When you talk about your financial situation, how do you feel?
Or, you may simply not even want to talk about your financial situation – following the motto “ignorance is bliss.”
If you feel heart palpitations even thinking about your financial situation – then you are not alone.
Managing your money can be a tough job.
And it’s probably not fun to think about – especially if you fall into that 78% category of people who are living paycheck to paycheck.
Imagine if one of the following situations happens to you:
- A flat tire
- A vet expense
- A hospital emergency
Could you afford these unforeseen expenses without flinching?
There really is no wonder that much of our daily stress comes from money – especially after reading these statistics.
It’s time to take back control over your financial life – whether you earn $30,000 or $300,000.
The simple rule in life is this: You can’t become wealthy without a plan.
When you create a plan, dealing with financial matters won’t be stressful – believe me.
It’s your life and your money, so make sure you take the time, read through this post and apply the strategies I suggest here to make your life better.
How to Manage Money Like a Millionaire
I want to caution you that the hardest part of managing your money like a millionaire is not starting.
It’s continuing the course.
If you want to turn around your financial situation and become a millionaire – or multi-millionaire – then you need to remember that it takes:
You won’t see success overnight.
But you will see success in the future if you stay committed and consistently follow my 15-step guide.
Let’s get started.
1. Create a Financial Inventory
The first step to managing money like a millionaire – is to figure out how much money you have.
This could probably be the scariest part of the entire process because this is where you figure out if you:
- Have a $0 net worth
- Have a positive net worth
- Have a negative net worth
I’ve detailed a few things below:
|Net Worth||What it Means|
Negative Net Worth
You owe more than you own
$0 Net Worth
You don’t owe anything – but you don’t own anything either
Positive Net Worth
You own more than you owe
To figure out where you currently stand, I’d suggest downloading the free net worth tracker offered by Personal Capital.
This net worth tracker is free (should I say it louder?), it’s super easy to use and it incorporates a few other free financial tools offered by Personal Capital – including the savings planner and retirement planner tools.
The most important thing here is to write down your current financial situation – don’t just let it sit in your head (where numbers can become skewed).
Write it down, analyze your situation and move to step 2.
2. Develop your Financial Blueprint
You can’t expect to manage money like a millionaire if you don’t have a plan.
If you don’t have a plan, you could:
- Fall victim to old habits
- Fail to follow healthy habits
- Lose sight of your financial vision
If you find yourself to be the person who easily forgets or tends to slack off on things (be honest with yourself here), then you 100% need a budget.
That’s right. I said the “b word.”
It’s very simple to create a budget for yourself – and I find it fun because it’s like I’m the CFO of my own household expenses.
Some things to remember when creating a budget:
- Take note of your basic living expenses
- Take note of any unnecessary expenses
- Make a true effort to stop spending on unnecessary costs
Recommended reading: budgeting rules of thumb.
If you’re ready to step-up and manage money like a millionaire, I’d suggest starting a budget using You Need a Budget.
Here’s some info about YNAB:
- Easy to sync outside accounts
- Can directly import bank transactions
- Customized budgeting recommendations
- YNAB website offers excellent financial advice
The downside to YNAB is that it costs a small chunk of money: $11.99 per month.
But, I would argue that if you want to make a difference, then this app is certainly worth the cost.
Remember this: Be brutally honest with yourself, or this process will be in vain.
3. Understand your “Why”
I think this step – understanding your “why” – is extremely underrated when it comes to managing money like a millionaire.
Here’s my question for you: How can you go through your financial life without knowing why you are saving and investing?
Below are my why’s:
- My family
- Building a life I love
- Leaving a lasting legacy
- Creating lasting memories
My ultimate “why” is my family.
I know that my family is the reason why I am where I am now.
It’s time I repay them the favor and build a lasting legacy – that’s why I am not going to allow myself to fall into debt again or spend more than I earn.
On the contrary, if you’re just saving to save and just investing to invest – without a real purpose – then giving up will be much easier… and possibly permanent.
4. Build your Emergency Savings Fund
If COVID has taught you one thing – it should be keeping an emergency savings fund.
Typically speaking, you’d want your emergency savings fund to encompass the following:
- Readily accessible
- 3 to 6 months’ worth of living expenses
And – just like the name says – an emergency savings fund should be used ONLY for emergencies, which could include:
- A flat tire
- A leaky roof
- A health emergency
The goal should be this: For starters, try saving $1,000 in your emergency savings fund.
If you feel like saving 3 to 6 months’ worth of living expenses is too complicated at this point, given your income, then it might make sense to simply aim for $1,000 of emergency savings.
Let’s say you’re stashing about $1,000 in your high-yield emergency savings fund.
Check out how much money you can earn – without moving a finger – on a high-yield savings account.
|High-Yield Savings Account|
Investment Time Frame
Ending Portfolio Value
Given the current interest rate environment (early to mid-February 2021), a good high yield rate would be around 0.61%, which is exactly what Axos Bank is offering.
Axos Bank would be my Number 1 recommendation for a high-yield savings account.
Check out some of the Axos Bank features:
- Free ATM cards
- $0 maintenance fees
- Competitive APY rates
- No monthly minimum required balances
- $250 minimum balance to open an account
And the best part is that opening an account with Axos Bank is free… there’s my favorite word again!
5. Open Investment Accounts
If your ultimate goal is to build and maintain wealth well into your retirement, it is very important to understand the importance – and power – of investing.
Investing, thanks to compound interest and dollar cost averaging, is how you can help your money grow over decades.
The point is not how much money you earn currently – I don’t care if you are earning $30,000 or $300,000 per year – to build long-term wealth, you have to start.
You can start investing with:
- $5 a day
- $10 a week
- $500 a month
It doesn’t matter how much you use to begin your investing journey – what matters is that you start and continue investing.
Don’t ever stop investing (or withdraw your invested money, which would defeat the purpose of this step).
If you’re a beginner investor and don’t necessarily have $100s to invest – yet – then Acorns may make the most sense for your situation.
Below are some Acorns fast facts:
Minimum to Open Account
$1 per month for the Lite plan
- Traditional IRA
If you’re a serious investor and intend to invest $100’s of dollars over a certain period of time, then it might make sense to consider opening an account with M1 Finance.
M1 Finance is an investment app for the investor who is looking to grow their investments substantially.
Check out some M1 fast facts:
Minimum to Open Account
In the end, what matters is simply starting the investing journey.
Although investing $5 per day may not sound like much, in 4 decades from now, you’ll be thankful; you started when you did.
6. Review your Spending
There is no way you can manage money like a millionaire without tracking your progress and reviewing where you currently are.
One of the key traits to success is creating and more importantly reviewing your long-term goals consistently.
When was the last time you checked in, on your progress?
If the answer is more than 24 hours ago, it’s time to review your current financial situation – especially how much you have been spending.
Of course, a budget is going to be the easiest way to help you monitor your spending habits
If you haven’t created a budget yet, then I’d suggest checking out the customized budgeting app YNAB (aka You Need a Budget).
As you review your daily spending habits, it’s important to keep in mind the following:
- Your needs (basic living expenses)
- Your wants (eating out, clothing shopping, etc.)
- Your wishes (things or experiences you’d like to buy, like vacations)
Anything that is not considered a “need” or a basic living expense (such as health care insurance costs, rent/mortgage, groceries, utilities, etc.), I would cut out of my budget.
There is a lot of money to be saved on monthly, recurring expenses as well:
- TV bills
- Wifi bills
- Cellphone bills
- Satellite radio bills
There are services available to you, such as Truebill, that reach out on your behalf to these servicing companies and negotiate lower prices for you.
7. Review your Income
It’s always a good idea to review your income – especially if you are a freelancer or own your own business.
I feel like I have a running tally in my mind of how much money earn each day or week, but sometimes that number can be vastly skewed.
You can review your income either through a budgeting app or you can track your own income – for free – using an excel spreadsheet.
Yes, reviewing your income and expenses daily may be tiresome.
However, monitoring your finances doesn’t have to take hours on end.
In fact, if you have your budget under control, it could take you a few minutes to determine whether your finances are on track.
8. Increase your Income
You can boost your income in several ways:
- Cut your costs
- Increase your income
- Combination of the two
In this scenario, we are going to consider how you can increase your income.
Some options could include:
- Starting a side hustle
- Investing in real estate
- Filling out online surveys
- Investing in the stock market
If you’re interested in making more money then check out my favorite articles:
Start diversifying your income today.
9. Pay off Debt
So many people suffer from debt today.
Debt can virtually rob you of your future self.
Debt can take away your dreams of:
- Living stress-free
- Saving for the future
- Leaving a legacy for your family
In fact, debt can have people feel trapped and force people to change their life goals.
For example, debt may be a factor why people can’t:
- Start families
- Afford homes
- Take vacations
And what’s even sadder is that most college graduates start their adult lives in over $30,000 of student debt.
So to help you save for retirement and build a better tomorrow, it’s essential to get out of debt fast.
10. Review your Credit Score
Reviewing your credit score is imperative to understanding your current situation versus where you want to be in the future.
Your credit score is a 3-digit number that could make or break your financial future – especially as it relates to interest rates or whether you are approved for loans.
Below is a rule of thumb:
|Credit Score Rule of Thumb|
The higher your credit score
The lower your interest rate
And if your interest rate is lower, that means you save more money.
TransUnion is a credit monitoring apps that could help you better understand your financial situation and improve it.
With TransUnion, you could either apply for your free annual credit reports or you could sign up for regular credit monitoring services, which will typically cost you around $24.95 per month.
- Send you email updates with changes to your report
- Offer personalized help based on your financial situation
- Provide customized strategies to help you boost your credit score
- Give you access to a credit score simulator to see how future events can impact your credit score
The great thing is that your credit score is not permanent.
You can always boost your credit score if you follow some strategies, such as paying your bills on time, becoming an authorized user and more.
11. Prepare a Sinking Fund
One of my go-to strategies for managing money is to prepare a sinking fund for anticipated, major future expenses.
For example, if you know you’ll have to pay for:
- A new car
- A new roof
- College costs
- Life insurance bills
…Then it might be a good idea to set aside a small portion of your paycheck in a separate, high-yield savings account (to maximize your money) to pay for these future, anticipated expenses.
The worst thing that can happen is this:
You know you have to pay for future expenses, you fail to save for them, and then you’re left scrambling to find the cash to pay for these expenses. Ouch.
To avoid the scenario, I’d suggest doing this:
- Open your sinking fund using a high-yield savings account
- Set aside a portion of your paycheck toward a sinking fund
- Regularly move money into your sinking fund
Axos Bank offers competitive high-interest rates, given the market conditions, which could help you earn a little bit of extra money on your stashed sinking fund cash.
12. Save for Retirement
Although it might seem like retirement is far away (like 3 to 4 decades far away), it’s really important to start saving and investing for your retirement, beginning today.
Why is it important you start saving and investing for your retirement today?
That’s because of the power of compound interest.
Although you may not see a major impact on your investments in year 1 – or even year 9 – you will start seeing your total investment balance increase over the decades, if you continue to:
- Invest consistently
- Don’t withdraw money
- Don’t allow emotions to control your investments
Keep in mind that there are many different types of investment and retirement accounts out there to manage money like the pros.
Some of those plans include:
- Roth IRAs
- Joint accounts
- Traditional IRAs
- Individual accounts
If you do not have access to employer-sponsored retirement plans, like 401(k)s, 403(b)s or 457(b)s, for instance, then you can always open your own investment account, like with Rocket Dollar.
With RocketDollar, you can establish your own 401k (aka Solo 401k) and make contributions to that 401k just as you would a regular, employer-sponsored 401k plan.
In my eyes, the more you save today (even if you’re not earning 6-figures), the better your retirement will look tomorrow.
And if you are just not able to save 20% of your gross annual income this year – that’s perfectly OK.
My suggestion is to simply start somewhere and increase your savings/investing rate by 1% per year.
A gradual increase in your savings/investing rate will help you reach your ultimate goal, just possibly a little longer.
The most important takeaway here is to simply start.
13. Purchase Cost-Efficient Life Insurance
Life insurance can be expensive – and necessary.
If you haven’t taken the time to review your life insurance situation and you are currently in similar situations like below:
- You have or plan to have a family
- You have a spouse who earns less than you
- You have someone who is depending on your income
…Then it certainly is time to consider purchasing life insurance.
My favorite life insurance – especially for young professionals – is term life insurance.
However, if you’re a young professional and are considering forming a family in the future then I highly recommend for you to choose term life insurance.
You could obtain term life coverage of $1,000,000, for example, which may only cost you around $60 per month depending on your health status and several other factors.
My go-to term life broker is Policygenius.
PolicyGenius is a broker – which means that they don’t just represent 1 life insurance company.
Instead, when you request a quote from PolicyGenius, you can receive quotes from several different – and high-quality – life insurance companies, including (but not limited to) Lincoln, Prudential, Principal, etc.
14. Learn as much as you can
Knowledge is power – in any aspect of life.
So, the more you understand how to:
- Save money
- Invest money
- Build a network
…The better your future chances of success will be.
The more I learn about personal finance – and trust me, the learning process never stops – the better I can evaluate my current financial situation and make adjustments as needed.
With this statistic in mind, I would suggest that to manage money like the pros, you also have to keep educating yourself like the pros.
- Read books
- Listen to podcasts
- Learn from mentors
- Take online courses
Mindvalley is an excellent resource to learn the things you wished you were taught in the classroom from leaders around the world.
MindValley can teach you how to:
- Build your network
- Grow your influence
- Make a bigger impact
- Improve your leadership
Learn as much as you can, every single day, to help you master your personal financial situation.
The more you learn from others – both from their successes and their failures – the more time, energy and money you can potentially save.
15. Start Today
To manage money like a pro, you don’t need to be overwhelmed.
In fact, when you do the heavy lifting:
- Reviewing your budget
- Reviewing your net worth
- Automating your investments
- Setting up an emergency savings fund
The rest is actually pretty easy.
It’s just so important to monitor your finances regularly – and never lose sight of your financial goals, be it to pay off debt or to build a nest egg to retire early, etc.
Once you master the art of managing your money like a millionaire, you’ll be able to:
- Pay off debt
- Save for retirement
- Leave a lasting family legacy
- Free up time to do the things you want to do
But none of that will happen if you don’t start – and don’t consistently monitor your efforts.
Make sure to begin and implement your plan today.
FAQs about How to Manage Money
The 50-20-30 budget rule is a money management tool to help you allocate your after-tax income in the following 3 categories: Needs, wants and savings.
- 50% should be spent on necessary expenses
- 20% should be allocated toward savings
- 30% should be spent on any “wants”
The 50-20-30 budget rule is simply a rule of thumb – and I would argue that the 20% of savings should include retirement investments – not just a savings account.
There are several steps you can take to balance your money – and take back control of your financial future:
- Pay off your debt
- Analyze your income
- Analyze your expenses
- Cut out unnecessary expenses
- Save 20% to 30% for retirement
- Build an emergency savings fund
The hardest part is doing these things every day, every week, every year.
Without consistently monitoring your financial situation, chances are, you’ll likely fall short of your future financial goals.
You can take 3 basic steps to improve your money management:
- Start saving
- Pay off your debt
If you readily commit to these 3 money management goals, you will be taking back control of your money in no time.
There are several steps you can begin to take to improve your money management skills.
Below is a list of 5 steps that you can take today:
- Pay yourself
- Pay off your debt
- Build an emergency savings fund
- Cut out spending on unnecessary items
- Increase your income by building a side hustle
- Organize your financial picture by using a budget
The most important step is simply to start.
With a simple plan of action, you have the power to turn around your financial situation for the better.
Your financial picture is only as difficult and stressful as you make it.
If you decide to look the other way, and neglect your finances, you may be in for a rude awakening.
Instead, take some time – 30 minutes every week for example – to sit down and review your financial status.
Those 30 minutes you spend reviewing your:
…Could save you $1,000s and a lot of time.
Now that you read through this post, gathered some actionable ideas on how to manage money, it’s actually time to start.
If you want to follow in the footsteps of the wealthy then your first steps should include implementing these suggestions above.
Anyone can manage their money with success. It’s going to take time, effort, and consistently showing up.
Your bank accounts will thank me later.
Which money management strategy are you going to try? Let me know in the comments below.