What is Personal Money Management?

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  • Written By: Sheri Cyprus
  • Edited By: Heather Bailey
  • Last Modified Date: 28 January 2020
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Personal money management refers to how an individual handles all aspects of his or her finances or income. Money management includes investing, savings and budgeting. It's also about handling debt and credit. The most important part of personal money management is tracking how money is spent and spending it on needs before wants.

If people buy what they want before what they need, there may not be enough cash to pay living expenses and bills. This situation can lead to spending over one's income by acquiring credit card debt. Having credit card debt is considered bad financial management since high interest rates are charged and non-payment or missed payments can lead to a poor credit rating. Having a poor credit rating means having a reputation for not being trustworthy to pay off bills. Getting credit approval on important items such as a home mortgage or car loan may be difficult for people with a poor credit rating.


Taking personal money management seriously means that it's crucial to choose home or car loans carefully. Buying a house, car or other large item that is out of one's budget can lead to missed payments and a default on the loan. Defaulting leads to not only a bad credit rating but the possibility of losing the item, such as through bank foreclosure on a home. Foreclosure occurs when one or more payments are missed and the bank takes back the property to sell to recover the amount of the unpaid payments.

Financial experts often advise people to make a budget as well as keep track of spending by writing down each amount of money spent. Without doing that, it’s often easy to spend more than one thinks is being spent. Spending money wisely by sticking to a budget is a crucial part of personal money management as it helps ensure bills and other needs get paid. Although budgets may feel constricting, they also help people decide what they want to spend money on rather than just buying impulse items.

Responsible personal money management includes both saving and investing wisely. It takes research and good decision making skills to decide if an investment such as a piece of real estate is a wise investing opportunity, or if the money would be better off being saved. Many financial experts recommend having savings equal to at least six to eight months of one’s monthly expenses. This way, if a job loss or other financial catastrophe occurs, there will be at least some money to last until new income is produced.



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