Why Money Management Is Important (6 Huge Benefits)

Although we love the idea of helping you find ways to make extra money at Eureka Surveys, income isn't everything. According to a survey by PYMENTS, 40% of high-income earners in the United States are still living paycheck to paycheck.

While part of this is due to the increased cost of living we're all currently facing, lifestyle inflation -- the act of spending more as your income increases -- also plays a big role.

This is just one example of why money management is important.

Another group that supports this point? Lottery winners. Take a look around the web and you'll find multiple stories of millionaire lottery winners spending their entire winnings with nothing to show for it in the end. If those winners had instead taken some time to come up with a plan and invested a portion of their winnings properly, they could've potentially lived off of the interest alone.

Below, we're going to share six more reasons why you should be just as focused on effectively managing your money as you are on making it. We'll also guide you toward some resources to help you start properly (and productively) managing your money today.

But first:

What Exactly is Money Management?

Simply put, money management is everything you do with your money after you earn it. That includes saving, spending, and investing, along with important financial planning skills like goal setting, budgeting, and expense tracking.

Why are these skills important? Let's find out:

6 Massive Benefits of Effective Money Management

Now that you know what money management is, let's look at some of the ways it'll improve your finances (and your life):

1. Goal Setting

According to Debt.com, only 30% of Americans have a long-term financial plan that includes savings and investment goals. The other 70%? They're essentially winging it!

As Zig Ziglar once said, "If you aim at nothing, you'll hit it every time."

Fortunately, as soon as you start learning how to manage your money effectively, one of the first basic personal finance principles you'll come across is goal setting. And once you start setting financial goals, you give yourself a reason to start managing your money more carefully.

This sets off a domino effect, leading to all of the other benefits below. Starting with one of the most important:

2. Less Wasted Money

As soon as you start setting financial goals and crunching the numbers on said goals, you'll quickly realize that there's only so much money to go around. A dollar spent in one place means a dollar less spent somewhere else.

Of course, you can always make extra money with your phone or start some other side hustle to bring in a few extra hundred bucks a month (we encourage it!), but even then, your money supply will always be limited. That means in order to hit your goals, you'll need to prioritize how and where you spend your money.

This might lead you towards cutting out some unnecessary expenses (like those unused streaming subscriptions) or reducing your current costs on things like rent, groceries, your internet/phone bill, and other necessities.

It'll also encourage you to find creative ways to stretch your dollar further. Whether it's by shopping at thrift stores, using cashback apps to save money at the grocery store, or something else, being more involved in your finances will make you a much more savvy consumer.

Before you know it, you'll be paying your credit card bill in full every month, building your credit score, and optimizing the financial side of your life for maximum savings of both money and time.

This leads us to our next benefit:

3. More Efficient Finances

Just like with anything in life, the more you think about how you're managing your money, the more efficient you'll become at it.

Here's an example of how:

In order to accomplish many of your financial goals, you'll need to save money. That's obvious. And if you're already saving money, great. But, are you saving enough to reach your goals in the desired time frame? Are you socking your money away in the right place? Are you making things easy on yourself?

By asking these questions, you might realize:

You could save more money by switching to a fee-free bank accountYou could earn a better interest rate on your cash (and reduce the chances of accidentally spending your savings) by using an online savings account You could save a ton of time by automating your deposits

These are just three examples of easy things you could do to make your savings more efficient. Almost every other area of your finances (think:your investments, budget, bills, debt payments, etc.), can be optimized and improved upon in the same way -- by being curious!

To get started, think about an area of your finances that you're currently not 100% happy with. For example, is your budget not working out as planned? Do you keep missing credit card payments? Are you making impulse purchases that you end up regretting? Does your phone bill seem higher than it should be?

Once you have a few areas of improvement in mind (here's a helpful list of questions if you still can't think of anything), start researching and working on solutions.

Repeat this process regularly and your finances will become more and more optimized over time.

4. Improved Money Mindset

Each of us has our own set of unique financial habits. These habits are typically ingrained in our minds from past experiences, and they're what make up our money mindset.

As an example, I myself am a frugal saver. I like to find good deals, save money, and avoid debt. While these tendencies are mostly good, sometimes they cause me to forget to actually enjoy my money, which is something I only realized after I started paying more attention to my finances.

By uncovering your own money tendencies, you'll be able to find ways to improve your relationship with money too.

To start, take a look at this list of five general money personalities, and see if any of them sound familiar:

Big spenders (people who love to buy extravagant things like cars, fancy jewelry, the newest tech, etc.)Savers (people who love to accumulate money)Shoppers (people who find joy in buying stuff, even if they don't need it)Debtors (those who are typically in deep debt without a plan to get out)Investors (those who are aware of their finances and want to put their money to work)

Keep in mind, you may be part of one of these categories or multiple. You may also have tendencies that fit outside of the five personalities above.

What's important is realizing the little habits and preconceived notions you have when it comes to your finances. That way, you can start working on balancing things out.

For example, if you're a hardcore saver like I am, remember to enjoy your money every once in a while! If you're a big spender, set goals for those big purchases and make sure they fit into your long-term plan. If you're a debtor, start working on a debt payoff plan and get outside help if needed.

The more you understand your money personality, the easier it'll be for you to live a healthy financial life. Leading to our next benefit:

5. Less Stress

In a financial wellness survey conducted by PwC, 65% of women and 52% of men said financial matters were the number one cause of stress in their lives.

Similarly, in a survey conducted by Ally Financial, more than one-third of Americans who are married or in a serious relationship reported money as the number one cause of stress in their relationship.

Of course, improving your money management skills won't eliminate your financial stresses overnight. In fact, if you're in a bad situation (e.g. you have a lot of debt) diving deep into your finances might actually make you more stressed at first. But, as you break down the numbers and work out a plan, you'll start to see the light at the end of the tunnel.

Over time, as your finances get more organized and you become better prepared for the future (i.e. by setting up an emergency fund, paying off your debt, creating a retirement plan, etc.), you'll start to feel much less stressed and much more optimistic about your financial situation.

6. Increased Income

Now we've really gone full circle. At the beginning of this article, we told you income isn't everything. And it's not. But, a good income combined with great money management skills? Now that's a force to be reckoned with.

By focusing not only on generating an income but also managing that income properly, you'll find ways to turn your idle dimes into dollars through the power of investing.

Just look at Ronald Read as an example. As a janitor, he earned a modest salary throughout his entire life, but ended up accumulating a net worth of over $8 million by the time he passed away -- all thanks to the power of great money management skills and some stock-picking prowess!

Investing isn't the only way your money management skills will help you earn more either. If you ever decide to get serious about starting a side hustle or business down the road, your financial planning skills will be a huge asset there as well.

How to Start Managing Your Money the Right Way

Now that you know why financial planning is important and how it can benefit you, you're probably super excited to get started!

...

Ok, maybe you're not that excited. Well, don't worry. Getting started is pretty simple and it doesn't have to take up a lot of your time.

For a quick intro, check out our beginner's guide to making a budget and sticking to it. It doesn't cover everything related to money management, but it'll teach you how to set goals, track your expenses, decide where to allocate your money (and how much of it to set aside in each area), and it'll show you how to do a simple monthly money check-up to keep yourself on track.

Once you've read that, check out our guide on how to invest with little money. There, you'll find some ideas on what you should do before you start investing, plus several different ways to invest your cash once you're ready -- even if it's only a small amount!