Understanding how to manage your finances is a skill often overlooked in traditional education. Tracking expenses and saving money are essential lessons that many of us missed. Alarmingly, only 24 states require personal finance education as of 2024.

Let’s explore fundamental financial habits you can adopt to improve your money management skills.

Understanding Your Financial Mindset

Money can evoke a range of emotions, from anxiety to greed, which can hinder your financial journey. Recognizing these feelings is the first step toward a healthier relationship with money.

“We absorb emotional cues about money from a young age, often before we fully grasp its concept,” states Tana Gildea, CFPR, CPA. Reflect on your feelings about earning, saving, and managing money. If you lack a positive outlook, your financial experiences may not be fulfilling.

Ideally, you should develop a genuine interest in your finances and find joy in budgeting and expense tracking. “You must consistently monitor your finances, and once you start, keep it up,” advises Daniel Trezub, founder of SaveWithDan. “Feeling in control of your finances is invaluable.”

Communicating About Money

Discussing finances can be more challenging than it seems, especially with loved ones. Money communication expert Syble Solomon, a financial therapist, emphasizes the importance of regular discussions outside of crisis situations.

“Successful couples often schedule quarterly ‘money dates’,” Solomon explains. “A relaxed dinner or coffee can set the stage for productive conversations, avoiding conflicts regarding bills.”

Conversations about money within families are just as crucial. As parents age, financial discussions about caregiving and estate planning become necessary.

“Family money talks can quickly escalate,” Solomon warns. “Use the acronym HALT to avoid discussions when someone is hungry, angry, lonely, or tired. Start with general financial topics before diving into specifics.”

Living Within Your Financial Means

To achieve lasting financial success, it’s essential to adjust your lifestyle to live below your means. “This principle is vital for financial wellbeing,” notes Deana Arnett, CFP, CRPC.

Begin by tracking your spending to identify areas for potential savings. The FinanceFixx money makeover program emphasizes this step, guided by a financial coach to help you pinpoint weaknesses. Make this a continual process rather than a one-off task, as advised by Chantel Bonneau, a financial advisor.

“Keep an eye on discretionary spending to see where adjustments can be made, directing funds toward meaningful goals like a home down payment or a vacation. Use an app, journal, or accountability partner to stay on track.” Living below your means might involve finding joy in non-material things, purchasing a used car, or seeking discounts. It could also mean cutting back on minor expenses,” says Jason R. Hastie, CPA.

Improving Your Budgeting Skills

“Many associate ‘budget’ with restrictive dieting, sacrificing comfort for long-term gains,” shares financial planning coach Mindy Crary. “However, managing your finances should be viewed as a lifestyle choice rather than a temporary fix.”

Consider a “balanced budget” like a balanced diet. Budgeting is a key focus of our 8-week program because effective money management starts with your budget.

A practical approach to budgeting is to establish three budgets: low, medium, and high. “The low budget is for times when you earn less or are saving for something special,” explains Chellie Campbell, author of “From Worry to Wealthy.” This flexibility ensures you don’t feel deprived, making it easier to stick to your financial goals.

Prioritizing Your Financial Goals

Determine what really matters when allocating your finances. “Identify your priorities, whether it’s housing, travel, or entertainment,” advises Gildea. “If you’ve opted for an expensive apartment, ensure that aligns with your values.”

To ensure your spending reflects your priorities, consider maintaining two separate accounts: one for necessities and another for discretionary spending. This will help you monitor your spending habits more effectively.

Saving with Purpose

Don’t save aimlessly; instead, align your savings with specific financial goals. “Understanding how your savings contribute to your future objectives is key,” suggests Crary.

Establish a rainy-day fund separate from emergency savings. “Rainy-day funds cover unexpected expenses that arise a few times a year,” explains financial planner Lori Atwood, RFC. For urban families, having $3,000 set aside is ideal, while singles or couples renting should aim for $1,500.

Retirement Savings Strategies

Many individuals adopt a “set it and forget it” approach to retirement savings, which can lead to pitfalls later. “When you join a retirement plan, don’t just select the simplest options and neglect to review them,” warns financial planner Mina Ennin Black.

Be proactive with your retirement investments. “Diversifying your portfolio is crucial to minimizing risk,” advises Alisa Wilke, managing director at SALT, a resource for young adults.

Look for 401(k) plans offering ‘target-date’ mutual funds that automatically adjust your investments over time. “These funds become more conservative as your retirement date approaches,” Wilke explains. If you’re not utilizing your employer’s 401(k) match, you’ll need to save significantly more later to compensate.

Effective Spending Tracking

Your approach to tracking expenses should resonate with your personality. Avoid trendy apps or methods that don’t suit you.

“Select financial habits that align with your preferences,” Atwood recommends. “Everyone should monitor their spending in certain areas like groceries and discretionary expenses. Find a tracking system that works for you, as consistency is key.”

If you're seeking a budgeting app, consider YouNeedABudget (YNAB) or Empower as popular options. You've got this!