAs need to be used for healthcare expenses, but when you're in retirement, a LOT of your expenses will be for healthcare so even if you save this money over all these years, trust me, you'll be able to use it. Plus, you can also use it for bandaids, medicine, cough syrup, etc.
I enroll every year and purposely don't touch the money. I want it to grow tax free so I'll have more to use at retirement.
Always research the HSA you are planning to enroll in to see if it makes financial sense for you! It doesn't always make sense, but most of the time, it does!
15. ) Max Out 401K
Now, remember how I said we'd be coming back to certain items because I like to do things in a way that is most tax-advantaged? Here we are full circle.
I'm not a financial advisor so always do your own research, but these steps are what logically make sense to me.
If it were my money and I had contributed the full 401k company match, maxed out a Roth IRA, and maxed out a HSA, I would then max out my 401k.
By the way, if your company offers a Roth 401k, you may want to go that route since it's not taxed when you take out the money in retirement. That's my favorite option!
The 401k contribution limit in 2022 is $20,500.
After the 401k is maxed out, I'd move on to the next step.
16.) Invest in an Individual Brokerage Account
If I had completed all other steps and maxed out my 401k, I would then invest in an individual brokerage account.
This is where the true fun begins, in my opinion.
The other investments are great, but more limited in options. I personally LOVE learning about the stock market, watching it,and learning.
Therefore, I love investing in my own positions and interests.
I know many of you are also very interested in investing so I created an Ultimate Guide to Investing for Beginners. This guide will walk you through the steps and allow you to make your own decisions on your investments.
It will also outline all of your options when it comes to investing, brokerages, etc!
Related:
- Beginner’s Guide to Investing: Step by Step Tutorial on How to Invest
- How to Use Robinhood: Beginner’s Guide You Need
- Dividend Stocks for Beginners: Guide for the New Stock Investor
- 9 Extremely Helpful Things You Need to Know About Robinhood Trading
- Robinhood Stock Trading Beginner’s Guide (Get a FREE Stock)
How to Insure Your Money
17. Set up Beneficiaries
Alright, now for the not-so-fun stuff.
Make sure you set up beneficiary on all of your banking accounts! This way, if something happens to you, your money will go to your beneficiary. This is really important!
If you aren't married, just name your parents as your beneficiaries.
18. Get a Trust or Will
Now for the really not-so-fun stuff.
You'll want to consider setting up a Will for yourself to protect your assets and keep them in your family if you were to pass away.
In fact, if you own a home or have a large number of assets, you'll want to look into getting a Trust instead of a Will. I'm not a lawyer, but from my personal findings, a Trust can protect your assets from going to probate.
I would ask a lawyer about your options to consider the best option for you.
Extra Credit Money Steps To Take
19. Get Paypal
This step is definitely not something you have to do, but I think it's a great thing.
Paypal is a company that allows you to connect your credit card to their account. When you go to purchase something online and check out with Paypal, they mask your credit card number to the store you're purchasing from.
I personally like this because this way my credit card number isn't all over the internet.
It protects my information and then all transactions go through Paypal.
It's a free service. Feel free to check it out!
20. Get A Credit card -only use that for purchases
If you don't already have a credit card, you may want to think about getting one, but only if you can be responsible in paying it off on time every month.
I personally don't use a debit card at all. Instead, I have always only used a credit card for every single purchase so that I could build my credit and earn rewards points. I receive money back from those points.
It's fantastic and something I think everyone should do, as long as you can trust yourself in paying off your credit card in full every single month. I've always paid off my full balance every single month so I've never incurred any interest. I recommend you do the same.
21. Track Your Net Worth
Tracking your net worth is such a fun thing to do! (Maybe I'm a nerd.)
In fact, I set a money date with myself every month to track my net worth and look at all of my accounts.
It's always exciting to set goals for myself and challenge myself to save more or make more to reach those goals.
I have a free net worth tracker you can download and it explains exactly how to track everything.
Related:
- Free Net Worth Tracker Spreadsheet to Reach Your Financial Goals
22. Retirement Number
Figure out your retirement number.
This is the amount of money you'll need to have in your bank accounts for you to retire with.
This number will look very different for everyone.
Figure out how much you'll need each month at retirement and then multiply that by the number of months you plan to be retired.
The number is most likely much larger than you expected.
Having a goal to focus on will help you with your saving initiatives as well!
Wise Money Management: 22 Steps to Take for Financial Freedom
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