How to develop a money management plan

A money management plan can help individuals stay on top of daily expenses and save for the future. Digital tools can help make the process easy, convenient, and personalized based on unique financial situations.

Why is a money management plan needed?

A money management plan can help individuals manage personal finances and work toward achieving long-term and short-term goals. These could include:

• Savings. Allocate and save funds for specific savings goals, like an emergency fund or a vacation.
• Avoiding debt. Monitor spending and increase financial awareness to avoid debt.
• Making informed decisions. Get a clear overview of income and expenses to manage bills and other expenditures.
• Reducing financial stress. Make a plan to secure finances and know that financial goals are on track to reduce money-related stress and anxiety.

Step-by-step guide to building a money management plan

A comprehensive budget plan that tracks income and expenses helps to provide a clear path to financial stability.

Here's how to set financial goals and track expenses to create a budget plan effectively.

Step 1: Gather financial information

The first step is to collect all financial details, including:

• Income sources, like a primary job, side hustles, investments, and any other income.
• Recurring expenses, such as rent, utilities, and different types of household expenses.
• Non-essential spending, like entertainment and dining out.

Step 2: Choose a tracking method

The next step is to choose a method to track finances:

• Budgeting apps can automatically track spending, offering convenience and accuracy. But they might have additional fees.
• Spreadsheets, like Microsoft Excel or Google Sheets, can be customized to individual needs. However, they require regular manual updates.
• Pen and paper are good for beginners but are more error-prone than digital methods.

Step 3: Set SMART financial goals

Next, set financial goals that are:

• Specific. Define clearly what to achieve.
• Measurable. Set a specific amount to track progress.
• Achievable. Ensure the goal is realistic.
• Relevant. Make sure the goal fits overall financial plans.
• Time-bound. Set a deadline to reach the goal.

A SMART financial goal could be: "Save $5,000 for a vacation in the next six months by setting aside $833 each month." SMART goals provide clear targets that may help improve the chances of success.

Step 4: Analyze spending habits

To analyze spending, categorize expenses into essentials (like housing and food) and non-essentials (like entertainment and dining out).

For expensive essentials, explore cheaper alternatives or consider maximizing savings by using cash back apps. For non-essentials, consider which expenses to reduce or eliminate.

Step 5: Create a budget

To create a budget that addresses savings and expenses, consider the 50/30/20 rule. It allocates 50% of income to necessities, 30% to wants, and 20% to savings and paying off debt.

Choosing a specific budgeting strategy will depend on each individual’s needs, so evaluate all options to find the right fit for one’s situation.

Step 6: Consider automating finances

Automating personal finances can improve financial discipline. Automated savings apps, for example, automatically transfer funds into a savings account. PayPal Savings¹ allows users to setup automatic transfers into their account and allocate funds to specific goals.

Another example is scheduling automatic payments for recurring bills, which can help save time and avoid potential late fees.

Step 7: Regularly review and update budgets

Regularly review the budget to ensure it aligns with changing goals and life circumstances. If one’s income, expenses, or spending patterns change, the budget should be updated to reflect this.

Examples of money management strategies

There are different strategies to manage money. Some examples include:

• Daily expense tracking to get a clear picture of where money is being spent.
• Budgeting tools or budgeting templates to help visualize and stick to financial plans.
• 52-week savings challenge to help save a little more each week throughout the year.
• Rewards programs to earn cash back or perks on everyday purchases.
• Budgeting tips such as planning meals, negotiating bills, and unsubscribing from unused services.