Are you plagued by a lack of money control? You manage yourto do list, but when it comes to managingyour money, let’s be honest…your efforts aren’t terribly effective. Don’t worry — you’re not alone. Most people have trouble controlling their finances, as research shows 2/3 of Americans live paycheck to paycheck. The best way to get out of this cycle is to set goals to bring in more income and track how you spend your money more closely.
The basics of personal finance are not that difficult to understand — it’s all about managing your money wisely. But if you look at the hard numbers, it’s clear that a lot of people could use a better grasp on their own finances. No matter your income, you might benefit from at least a few basic steps towards improving how you manage money in your household.
7 Basic Steps to Better Money Management
Understand Your Current Financial Situation
You must assess your existing circumstances before you can begin to manage your money more effectively. According to Karen Heider, senior financial advisor at Concenture Wealth Management in Houston, Texas, “you have to know where your money is going.”
To comprehend your present financial condition, the first and most fundamental step is to keep track of all of your normal monthly income and expenses. Heider advises using one of the many apps that can automate the procedure if it sounds too difficult. Some of the free or inexpensive apps that can connect to financial accounts and make it simple to categorize expenditure are Mint, PocketGuard, and Simplifi by Quicken.
If you’re hesitant to link your bank account to an app, keep track of your spending for a month by looking through your receipts to see where your money goes besides the usual suspects like rent, utilities, and debt repayment. It might serve as a wake-up call to consider how much money is being spent on things like groceries and eating out.
Another option to comprehend your current financial status is to work with a specialist; you might be able to get this assistance for nothing. For instance, according to Oden, Chase provides free financial health checks at all of its locations.
Set Personal Priorities and Finance Goals
It’s time to assess whether your existing financial condition matches with your beliefs after outlining it. You don’t have a single life objective, Oden claims. “You have several objectives.” And identifying your financial goals can make the process of developing a workable budget much simpler.
For instance, hiring a housekeeping service could save you time and money if spending weekends with your family is a priority. However, if travel is a higher priority, it might not make as much sense. In that instance, spending on vacations might be a better use of the money used for housekeeping.
People sometimes limit themselves when they set financial objectives. Heider asserts that it isn’t necessary to pay off debt or put money down for retirement. Small or large financial goals, such as saving for a modest purchase or indulging in a luxury vacation, can be combined with short-term objectives to help you stay motivated.
Create and Stick to a Budget
It might be simple to create a budget that outlines how your money will be spent each month. However, adhering to it is frequently difficult. People could lack the self-control to avoid making impulsive purchases, or they might feel overly constrained by having to budget their money.
The benefit of adhering to a budget is having money available to spend on the things that are most important to you. A budget that is created with your priorities and goals in mind will also be simpler to stick to.
If you find that there isn’t enough money to cover everything you want, start looking for ways to reduce spending. While it’s common advice to stop making modest, recurrent payments like duplicate streaming services or takeout coffee, don’t forget about bigger, sporadic outlays.
According to Tyler Boyd, chief strategy officer for Squeeze, a digital tool that helps consumers analyze and lower household bills, you might not understand how simple it can be to reduce expenses that are sometimes thought of as fixed.
Boyd cites auto insurance as an area where households could save a lot of money. He remarks, “That’s a fantastic example of a bill we record on our ledger without cost comparison.”
Establish an Emergency Fund
Maintaining a reserve of funds for unforeseen circumstances like a damaged automobile, illness, or lost job is a key component of successful money management. Gregory Lawrence, a certified financial planner and the founder of retirement planning company Lawrence Legacy Group in Estero, Florida, thinks that everyone needs an emergency fund.
Savings are the greatest way to start this fund, so include them in your spending plan. The amount you save will depend on how much extra cash you have on hand, but as a general rule, you should set aside 10% of your monthly income for emergency savings with the aim of building up an amount equivalent to three to six months’ worth of normal expenses.
No matter how much you can save, establish the practice. According to Lawrence, those who save pay themselves first. Set up recurring transfers or direct deposits into a savings account to make sure you get paid before other costs or impulsive purchases deplete your funds.
Save for Retirement
Retirement is a journey, but it’s not a sprint. It’s a marathon. You need to pace yourself and save for the long haul, because if you don’t, you’ll run out of steam before you reach the finish line.
-Start saving for retirement as early as possible. While it’s never too late to start saving for retirement, the earlier you start, the more time your money has to grow. The more time your money has to grow, the more likely it is that you’ll be able to retire comfortably.
-Invest as much as possible in your 401(k). If your employer offers matching contributions on your 401(k), take full advantage of them. If they don’t offer matching contributions, consider increasing your own contributions so that they do match what the company would otherwise have given you.
-Consider starting an IRA or Roth IRA account if your employer doesn’t offer a 401(k) plan or if yours has high fees associated with it. An IRA or Roth IRA account allows you to invest in individual stocks and bonds instead of through an employer-sponsored plan such as a 403(b) or 457 plan (which are open only to people working for certain types of companies).
Schedule Regular Progress Reports
It takes time to properly manage your finances. Making regular appointments throughout the year to assess your financial condition, including your income, expenses, savings, and net worth, is beneficial.
Additionally, verify your credit report by requesting a free copy from AnnualCreditReport.com as least once a year. Heider observes that “a lot of people do not actively monitor their credit report.” Regularly reviewing report data is crucial to finding errors or possible fraud that might have an adverse effect on your credit score as well as the interest rates you pay on loans and credit cards.
Utilize these check-ins to assess the status of financial objectives and to see if any budget items require future revision. Your spending may need to adjust if you discover that your goals have changed.
Pay Your Bills on Time
Have you ever forgotten to pay with a credit card and then discovered a hefty fee added to your bill? Your company may experience the same thing, though. In addition, if you’re not careful, late fees and penalties may drain a sizable sum of money from your bank account without your knowledge.
Every dollar you make counts when you’re bootstrapping a small business or operating on a shoestring budget. You don’t want to waste your money on stuff that won’t benefit your business.
It’s crucial to maintain good credit practices and make payments on time because late payments can harm the connections you’ve established with your vendors and reduce your business credit score, making it difficult to acquire finance in the future.
Spending is a necessary component of doing business. After a certain point, investing money is necessary for your success. If your business has hit a wall, for instance, you can pay for training or employ a coach. To draw more attention to your new product line, you can decide to raise your marketing spend.
Even so, if you want to expand your company, you’ll want to maintain costs as low as you can. Lower profits translate into a smaller investment in the future of your business and a smaller financial cushion for when times are hard.
How to use it in practice: Regularly assess your business spending, including your software and apps, and determine whether you actually require them. Do they all affect you?
Remember That Time is Money
Initially, new business owners frequently have just one person handling things. A small business owner’s duties include marketing, sales, accounting, product creation, shipping, and customer support. But as you advance, it’s critical to recognize which things you do well and others you should certainly avoid.
Sure, you can spend 12 hours filing your own tax return and studying through hundreds of pages of tax law, but what is the opportunity cost of that time? Could you pay a small portion of it to have someone else handle your tax return filing?
How to use it in practice: Start looking for projects to outsource once you have enough revenue-producing work to keep you busy 40 hours per week. To make sure your books are in order, you might work with a freelance accountant, employ a virtual assistant to handle email and other clerical work, or engage someone to manage your social media accounts so you can increase your online presence.
Money management can seem like an intimidating task, especially if you’re a younger professional that’s just starting off in the workforce and is learning to manage your own finances. However, it’s important to get your money under control before you find yourself drowning financially. By working through these steps, your money management skills will be better than ever before.