Joseph Reinke CFA
I hope you enjoy reading this blog post.

If you want our team + technology to help with your finances, click here.

Joseph Reinke, CFA
I hope you enjoy reading this blog post

If you want our team + technology to help with your finances, click here.

How To Manage Money Wisely

  • FitBUX
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  • How To Manage Money Wisely

There are many blogs, videos, and podcasts discussing how to manage money wisely as well as money management tips for beginners.  However, whether you are a beginner or have experience managing your money, most articles and videos miss one of the most important tips  to make your “money life” easy.

In this article, I’ll be discussing how to manage money wisely so that money complements your life and doesn’t dictate it!  You’ll want to read to the end of this article because knowing this tip will make managing your money extremely easy!

The Big Tip: It’s All About Percentages

Most articles telling you how to manage money wisely focus on cutting expenses or cover topics such as “Start an Investment Strategy.” These items might be great but do not focus on the “How To.”  Therefore, people don’t know where to start or they read a superficial article highlighting where to start and proceed incorrectly.

The biggest mistake people often make is that they think in absolute terms, dollars and cents. They will list out the items in a budget then look at the dollar amounts in order to make decisions but will often end up making the wrong decisions because they are not looking at things in context.

Let’s use an example:

Many members of FitBUX will build their profile then ask us an absolute question, such as: “I put in all my income and expenses into my online FitBUX profile.  Is $1,200 a month to my student loans a lot?”

This is thinking in absolute dollar amounts. When it comes to managing money wisely, absolute dollar amounts mean absolutely nothing. You have to make it relative!

In order to make it relative, you have to look at percentages, i.e. what percentage of my money is going where. Once you have a sense of that allocation, you can look at adjusting those percentages if needed.

Making money relative will make organizing your finances, planning and implementing your plan extremely easy.  I detail how below.

How To Manage Money Wisely By Understanding It Correctly

When you build your financial plan, there are three basic steps: understand where you are today, create your financial plan, and then, implement your financial plan…and follow it!

When it comes to understanding where you are at today, instead of looking at the absolute dollar amounts, make everything relative to your total income. 

By looking at percentages, it makes it very easy to determine where you should focus your time (and hard-earned money), especially if you are going to try and cut expenses.

For example, your phone bill might be .2% of your overall budget but your rent is 17%.  I would focus on trying to determine what you could do to save on rent relative to your phone bill. Getting a roommate instead of living solo might require sacrifices, but they may very well be worth it. However, purely from a money management standpoint it has a much greater impact than saving $10 a month on a phone bill.

How to manage money wisely looking at percents

How To Manage Money By Planning More Wisely

Once you understand where your money is going, you can allocate your funds very quickly by dedicating a percentage of your income to your financial goals.

When you are looking at the percentages, it becomes much easier to follow a simple process. Ask yourself, “What is my most important goal?  Is that where I have the greatest percentage of my money going? If not, what do I need to do to ensure that a larger/the largest percentage of my income goes towards my top goal?”

Biggest Tip Of All

DO NOT USE AFTER-TAX INCOME or NET PAY TO CALCULATE THOSE PERCENTAGES. 

By building your plan based on total (gross) income, you are able to: 

  • Calculate percentages and see where the bulk of your gross money is going;
  • Visualize how the impact of taxes
  • See how tax-advantaged accounts (401k, 403b, Roth IRAs, HSAs, etc…) will or will not help you in the long run; and
  • Compare employee benefits such as 401k matches and student loan payments and the impact this would have on your overall financial picture if you’re considering exploring new opportunities.

Implementing Your Financial Plan Easily

You need an easy way to implement your plan, hold yourself accountable, make updates when life events happen, and update your plan when you achieve a goal.  When you start thinking in percentages, things become much simpler.

Implementing Your Plan & Accountability

When people get pay raises, bonuses, tax refunds, inheritance, etc., they often panic and spend hours updating their plan.  They are trying to figure out what they should do with these new found dollars.

When you manage money wisely and develop your plan using percentages this is an easy, no-brainer decision.  For example, you already know what percentage of your money should be going to investments and paying off debt.  Therefore, if you get a raise, just multiply your new income by the percentage going to investments and debts then move on with your life.

The same thing happens when you get a bonus for example.  Allocate the percentage according to your plan.  If there is a left over amount once you’ve done that, you can either put as extra towards achieving your goals OR YOU CAN ENJOY IT and go out to dinner, plan a vacation. This is what we call “Remaining Cash/Fun Money”.

When you track your income allocation as a percentage of your total income and your income goes up, you should be increasing how much you pay towards debt first in our opinion. This becomes more and more beneficial as interest rates increase.

This is one feature of FitBUX’s financial management technology our Members love.  It automatically holds them accountable.

Update Your Financial Plan When Life Events Happen Or You Achieve A Goal

Maybe your wife totals one of your cars (yes I’m speaking from personal experience here…).  You didn’t plan on having a new car loan but you now don’t have a choice. You will want to know how much you can afford, what adjustments you need to make to your plan, and how it impacts achieving your goals.

By managing your money wisely, you can easily deduct a percentage of your money from your financial plan and reallocate that percentage to your new car loan.  You can then easily compare scenarios and determine whether you need to adjust your goals. 

For example, should I pay the minimum on my new car loan and continue with my other goals, or should I focus on paying off the car loan aggressively then go back to my previous goals?

By using FitBUX’s technology, you can compare these scenarios in seconds. And this is all because you focus on your allocation as a percentage of your gross income instead of absolute dollar amounts.

Conclusion

In summary, do not try to understand your financial situation, build a plan, or implement your plan by looking at absolute post-tax dollar amounts. Doing so would waste a lot of time and likely increase your stress level.  This means you are letting money dictate your life.

By making money relative and asking yourself, “What percentage of my money is going where?” you are going to make your financial life a lot less stressful.

Thus, making money complement your life instead of dictating it and that is how you manage money wisely.


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