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Although money cannot buy you happiness, it can bring a sense of security. Without a handle on money management, you may always feel like your life is one step away from a financial cliff.
In fact, 25% of Americans say they worry about money all the time and studies show that two-thirds of Americans would struggle to find $1,000 to cover a financial crisis. You definitely want to avoid being in situations like this. This means knowing know to manage your money.
When you manage your finances well, life may not get easier but you have more time to focus on important things in your life.
Luckily, it is not too difficult to get your finances on track. Let’s dive into how to manage your money the right way.
How to manage your finances
Managing your finances does not need to be overwhelming. Instead, implement these tips one at a time to take control of your finances.
1. Set up the right bank accounts
The right bank accounts are critical to your financial success. Trying to manage your finances without the right bank accounts is similar to trying to take care of your car without the right parts.
You’ll need to set up checking, saving, and investment accounts. These are the building blocks of financial success.
It is important to get both a checking and savings account so that you can easily separate your spending cash from long term savings. Simply leaving your savings in your checking account makes it all too easy to accidentally spend your hard earned savings. Looking for new accounts? Check out this one from Chime and this one from Credit Karma.
2. Take stock of your current financial situation
Although it might be scary, you can’t improve your financial situation unless you take stock of your current situation.
Be brutally honest with yourself about any outstanding debt or high expenses that are hurting your budget. Celebrate your good financial choices. Write everything down so that you can see the whole picture.
3. Make a plan for your money
Without a plan, it is extremely easy to find yourself short on money. After all, the treat yourself logic is easy to embrace. If you say yes to too many unnecessary expenses, then you might be disappointed with your savings.
In order to combat this, take the time to make a budget. Plan out where you want to use your money. In addition to your everyday expenses, think about your savings goals for the future. You also want to find a budgeting method that works for you.
4. Set money goals
If you are getting serious about your money, then setting goals is a good idea.
Think about where you want to be financially. There is no wrong answer but you’ll need to take a minute to think about your plans and how money would factor into them.
Once you have an idea of how money will play into your life, make clear and specific goals for your money.
5. Check-in with your finances every day
You can’t make progress without knowing where you stand. Take five minutes every day to check in with your budget.
Are you overspending? Are you right on track? It’s important to know.
It might sound tedious to check into your financial situation every day. However, it doesn’t need to take a long time. Use an app or spreadsheet to quickly determine how you are doing financial and get back to your life.
6. Manage your expenses
As you start to look more closely at your finances, take a look at your spending.
Look for expenses that you are able to cut out of your monthly budget. Even cutting an unnecessary expense of just $20 out of your budget can lead to a savings of $240 for the year.
Some simple ideas on things to cut out might include work lunches, a box subscription, or your cable package.
A great tool to help you manage your expenses is Truebill. It keeps track of your spending, subscriptions and your overall financial big picture. Plus it can even negotiate the cost of certain bills like your cell phone or internet service to a lower rate.
7. Take a look at your income
This might seem obvious, but it is important to understand exactly what you earn. Take a minute to determine your net income after taxes, not just your gross income. You’ll be more able to accurately budget with this number.
Another way to boost your income is to negotiate your salary. Don’t be afraid to approach your supervisor with data that supports your request for a raise. You never know what they may be able to offer.
8. Start paying down debt
Debt is a huge financial burden. Not only does it affect your current budget, but also your savings for the future.
Take your debt seriously and make it a priority to pay down your debt. Consider different debt repayment strategies and pick one that works best for you.
Don’t let debt stand between you and other financial goals. Create a plan to tackle it today.
9. Understand your credit score
Your credit score is a three-digit number that can have a big impact on your finances. Lenders are willing to offer borrowers with high credit scores better loan terms and lower interest rates.
As you apply for large loans such as a mortgage, a small interest rate reduction can save you thousands of dollars.
Take action to improve your credit score. Start by pulling your credit report to check for any errors and use a credit monitoring service to prevent any future mistakes. Other ways to improve your credit score including making on-time payments and keeping your credit utilization rate low.
10. Build an emergency fund
An emergency fund can be absolutely critical. Unfortunately, life throws large expenses your way when you least expect it. Typically these emergency expenses are accompanied by unpleasant events such as a hospital visit or job loss. You never know when an emergency will appear in your life but you can prepare for it.
Make it a priority to put money into your emergency fund with each and every paycheck. Many experts recommend saving three to six months of expenses in your emergency fund. However, this will depend on your risk tolerance. If you would feel better with more saved, then you can add more to your emergency fund.
Set up a separate savings account to store your emergency fund. Otherwise, it is too easy to spend these funds.
When an emergency strikes, you won’t have to worry about the financial side of the equation. Instead, you can focus on the emergency at hand. You’ll thank yourself later for taking this step.
11. Plan for large expenses
While some expenses are unpredictable, you can plan for other expenses months in advance.
For example, you may need to pay for insurance at one time which may cost thousands of dollars. Instead of scrambling to come up with the funds for that bill, create a sinking fund.
You can save each paycheck for these big bills to make sure you have enough to cover them. This is where budgeting comes in really handy. You’ll be able to add this sinking fund to your budget and never have to worry about big upcoming expenses again.
12. Shop around for big purchases
When shopping for a big purchase make sure to shop around. Although it will take an investment of time, you could stand to save thousands.
13. Contribute to your retirement
Saving for retirement now can seem unnecessary. After all, you aren’t going to be retiring for decades.
However, it is absolutely critical that you start saving for retirement as early as possible. At the very least, you should start contributing to any employer-sponsored retirement plans. Make sure to take advantage of any matching funds offered by your employer.
If you aren’t lucky enough to receive matching funds, then consider contributing to a Roth IRA instead. Make a contribution with each paycheck to hit your retirement savings goals each year.
14. Start investing
If you plan to build long term wealth, then investing is a key piece of that. Investing over a long period of time can lead to amazing returns. You’ll be able to grow your money slowly as you invest more every year.
If you aren’t sure where to get started investing, then consider taking our course. You’ll learn everything you need to know about investing your first dollar. A robo-advisor to check out is Betterment.
15. Compare insurance options
Insurance can be expensive, especially if you are properly insured. Check out your insurance options at least once a year. You may be able to find a better deal on insurance just by looking at different providers.
While you are looking at insurance, take a minute to confirm you are adequately insured. In addition to the basics like healthcare and car insurance. Consider renters insurance, homeowners insurance, life insurance, and disability insurance. You may need to add additional policies to your insurance deck to enhance your protection.
Find out more about what insurance you may need to get here.
16. Find your reason
Staying on top of your finances will require some amount of time and effort. At some point, you’ll probably feel like giving up. It is a completely natural feeling.
The best way to avoid personal finance burn out is to find your reason. Why are you choosing to learn how to manage your money? Why are you taking action to put yourself in a better financial position?
A few common reasons include getting rid of oppressive debt, becoming financially independent, and spending more time on the things that light you up.
Whatever your reason, make sure you have one. Take a minute to understand your why. Go beyond simply wanting more money to understanding why you want more money.
17. Build your knowledge
The more you know about personal finances, the better. Seriously, more knowledge about personal finance will never hurt you. You can use any new information you learn to make adjustments to your personal finances.
One great book to start with was written by our very own founder, Clever Girl Finance: Ditch Debt, Save Money, and Build Real Wealth.
Find resources that help you master your specific financial situation. Realize that others have walked before you, seek out similar stories. You may find helpful tips on ways to optimize your finances.
18. Find an accountability buddy
An accountability buddy can help to keep you on track. Find someone with similar financial goals. You can check in with each other on a weekly or monthly basis to report any progress towards your financial goals.
Just having someone that you can talk to about your finances is helpful. Our society has decided that talking about finances is almost a taboo. You simply don’t talk about it in everyday conversation. With an accountability buddy, the walls can come down. You are able to freely talk about your personal finances and share your struggles along the way.
You might be surprised at just how much a buddy can help. Not only will you be more likely to follow through but also build a friendship at the same time.
19. Give back
As you start to get your finances under control, it is time to give back. Setting aside time or money to donate can help you make an impact wherever want to.
Properly managing your finances means that you’ll be able to allocate more time and money to causes you care about. Even if you are only able to help spread your newfound knowledge of personal finance, that could be a valuable gift to someone in need of a helping hand.
Managing your finances does not need to be difficult but you do need to get started. Don’t allow your finances to get out of control before you start to manage them seriously. Small actions along the way can prevent a major financial disaster in the future.
Make the choice to start managing your finances effectively today. Implement each of these tips over time. Don’t let yourself get overwhelmed, just take it one step at a time.
Remember, you absolutely can effectively manage your finances. It will just take a little bit of time and effort to get your money under control.