Many people struggle when it comes to managing their money. In fact, roughly 53% of Americans report living paycheck to paycheck. Without proper financial planning, you leave yourself vulnerable to catastrophe. What happens if there’s an emergency? What if you suddenly lose your job?
Don’t put yourself in a risky position. Upgrade your money management skills and improve your financial health by following these three tips.
Tip #1: Start budgeting
Creating a budget can be extraordinarily helpful in managing your financial situation. It enables you to keep track of how much money is coming in and going out each month.
If you have specific financial goals in mind, a budget can be a fantastic tool to help you achieve them. With a clear idea of your income and expenses, you can determine how much you need to put aside and how long you must save for in order to afford that new car or dream vacation.
But perhaps, if you’ve never created a budget before, you’re wondering how to get started. The first thing you should do is determine your monthly take-home income. Then make a list of all your projected expenses in a month—this list should be as detailed as possible, and include everything from rent to restaurant checks.
So, after these two steps, you’ll have your total income and expenses for the month. The next steps you take depend on the kind of budget you’re creating, but many beginners find the “50/30/20” rule to be a useful guide for their budget.
This rule states that you should spend 50% of your income on essentials and 30% on non-essentials, while putting 20% into your savings. It’s a good general guideline, although it can be adjusted depending on how much you make, where you live, and your own personal financial situation. To simplify the whole budgeting process, try using a personal finance app.
Tip #2: Cut down on costs
Sit down and take a detailed look at your expenses to find areas where you can cut costs. Of course, having a budget in place will help with this process, as you’ll be able to identify every expense and the exact amount it’s costing you per month.
As far as where you should look if you’re trying to save money, there are a number of different approaches. First, see if there’s any way you can lower or eliminate some of the small expenses in your life.
Review how much money you spend on eating out, entertainment, luxury items, and other non-essentials. Reflect on whether there are alternatives to your current spending habits that would save you money— for instance, buying food at the grocery store and prepping meals rather than going out to eat.
After you go through your small expenses, you’ll want to take a look at the largest expenses such as rent and transportation. Try to see if there are any measures you can take to cut down on these big costs. Maybe, instead of living alone, you could save money by finding a roommate on a website like Diggz. Or perhaps you could save by taking the bus instead of driving a car. It may not be ideal, but it can save you money.
Tip #3: Set financial goals
Whether you’re trying to save money or earn more of it, you should know why you’re doing what you’re doing. What motivates you? What’s your definition of success?
When you set and pursue specific financial goals, you’ll have a clear idea of what you’re working towards. Thus, you can more easily come up with a money management strategy tailored to your aspirations.
Make sure that when you set financial goals, you make them specific, measurable, and realistic. Your goals should also be time-bound so that you can accurately measure whether or not you’re on track to achieve them. Here are a few examples of what good financial goals look like:
- “I want to pay off all of my credit card debt by the end of this year.”
- “I want to have $5,000 in my savings account by March of next year.”
- “I want to purchase a $10,000 car for my son’s birthday this year.”
These are just a few random examples—what’s realistic for some may not be realistic for others, and of course priorities vary from person to person.
Also, if you want expert help in achieving your financial goals, consider using a wealth management service. Companies like Cetera can provide you with advisors who assist you in devising a financial strategy tailored to your own situation and goals in life.
Each person’s financial situation is different. Some people have plenty of disposable income while others barely get by. Different people have their own priorities and goals. So, when incorporating these tips into your financial strategy, keep your own situation in mind and do what’s best for yourself.