Managing your money can be a challenge. For many people, it’s a subject that brings anxiety. Maybe you’ve delayed saving for retirement or worry about not having enough in your emergency fund. No matter your concern, now is the perfect time to take control of your finances. It’s never too early to build good money habits. Here are 10 practical money management tips to help you get started.
A financial advisor can help you create a plan that meets your financial goals and needs.
Tip #1: Identify Your Money Priorities
Before you create a budget, it’s important to figure out what your priorities are. If you skip this step, you might not stick to your financial plan. Think about what’s most important in your life right now and align your spending with that. For example, if credit card debt stresses you out, paying it off should be your top priority.
Patrice Washington, an expert in personal finance, suggests that your money priorities should reflect your personal values. Whether it’s traveling or staying healthy, your biggest expenses should match what matters most to you. You can then cut back on less important things and focus on saving for what really matters.
Maybe you’re saving for a wedding or vacation, or you want to build an emergency fund for unexpected expenses. Whatever your focus, make it a priority to start.
Tip #2: Know Your Monthly Income
The saying “What gets measured, gets managed” applies to your income. You can’t manage your money if you don’t know how much you make each month. Start by calculating your monthly take-home pay after taxes. This is easier if you have a steady salary, but freelancers might need to estimate based on recent earnings.
Don’t forget to include extra income, such as side jobs. Whether you babysit occasionally or make money from a blog, include that in your monthly earnings.
Tip #3: Track Your Spending
To understand your spending habits, you need to track where your money goes. Start by gathering one month’s worth of expenses. This could include credit card statements, utility bills, bank statements, and electronic payments.
You can use a spreadsheet or a simple pen and paper to total your expenses. It’s helpful to categorize your spending, such as needs, wants, and savings or debt. Or you can get more specific with categories like entertainment, groceries, and transportation.
After sorting everything, total each category to see where most of your money is going. You may be surprised by how much you spend on things like dining out or housing.
Tip #4: Create a Financial Plan
Now that you know what you make and spend, it’s time to create a plan. The best financial plans connect your priorities (like paying down debt or building an emergency fund) with your spending habits.
For example, if fitness is important to you and you spend on gym memberships and classes, you don’t have to cut that out. However, you might need to reduce spending elsewhere to meet your financial goals. This could mean cutting grocery costs or packing lunch instead of eating out.
To help reach your goals, consider setting up automatic transfers into a savings account. This way, the money goes straight to savings before you have a chance to spend it.
Tip #5: Stick With Your Plan
Once you’ve set a plan, stick to it for at least a month. This will give you enough time to see if it’s working. If it’s not, adjust and try again.
Visual reminders can also help you stay focused. For example, if you’re saving for a vacation, put up pictures of your dream destination to keep you motivated.
Tip #6: Be Prepared for Emergencies
Even if your main goal is paying off debt, it’s still important to have an emergency fund. You may not need to save six months of expenses right away, but aim for at least three months.
Life is unpredictable. You might face a job loss, medical emergency, or other unexpected costs. Having a financial cushion can reduce stress and help you feel more secure.
How you build your emergency fund is up to you. You might save all your side job earnings or set up a small automatic transfer each month. What’s important is that you have a plan.
Tip #7: Save Early and Often
The earlier you start saving, the better. Whether for retirement or a general savings account, starting early gives your money more time to grow with interest. Even basic savings accounts offer interest, and they are usually FDIC-insured, which means your money is safe.
This also applies to retirement. Putting money into an IRA or 401(k) early will help it grow over time, even if you’re far from retirement.
Tip #8: Use Free Money
Take advantage of free money when you can. For example, if your employer offers a 401(k) match, make sure to contribute enough to get that match. It’s essentially free money.
You should also check if your health insurance or job offers other perks like discounted gym memberships or covered medical costs. Using these benefits can save you a lot of money.
Tip #9: Review Your Debt
Take a close look at your debt and see if you can reduce it. For example, you might refinance a loan or transfer a credit card balance to one with a lower interest rate. Even small changes can make a big difference over time.
Tip #10: Keep Doing What Works
If you’ve found a money management system that works, stick with it. It can be tempting to try new apps or methods that promise to make things easier, but if you’re saving money and reaching your goals, keep doing what you’re doing. Consistency pays off in the long run.
Final Thoughts
Financial expert Dave Ramsey says, “You will either manage money, or the lack of it will always manage you.” The best way to build financial security is to understand where your money is going, make a plan, and stick to it. Life may throw surprises your way, but as long as you stay on track, you’ll be set up for success.
Tips for Maximizing Your Finances
A financial advisor can guide you toward long-term success. SmartAsset’s free tool matches you with up to three local advisors, and you can have a free introductory call with each to find the right fit for your needs. Ready to take the next step toward reaching your financial goals? Get started today!