Managing money may seem like a boring or scary topic, depending on where you stand financially. It doesn’t have to be. There are some simple steps you can follow to set yourself up for financial success, whether you’re starting with pennies to your name or a comma in your bank account. It’s all about making smart decisions and having the right mindset and willingness to adjust your habits to secure stability in the present and plan for a bright future.
1. Understand the current state of your finances
The first step to any good budget or money management plan is to know what you have and where you are in your financial journey. To start, ask yourself a few questions:
- What are my sources of income?
- How much money do I receive each month?
- Is my income steady or sporadic?
- Do I constantly feel like I’m living paycheck to paycheck or struggling to make ends meet?
- Does my income support saving or making investments?
- Do I ever overspend on luxuries?
Having a clear understanding of your current financial situation helps you determine which steps you should take to create a more secure future.
2. Track your spending
Whether you find yourself living paycheck to paycheck or not having to worry about making ends meet, it’s essential to track where your money is going to get a true picture of your financial situation and know how to make the most of your finances.
Take note of the following:
- Fixed monthly expenses, including rent and utilities
- Chosen add-ons like internet, cable, streaming services or subscriptions
- Necessities such as your grocery and gas bills
- Any loans or credit cards you’re making regular payments toward
- Money spent on entertainment, shopping, eating out or other non-necessity spending
We recommend looking at your bank statements for the past three months to find trends in your spending and get a clear picture of where your money goes.
3. Set a budget
You can now create a budget based on what you have and what you spend.
It’s time to decide what spending habits you want or need to keep and what areas you want to cut or impose a limit on. Creating a budget may seem complicated or overwhelming, but it doesn’t have to be. Use our sample budget template below to get started.
Monthly budget template
4. Put a cap on unnecessary spending
One of the biggest struggles people face when they start to get some money in the bank is knowing what to spend and what to save. It’s easy to spend $20 here and there on takeout and not think anything of it, but it all adds up. When you sit down and see the impact of those $20 purchases over time, you need to consider if that money could have been better placed in a high-earnings savings account, invested in a retirement fund or put aside to save up for a big purchase you really want.
The basics of any good budget are identifying fixed expenses, variable expenses and optional expenses, then setting a cap on those optional expenses.
We’re not saying you shouldn’t have any fun. It’s OK to have a Spotify premium account and head to the drive-thru after a long day at work, but putting a set line item for “entertainment and shopping” in your budget helps you keep these habits in check so you can have fun without worrying about overspending.
5. Pay down debt
Paying off debt is an important part of achieving financial freedom. Hopefully, you already have a line item in your budget for paying down debt like auto or student loans. Don’t forget about other payments, including credit card debt.
While paying down debt is important, not taking out any new debt unless absolutely necessary is critical to developing a healthy financial future. If you want a pricey item, consider waiting a few months until you can save enough money to buy it without using credit.
Sometimes you may need to use credit for an unexpected bill, medical debt or a time-sensitive purchase. It’s all about making sure you’ve budgeted out your payments and know exactly when and how you’ll be able to pay off any new debt. When emergency expenses come up, don’t be afraid to take your budget back to square one and cut down your non-necessity limit for a while to help make up the difference.
6. Save, save, save
If you’re lucky enough to earn more money than you need each month, it’s time to think about putting that money aside or investing it. Having a line item in your budget for “money to savings” each month ensures you don’t forget about this important step. Some employers may even have the option to divert a percentage or set dollar amount of your direct deposit into a savings account each month. This keeps that extra money safe and out of sight without you having to lift a finger.
7. Invest in your future
It’s never too early (or too late!) to think about money management for the future. If you have an employer who offers a 401(k) matching program, take advantage of it. If not, there are other options, such as Roth IRAs and mutual funds, that can help you set up financial stability for your retirement. If you’re not sure where to start, look for a financial advisor in your area to help you understand it all and make smart investments.
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