Managing Personal Income More Effectively: 7 Steps for 2023

Going into 2023, one of the most effective things you can do is to ensure that the money you receive in exchange for your time and skills is used in the most beneficial manner possible. Simply put, knowing how to manage your own personal income goes far in maximizing the associated benefit of said funds. It’s all about efficiency, and I’m all about that. See my morning routine post for the obsessive nature I have, and am thus passing it on to you.

That being the case, with a blueprint of seven steps alongside a few associated questions, you can easily maximize your personal income to be as effective and low-risk as possible going into the new year. Those steps are:

  1. Budgeting and reducing expenses to set realistic goals
  2. Building an effective emergency fund from personal income
  3. Embracing employer-sponsored matching funds
  4. Paying down high- and moderate-interest debts
  5. Saving for retirement in an IRA, plus higher education expenses
  6. Saving more for retirement or financial independence
  7. Continue saving with advanced financial methods

Below, I dive into each one of these steps in detail to ensure that your personal income is handled most effectively to maximize benefit in 2023 and beyond.

1: Budgeting and reducing expenses to set realistic goals

The very first thing that should be done is to develop a budget. Crucial to a strong financial footing is being keenly aware of where your income is being allocated. Budgeting assists greatly in helping you see your different sources of income minus your expenses.

Many routine expenses can be sectioned off into the following six crucial budgetary categories:

Housing (Mortgage or Rent)

Clearly one of the most important expenses, and one that should be considered first and foremost, is housing. If you (or the bank) own your home, alongside your mortgage you will be likely paying homeowner’s insurance, and in some cases PMI (private mortgage insurance).

If you are a renter, in many cases the landlord or homeowner will require you to have renter’s insurance. These associated insurances should be included and lumped into the essential cost of housing.

Sustenance (Food and Groceries)

This is also a no-brainer. Groceries and food, outside of housing, is the most important thing you could possibly budget for. This amplifies when you have dependents counting on said income for their survival (children, spouses, elderly relatives, pets, etc).

However, depending on the severity of your situation, as well as your individual needs, you may want to switch the priority of sustenance with essential items and utilities below.

Essential Items and Utilities

This is a category of budgeting that encompasses such things as:

  • Power and water bills
  • Heat or other forms of electricity
  • General toiletries
  • Other necessary essentials

Ensuring you properly budget for these is crucial for obvious reasons. I don’t think I need to go into too much more detail about why these are important. Pay your bills, pay your utilities. Keep the lights on and your home properly temperate.

Income-Earning Expenses

This category represents anything that is needed for you to continue earning an income. One example of this is necessary expenses for transportation for those who commute back and forth to work. This includes car payments, car insurance, and money for gas and repairs if you own a vehicle. Conversely, passes for public transportation, maintenance for bicycles, and the like for those who do not drive.

If your work involves the use of computers like many of us, additional income-earning expenses would be Internet service and cell phone bills and payments.


Much like food and groceries, this is a no-brainer. Taking good care of your health, in advance, is not only a long-term financial benefit but can obviously be a life-saver as well.

Expenses and budgeting in this category include both health insurance and relevant healthcare expenses, such as co-pays, medications, and the like.

Minimum Loan/Debt Payments

The final thing to ensure you properly budget for is the minimum payments on both loans and relevant debts. That includes things such as student loans, credit card payments, and any other relevant loans or debts that may be outstanding.

2: Building an effective emergency fund from personal income

After you handle your budgeting process above and your crucial and routine expenses, it’s time to work on starting your emergency fund.

Build a small emergency fund

You should plan to set aside either $2,500 or one month’s worth of expenses, whichever is the higher of the two numbers. If your income is low, $2,500 may seem daunting. However, if you make $15 per hour and stretch the building up of your emergency fund from zero to $2,500 in one year, it is only $1.25 per hour for one year for full-time workers.

Pay off any non-essential bills in full

Non-essential bills include things such as cable, Internet, phone (if not job-relevant), and then things such as streaming services, additional entertainment-related bills, and anything else that is a routine payment but may not be considered an essential purchase.

Basically, things that you can live without, but would prefer to pay for and have on hand and use regularly.

3: Embracing employer-sponsored matching funds

This one is a relatively quick and simple process that, if applicable, can produce additional income without any associated increase in workload. The question you need to ask yourself here is:

Does my workplace offer a retirement account with an employer match?

If the answer is no, ignore this step for the time being, and move on to step four below. However, if the answer is yes, start by contributing the amount needed to obtain a full employer match. But, don’t plan on contributing above that amount, at least for now.

How much money could this effectively add to your personal income? Glad you asked. I love crunching numbers.

Let’s say you get lucky and are making $80,000 per year. You are paid bimonthly (twice per month). Your employer matches dollar-for-dollar up to 6% of contributions. $80,000 is ~$3,333 per paycheck before any taxes, allocations, or anything of the like. Contributing 6% is almost exactly $200 per paycheck.

That’s another $200 your employer will pay you, without you doing a single additional task outside of setting up the employer match. That’s another $4,800 per year, essentially making your true income $84,800. That’s a solid raise.

4: Paying down high- and moderate-interest debts

It is at this point you should ask yourself the next important question: Do I have any high-interest debt? High-interest debt is any debt that has an interest rate of 10% or more, so things like credit cards and horrible car loans.

If yes, evaluate the merits of the two most common debt payoff methods: Avalanche and Snowball. Determine their relevant advantages to your personal finance and psychological situation (remember, everyone is unique). Apply one of these two methods accordingly to work towards paying off these debts.

At this point, if you don’t have any high-interest debt, it is highly recommended to further increase the amount of money saved into your emergency fund. Use a savings or a checking account, and get it to three to six months of living expenses before asking yourself the next question: Do I have any moderate-interest debt?

Moderate-interest debt, in this case, represents any form of debt with interest rates over 4 to 5 percent, excluding mortgages. If you do, I recommend utilizing the Avalanche or Snowball method again to determine the advantages to your personal situation and work towards paying off said debts.

If you don’t have any relevant moderate-interest debts, move on to the next step, saving for retirement in an IRA, plus higher education expenses.

5: Saving for retirement in an IRA, plus higher education expenses

This is where things tend to go beyond the basics. Most earners in the United States don’t really push past the first four steps outlined above. This is expected, as personal income management and personal finance are not things taught enough in standard educational institutions.

If you either a) don’t have any moderate interest debts, or b) have a solid structure in place for repayment, this is where you begin to look into additional savings plans.

The first thing that should be done is to evaluate the merits of a Roth IRA versus a Traditional IRA. Weigh these in the context of your own personal income situation, and max the associated yearly contributions accordingly. The basics of this are:

With a Roth IRA, you contribute after-tax dollars, your money grows tax-free, and you can generally make tax- and penalty-free withdrawals after age 59½. With a Traditional IRA, you contribute pre- or after-tax dollars, your money grows tax-deferred, and withdrawals are taxed as current income after age 59½.

From here, the next question to ask yourself is: Are you expecting to make any large, required purchases or personal investments in the near future? This is where things like higher education expenses come into play.

For the most part, examples of the above include college and other postsecondary education, professional certifications, a vehicle to get back and forth to classes or work, etc. If so, save the amount you need for these expenses in a separate checking or savings account. Currently, as of late December 2022, I’d recommend using a savings account with a high interest rate.

Once these are complete, it’s time to work on saving more money for retirement or overall financial independence.

6: Saving more for retirement or financial independence

At this point there is a new question to ask yourself: Are you currently saving at least 15% of your pre-tax income for retirement? Please note that this is not just money being funneled into an employer-match 401k. This 15% represents the total contributions to all retirement accounts (IRA, 401k, etc).

If not, does your employer offer a 401k, 403b, or similar retirement account in which you can save more money? If so, increase the contributions you make until you have reached 15% of your pre-tax income being saved for retirement. If not, or if you are self-employed, contribute to either an individual 401k, SEP-IRA, or SIMPLE IRA to reach 15% of saved pre-tax income. If you’re not self-employed, contribute to a taxable account to reach this goal.

Once you reach this 15% point, this is when things hit overdrive and you should start looking into some advanced financial methods for your personal income.

7: Continue saving with advanced financial methods

For this final step, the next question to be asked is: Do I have a qualified high-deductible health plan? That being the case, you are likely eligible for an investible HSA (health savings account). If that is the case, max out your yearly contributions for your health savings account. If not, or if you’ve already done so, it’s time to think about your children if you have any.

Have children and looking to help pay for some (or all) of their college expenses? If this is the case, evaluate available savings and investment options, such as a 529 plan. Contribute to this plan accordingly based on your personal income.

If you don’t have children, have a nicely padded 529, or your children are already grown or not going to college, there is a fork in the road. At this point, you have a few options on how you’d like to proceed with your personal income savings goals. The decisions you make are up to you, as well as your personal desires ans savings/future goals.

Want to retire early? Welcome to the club. If so, max out your 401k, 403b or other employer-sponsored accounts. Then, consider saving in a mega backdoor Roth IRA, and then after that, use a taxable account and start rapidly saving and investing to reach your FIRE (financial independence/retire early) goals.

Have other immediate goals? For goals that are sooner than three to five years, use a high-interest savings account for convenient access and minimal (if any) risk of loss. For goals over five years away, utilize a conservative mix of stocks and bonds, to minimize risk while maximizing potential return.

Common examples of immediate (within a few years) goals include down payments for homes, paying down mortgages, saving up for vehicles, vacation funds, and the like.

The mix of personal income savings plans is up to you to manage in almost all cases. Knowing how to manage your personal income more effectively will be one of the most rewarding things you can do for your mental and financial security in 2023 and beyond.

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