7 money management tips to help improve your finances

Money management is about making the most of what you have. It sounds pretty simple, right? Even so, it can take know-how and persistence to get on the road to better financial health.

If you’re interested in making better financial decisions, these money management tips could help.

What you’ll learn:

• Money management is an umbrella term for handling your finances through things like budgeting, spending, saving, investing, using credit and paying off debt. 

• Approaching money management in an informed, strategic way could help you reach your financial goals. 

• There are strategies and tools to help you create a budget, track your spending, make a plan to save, pay off debt and establish good credit habits. 

• Strategies include structured plans for managing debt, free tools for monitoring your credit, free digital features for tracking your money and more.

Money management is the process of dealing with your finances. It includes everything from budgeting to using credit to paying off debt.

These seven practical money management tips could help you develop your financial literacy and feel more in control of your finances.

Creating a budget is a great first step toward healthier money habits. According to the Consumer Financial Protection Bureau (CFPB), “Budgeting helps ensure that you’ll have enough money for the things you need and the things you want, while still building your savings for future goals.”

You can start with these simple steps:

• Add up your monthly income. This includes your salary at your job plus other sources of income like bonuses, tax refunds or income from side work.

• Add up your monthly expenses. These can include expenses in the major categories like housing, food, student loans and transportation. For monthly payments that aren’t always the same, like entertainment and utilities, you could use an average from previous months.

• Subtract your expenses from your income. This amount will be the starting place for your budget. Anything left over is where you can start if you’re paying down debt and building up savings. 

Think of your budget as a living document. That way, you can make adjustments if you need to, like when you eliminate or add a monthly expense. If you want to learn more, check out these 14 budgeting tips.

Keeping track of your spending doesn’t have to be complicated. You can record your expenses digitally with one of the numerous apps available online. If you have a Capital One card, you could use the free digital features that help you track your money. If you prefer a nondigital option, you can simply track everything in a notebook.

It can also help to separate your expenses into categories. That way, you’ll see exactly where your money is going and where you may be spending too much.

Retirement accounts are one way to save for the future. Here are a few types of retirement accounts it may help to know about.

• 401(k) plan through your employer: With a 401(k), you can deposit pretax dollars through a regular deduction from your paycheck. Beth Sabin, an executive at Capital One, says, “If you have a company match through your 401(k), this can be a great place to start by contributing until you have your full match.” She also recommends upping your contribution by 1 percentage point to see if that’s doable for you. If it is, you might increase it by another percentage point to accelerate your savings.

• 403(b) plan: Like 401(k) plans, 403(b) plans are employer sponsored. One difference is that 403(b) plans are offered by public schools and some tax-exempt organizations. Contributions to traditional 403(b) plans are tax-deferred—just like they are with traditional 401(k) plans. So you don’t have to pay taxes on the contributions or earnings until you withdraw funds from the account.

• Individual retirement account (IRA): Contributions to a traditional IRA are tax-deferred. A traditional IRA is an account that’s generally self-directed and not sponsored by an employer. Once you retire and start making withdrawals, the money will be taxed at your regular income tax rate.

• Roth IRA: While contributions to a Roth IRA aren’t tax deductible when you make them, you may be able to withdraw your money tax-free during your retirement years.

Here are a few tips to help you start saving for unexpected life events, like needing to buy a new car or make major home repairs.

• Remember that interest rates can vary. It may be wise to shop around for a savings account. If you find an account with a better rate, the extra interest can add up over time. Some banks even offer high-yield savings accounts.

• Put extra income into your account. When you get a tax refund or a bonus at your job, you could deposit it into your savings account to give your emergency fund a boost.

• Set up automatic savings. If direct deposit is an option, sending a portion of your paycheck directly to a savings account could help. That way, the money will still be accessible to you when you need it, but you may be less tempted to use it for nonemergencies.

There's more than one way to pay off debt. Here are three strategies for debt management. 

• Snowball method: The snowball method focuses on paying off your smallest balances first. You continue to make the minimum payments on all of your debts and use any extra money to pay off your smallest balance. Then you use the money you’ve freed up to pay off your next-smallest balance and so on. Be aware though, that this could mean debts with higher interest rates might take longer to pay off, which could cost you more in the long run.

• Debt avalanche method: The debt avalanche method, also called the highest-interest-rate method, starts with listing your debts based on their interest rates, from highest to lowest. You put your money toward the debt with the highest interest rate first. Once that’s paid off, those extra funds can be used to pay off the next debt on your list. You also continue to make the minimum payments on all your debts.

• Debt consolidation: With debt consolidation, you roll multiple debts into one account. It can help you simplify your payments and may also help you save on interest. Keep in mind that there may be fees associated with debt consolidation. It won’t erase your debt and it doesn’t always make it less expensive. 

Credit can be a major part of a person’s financial health. And working on improving your credit scores could help set you up for a brighter financial future. 

Lenders may use your credit scores to help decide whether to approve you for credit and what terms to offer you. Your credit scores can even come into play when it comes to things like renting an apartment or applying for a job. 

Here are a few good credit habits.

• Pay your bills on time, every time. Late payments can impact your credit scores and trigger late fees and penalty APRs. 

• Don’t get close to your credit limits. The CFPB recommends keeping your credit utilization ratio below 30%. 

• Work at establishing a long credit history. Before closing a credit account, make sure to think through how it may affect your credit scores. 

• Only apply for the credit you need. Applying for a new line of credit can trigger a hard inquiry, which can impact your scores. And too many hard inquiries, especially in a short period of time, can have a larger negative effect on your credit scores.

Regularly monitoring your credit is another important part of credit health. CreditWise from Capital One offers an easy way to access your TransUnion® credit report and VantageScore® 3.0 credit score without hurting your credit scores. 

And with the CreditWise Credit Score Simulator, you can even explore the potential impact of financial decisions, like getting an auto loan, before you make them. CreditWise is free for everyone, whether you’re a Capital One customer or not.

You can also get a free copy of your credit report from all three credit bureaus at AnnualCreditReport.com.

Reaching your financial goals takes time and consistency. But doing things like planning, budgeting and using credit responsibly can help you get there.

As you work on your finances, remember that CreditWise can help you monitor your credit and track your progress. And if a credit card is a tool that could help, you can compare credit cards and see if you’re pre-approved with no harm to your credit score.