10 Basic Rules of Money Management

a person at their table managing her money in her home.

We’ve been helping people be more financially responsible for nearly 50 years. We’ve boiled some of our most common advice down to 10 rules of financial management:

Rule 1: Plan Your Future.

Plan for the future, major purchases, and periodic expenses. You will not arrive on financial freedom parkway without a roadmap to guide you.

Practicing basic money management means having a plan.

Rule 2: Set Financial Goals.

Determine short, mid, and long-range financial goals. Continue to nurture and adjust your goals monthly. Evaluate your shortcomings and celebrate your achievements.

Write your goals down, as goals set out in writing are more likely to be achieved.

Rule 3: Save Your Money.

Save for periodic expenses, such as car and home maintenance. Save 5%-10% of your net income. Accumulate at least 3 to 6 months’ salary in an emergency fund.

Make saving a habit, and never break it; always have a planned, written goal that you’re saving toward.

Rule 4: Know Your Financial Situation.

Determine monthly living expenses, periodic expenses, and monthly debt payments. Compare out go to monthly net income. Be aware of your total indebtedness.

Knowing your finances involves another skill in basic money management: tracking. Track your income, your spending, and your debts. Make this a habit, just like saving.

Rule 5: Develop a Realistic Budget.

Learn to budget, and follow your spending plan as closely as possible.

Evaluate your budget. Compare actual expenses to planned expenses.

Rule 6: Keep a Record of Daily Expenditure.

How do you evaluate your budget? Keep tracking, even after you start living on your new spending plan.

Be aware of where your money is going. Use a spending diary to help you identify where adjustments need to be made.

Rule 7: Distinguishing the Difference Between Wants and Needs.

This seems like the most elementary aspect of basic money management, but most people don’t understand this well enough.

Take care of your needs first. Money should be spent on wants only after needs have been met.

If you’re having trouble drawing the line, ask yourself before any purchase: “How did I get by for so long without this?” The answer should help you separate wants from needs.

Rule 8: Don’t Allow Expenses to Exceed Income.

Avoid paying only the minimum on your charge cards. Don’t charge more every month than you are paying your creditors.

Get help from a nonprofit credit counselor if you find you’re spending more than you are taking in every month.

Rule 9: Use Credit Wisely.

Use credit for safety, convenience, and planned purchases. Determine the amount that you can comfortably afford to purchase on credit.

Don’t allow your credit payments to exceed 20% of your net income. Avoid borrowing from one creditor to pay another.

Just like all of the other spending in your budget, every purchase made with credit should be planned and budgeted for.

Rule 10: Pay Your Bills On Time.

Maintain a good credit rating. If you are unable to pay your bills as agreed, contact your creditors and explain the situation.

It’s easy to set sensible rules of financial management like these, but sometimes living by them is harder than it sounds.

Nonprofit credit counseling can help you make sense of your budget, plan to pay off your debts, and answer any questions you may have about your credit or personal finances.

Look for more free tips and basic money management advice in our FIT Academy.

If you have questions about how to manage your money, you can talk to our certified financial counselor for free. Contact us today to get started.

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.

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