Learn to Manage Money Better: 10 Ultimate Tips

If you're tired of constantly worrying about your finances, then you're in the right place. You want to finally learn how to manage your money better - it's super important for your life and also brave of you to want to take on this responsibility.

In this article, we'll show you our 10 ultimate money management tips that will help you get off to a great financial start. Let's dive right in.

1: Keep a Household Budget

From my personal experience, I save a lot of money every month by keeping a meticulous household budget. If you want to learn to manage money better, you can't avoid keeping a household budget. It's the fundamental tool to regularly check your income and expenses and see what money is left at the end of the month. Your household budget will show you where you spend a lot of money and where you have significant potential for savings.

There are three simple reasons why you should keep a household budget:

• Automatic wealth building through cost control
• Financially more relaxed life
• Protection against debt

2: Set Budgets for Your Expenses

With a household budget, you know what you're spending your money on. But to really save money and not spend it recklessly, you should set fixed budgets for different cost categories.

This means specifically that you define in your household budget how much money you want to spend per month at most for rent and utilities, groceries, insurance, clothing, mobility, leisure & hobbies, etc.

With these budgets, you set a monthly limit. No more money will be spent on this cost block. Budgets are small financial goals that you can achieve every month. Actually, you should always try to stay under your budget. This way, you positively influence your spending behavior and quickly learn to manage your money better. You will quickly get used to thinking in these budgets and sticking to them month after month.

3: Set Financial Goals

Having financial goals helps you manage your money with discipline. Once you've set a goal, you'll be motivated to achieve it.

These could look like this:

• Average savings rate > 20%
• Increase net worth by €10,000
• Increase income by 10%

By setting financial goals, you set your own benchmark for the time period. You will automatically learn to manage your money better because you want to achieve your goals.

4: Use an Account System

If you're interested in managing your money better, you should systematically organize your finances - and the easiest way to do this is with an account system.

An account system is a structure in which each account has a specific purpose. You allocate your money to different accounts for a specific purpose, ensuring that you don't spend it on anything other than what was originally planned. The main problem for many people is not that they have too little money, but that their money is visibly lying in their checking account and therefore they spend it. An account system solves exactly this problem.

The accounts in your account system could be:

• Household account
• Emergency reserve account
• Savings account
• Provision account
• Fun account
• Investment account

5: Build an Emergency Reserve

When it comes to money, the principle is always: safety first!

Before you invest money or treat yourself to something, you should always build up an emergency reserve for unforeseen circumstances. The emergency reserve is your financial safety net for worst-case scenarios, such as losing your job or a large, unexpected expense. There is no golden rule for the size of the emergency reserve. A guideline is three to six times your monthly expenses. With this money, you have enough buffer to, for example, compensate for the loss of your salary for a few months. Your emergency reserve should be easily accessible. So, open a savings or checking account and accumulate your emergency reserve there. This money is NEVER used for any other purpose, only in an absolute emergency.

6: Automate Savings and Investments

Many people save and invest only the money that is left at the end of the month. Unfortunately, this often means that there is nothing left to save or invest at the end of the month. So do it the other way around and pay yourself first!

Save or invest a fixed amount directly after your salary is deposited at the start of the month. Simply set up a standing order that transfers the money from your salary account to another account or the settlement account of your portfolio.

The advantages are obvious:

• You actually save or invest every single month.
• Automation saves you time and takes the monthly decision off your hands.
• You discipline yourself in handling your money.

Since you will have less money available at the beginning of the month due to the automated saving or investing, you will also spend less. You're basically making yourself "poorer" than you are, forcing yourself to learn to manage your money better.

7: Monitor Your Daily Money Management

Our daily handling of money is a learned pattern. Here, there are often significant savings potentials that we do not properly recognize.

Do you recognize yourself in some of these "small" daily expenses?

• Daily bread roll at the bakery
• Coffee to go on the way to work
• A pack of cigarettes at the kiosk
• Snack at the gas station

Small expenses can add up to a substantial amount of money over the course of a year. And over an even longer period like 10 years, a small fortune can accumulate. So, it's worth it to examine your daily handling of money. Make a list of your small, regular expenses and calculate what they will cost over 10 years.

8: Reward Yourself

If you want to learn how to better manage your money, it's important to occasionally reward yourself. This might sound contradictory, but it's not. If you're solely focused on living as frugally as possible, it can quickly become frustrating. Suddenly, you may feel like you can't indulge in anything and must forego all comforts. This could ironically make you unhappy, despite better managing your finances.

Therefore, it's important to occasionally allow yourself things you simply desire. A new pair of jeans, a meal in a restaurant, a concert with your partner – these should be possible from time to time.

Properly managing money doesn't mean restricting yourself to the point of unhappiness. It's more about consuming consciously and following the right financial rules. That's why I have set up a 'fun account' in my own financial system. The money I transfer there is for me. I spend it on things I want, without having to justify it to anyone. A separate fun account also helps avoid financial disputes with your partner.

9: Avoid Lifestyle Inflation

After a raise, you suddenly have more money available, but your expenses increase just as quickly. Thus, your extra income directly flows into higher spending. This phenomenon, where expenses rise with income, is called lifestyle inflation. In other words, expenses grow as money becomes available.

To better manage your money, it's crucial to be aware of this phenomenon and recognize it in your own life. Lifestyle inflation is a dangerous financial automatism with serious consequences.

To counter lifestyle inflation and improve your money management, consider the following tips:

• Be aware that consumption won't make you happy in the long term.
• Plan your expenses in budgets.
• Pretend to be poorer and hide your money from yourself.

10: Talk to Your Partner About Money

Money can be a frequent source of conflict in relationships. Therefore, it's important to openly discuss finances in your partnership and ideally find a common approach to money with your partner. This not only prevents disputes but also makes it more enjoyable.

The following questions can help tackle the topic:

• What role has money played in your lives so far?
• What purpose does money serve for you?
• How has your handling of money been shaped so far?

Then, consider setting joint financial goals. How much do you want to save next year? How much to invest in ETFs? What amount is necessary for your financial freedom? Openly discussing money, its significance, and your financial goals helps you manage finances better as a couple. You'll understand why your partner acts the way they do.

Make it a habit to regularly talk about money and review shared goals. If you see proper money management as a joint project, you'll also be financially successful as a couple.