7 steps to manage money effectively

focus photography of person counting dollar banknotes

How you use your money determines your financial well-being, so you have to learn how to adopt the right strategies


We would be lying to ourselves if we claimed that money does not play a major role in our lives. With money we pay the rent of the house, the bills and why not, we allow ourselves holidays and pleasures that improve the quality of our life .

Money management , however, remains a thorny issue, as many are overwhelmed by the feeling of never being able to keep their financial situation under control.

Well, in this new article we will try to understand what you can do to better manage your money by adopting some simple best practices.

Money management: the absolute beliefs you need to give up 

A very common mistake of absent or bad money management is the following: not giving the right meaning to every single expense .

Spending money is not an activity that has to do with our emotional state, so spending does not make you happy.

If you think about it, buying involves limited emotional gratification that doesn’t last long . Likewise, not spending could create a sense of frustration if our financial resources are insufficient to meet our spending needs.

Megan Walls , coach for the American agency Conscious Connection, speaks in these terms:“Spending money can make people feel better, and that depends on everyone’s emotions. Emotions are what make us feel good or bad for how we spend money. If we shop for instant gratification, to feel better, we’re trying to fill a void like loneliness or give ourselves meaning. “

Added to this is the fact that spending too much (and compulsively) or not spending at all (saving excessively) are both wrong and counterproductive behaviors. For this reason, the management of your money must not be conducted with approximation and without planning, but a defined strategy will allow you to understand how much and when to spend, contributing to your financial serenity.  

Money management: 7 practical tips 


1.    Have an overview of your financial situation 


You don’t realize what you are really doing with your money until you sit down at your desk or sofa and carefully record everything that happens to you throughout the day, including expenses.

So what you need is just a little time, pen and paper, or if you prefer digital support and your willingness to write down all the income and expenses that occur monthly. To help you, you may want to keep invoices for the most important expenses.

This will help you to always have all the movements of your portfolio at hand and avoid the surprise effect like: “where is all the money I earned? “.  

2.    . Set SMART financial goals 

Once you have defined what you want to do with your money, you will need to set SMART financial goals : specific, measurable, achievable, relevant and time-oriented.

Here is an example of a SMART goal: I have to pay off a debt of 5,000 by December 2022. As you can easily see, this approach will always be successful because it gives you all the elements necessary to act precisely in a specific direction.

3.    Set your budget with the 50/30/20 rule


The 50-30-20 principle is a quick and easy way to manage your money. In practice, the numbers indicate the percentages through which to divide your money and allocate it for different purposes. What you will have to do is therefore first of all understand what percentage exactly your expenses fall into.

In essence, the 50-30-20 rule can be summarized as follows:

• 50% of your paycheck must always be reserved for necessary and essential expenses . For example: the cost of rent certainly falls within 50%;
• 30% of your salary should be reserved for what you like best . Specifically we are talking about hobbies and various interests;


The 20% of the money you get instead you should use it to reach the different savings goals .

4.    Create an emergency fund 

The future scares everyone, especially since the pandemic has reminded us that really anything can happen and that we cannot be caught unprepared. One tool that definitely helps us feel safe is an emergency fund. 

First of all, you need to have a clear idea of ​​how much money you want to allocate to the fund. In this regard, it is important that this money must be able to cover a maximum period of 6 months for all the main expenses you incur on a daily basis (an example is rent and bills).

To save money, you must first identify unnecessary expenses and eliminate them, according to your financial planning .


A last but very important trick is to avoid falling into the temptation to get involved easily, it is highly recommended to deposit that money in an emergency fund used exclusively for this purpose. In fact, if you decide to group the money destined for multiple purposes (holidays, weddings, etc) you could easily draw on that money indiscriminately, frustrating all your efforts.

5.    Diversify your income, I.e create extra streams of income 


A rule that allows you to manage your money better is to diversify your income. But why should you do it? Simply, because you can’t just rely on your full-time salary, especially with uncertain times.

Being able to count on extra income will help you overcome future uncertainty.

6.    Create an effective debt repayment strategy 


The debt? Definitely a cumbersome obstacle to achieving your savings goals and effective management of your money . As a result, you will need a strategy that will help you steer clear of commission costs that could aggravate your debt situation and pay them off quickly.

The first piece of advice that is really effective is to set up automatic payment methods to make sure you don’t fulfill your obligations on time.

Secondly, you should decide how to concretely manage the repayment of debts: do you prefer to pay off the higher debts first and then move on to more debts with a lower amount or vice versa? When determining the amount per month, consider that the sooner you pay off your debt, the less interest you will pay.

7.    Willingness is not enough to manage your money well  


We all want to save money. The will, the motivation are important for the achievement of any goal, but unfortunately they are not enough . It happens very often that after paying rent, bills and groceries, there is nothing left to set aside.

This is precisely one of the reasons why you need to put your savings aside before making your own expenses. How? You should automate the provision of 20% of your salary for the various savings purposes.

Also, you don’t have to worry about not being able to allocate exactly 20% of your salary, as the percentage is indicative and what matters is that you make savings an established habit. 

Money management: investing is always good if you know how to do it

You can’t help but think about investing if you want to learn how to manage your money more consciously.

In fact, investing and saving are two activities you should familiarize yourself with as soon as possible. Also, if you make your investment activities frequent, you can take advantage of extra income that will only benefit your portfolio.

There are many investment tools that allow you to make extra gains : rely on traditional investments such as stocks and bonds or focus on alternative investments such as real estate crowdfunding .

Our platform, born in April 2019, has already achieved important successes, to the point of being the first real estate lending crowdfunding platform in 2020 . Thanks to Ethical Return you can invest in real estate, starting from just 500 euros and make your loans low-risk with diversification.



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