Money cannot necessarily buy you happiness, but if you manage it correctly, it can bring a sense of security. If you do not have a handle on money management, you may constantly feel like your life is one step away from a financial catastrophe.
One quarter of all Americans report feeling anxious about money on a daily basis, while 37% say they would use a credit card to cover expenses in the event of a financial emergency. Good money management skills can help you avoid becoming part of these statistics.
When you manage your finances well, you will 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.
These money management tips will help you take control of your finances one at a time so that you don’t feel overwhelmed.
Set Up The Right Bank Accounts
It is essential to have the right bank accounts if you want to be financially successful. This is because it would be very difficult to manage your money properly without the right accounts. You will need to have a checking account, a savings account, and an investment account.
It is important to have both a checking and savings account so that you can easily separate your spending cash from long-term savings. This way, you are less likely to accidentally spend your hard-earned savings.
Establish an Effective and Automated Bill-Paying System
One of the most difficult aspects of managing finances is keeping track of due dates for bills. According to The Simple Dollar, the average American is likely to have at least seven or more bills per month, some of which include:
- Water
- Energy
- Mortgage/rent
- Insurance
- Phone(s)
- Internet
- Streaming service
- Car payment
- Credit card
If you have a lot of different payments due on different dates throughout the month, it can be easy to miss one or two of them. If you’re not organized, this can negatively affect your credit score. Knowing how to get your finances in order can help you avoid this problem.
An automated bill-paying system will help you avoid making late payments or forgetting to make payments altogether. For some bills, you can set up a recurring payment each month online. For other bills, you may need to call your city office or another appropriate entity.
Automatic bill-pay can save you a lot of stress and also improve your credit score. Having a good credit score is important because it can help you in many areas of your life, such as getting a loan for a house or car.
Cut Back On Your Expenses (or Increase Your Income)
Look at your spending habits to see where you can cut back. Even a small cut of $20 in your monthly expenses can save you $240 over the course of a year.
Some ideas on things you can cut out of your budget to save money include work lunches, a box subscription, or your cable package.
Deal With Debt & Credit
To assess your debt, make a list of all the people or institutions you owe money to. Although it’s a simple step, this can give you a better understanding of your financial situation.
According to U.S News and World Report, 20% of Americans don’t know if they have credit card debt. Each year you can receive one free credit report from each of the three major credit bureaus:
- Experian
- TransUnion
- Equifax
While having a good credit score is important for things such as personal loans, mortgages and credit cards, only 33% of Americans checked their score in the past year, according to LendingTree. Additionally, checking your credit score often can help you catch fraud and plan for the future if your score is lower than you thought. Make checking your credit score part of your regular routine by putting it on your calendar.
Understand Your Credit Score
Your credit score is a number between 0 and 999 that indicates how likely you are to repay a loan. The higher your score, the better terms and interest rates you’ll qualify for. A small difference in interest rates can save you a lot of money on a large loan like a mortgage.
In order to improve your credit score, you should take action by pulling your credit report and checking for errors. You can also use a credit monitoring service to prevent any future mistakes. Making on-time payments and keeping your credit utilization rate low are also effective ways to improve your credit score.
Build An Emergency Fund
If you want to be prepared for anything, it’s important to have an emergency fund. This will help you cover unexpected costs when they come up.
An emergency fund is important to have in case of an unexpected event that requires money, such as a hospital visit or job loss. You never know when an emergency will happen, so it’s a good idea to save up money each paycheck in case you need it.
The amount of money you should have in your emergency fund will depend on how much risk you are willing to take. Generally, it is recommended that you have three to six months of expenses saved up, but if you want to be extra safe, you can save more than that.
You should set up a separate savings account for your emergency fund so you don’t spend it. Having this fund will take the financial stress off of you in an emergency so you can focus on the emergency. You’ll be glad you set up the account later.
Take Stock Of Your Current Financial Situation
It can be scary to evaluate your financial situation, but it’s necessary to improve it. You need to be honest with yourself about any debt or expenses that are causing problems for your budget.
Make a point to celebrate your good financial choices! Keep a running tally of your wins—large and small—so you can see your progress over time.
Check-In With Your Finances Every Day
It is essential to know where you are financially on a daily basis so that you can make the appropriate changes to ensure progress.
Although it may seem like a bore to go over your finances every day, it doesn’t have to be time-consuming. Utilize a app or spreadsheet to see where you stand financially, then get back to your day.
During your regular review, go through each portion of your financial portfolio, including:
- How you’re sticking to your budget (or how you’re falling short)
- Automatic payments that have been processed
- What’s happening with your investments
- Your progress towards financial goals
- Questions you have for your financial advisor
It is important to not only assess your overall financial health from time to time, but also to regularly review individual aspects of your finances. For example, you should check your credit card balances more frequently than just once a month, and review your budget at least once a month, if not more.
If you automate your finances, it will make your life much easier.
Use A Finance App
There is no shortage of finance apps to organize your income, create a budget and track spending. A few apps that you may find useful are:
- PocketSmith
- PocketGuard
- You Need a Budget (YNAB)
- Digit
There are many factors to consider when choosing a financial app. Different apps offer different features, so it is important to do your research to find out which one will work best for your situation. Make sure you are aware of any fees for using the app before signing up, and put securities in place to protect your money.
Review Insurance Policies
Many Americans choose to stay with one insurance company, either out of loyalty or because they are happy with the service. This can lead to overpaying on car insurance by $330 each year, says Insurance Business America.
Make sure you have the right amount of insurance coverage by reviewing your policies and getting quotes from other companies. Also, review your policies after major life changes, such as marriage, divorce, or retirement.
Also, it’s important to review your current deductibles to see if they still make sense. If you increase the deductibles, you are effectively taking some of the risk away from the insurance companies. When was the last time you filed a claim against the insurance company? Do you have enough saved up in your emergency fund to cover the deductible? Increasing the deductible is one way to reduce your premiums.
You should always shop around for a better deal on your insurance policies before renewing them. Don’t just automatically renew your policy without seeing if you can get a better deal from another company.
Contribute To Your Retirement
It may seem unnecessary to start saving for retirement now, but it’s critical to start as early as possible.
At the very least, you should start contributing to your employer-sponsored retirement plans. Your employer may offer matching funds, which you should take advantage of.
If you do not receive matching funds, you should contribute to a Roth IRA. Make a contribution with each paycheck so that you reach your retirement savings goals for the year.
Create an Income Timeline
You will not receive all of your retirement funds at one time, so you must understand what income you will have to live on and when it will be available. An income timeline will help you see when you will be able to access different retirement funds, so you can plan accordingly.
Create a timeline for the next 10-15 years of your life, factoring in your age when you plan to retire. Label each year, starting with your current age. For example, if you retire at 60, your timeline would look like this: 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70. Indicate at 59 1/2 when you can begin withdrawing funds from your IRA or 401(k).
First, you’ll note when you can start withdrawing money from other retirement accounts. For example, if you have an annuity that begins payouts at age 65, make a note of that. Additionally, if you plan to delay Social Security benefits until age 70, be sure to write that down as well.
The funds available to you in the coming years will be displayed here, allowing you to create a retirement budget that will safeguard your money for the future.
This is a timeline template that can be used to track income or financial goals over the coming years.
Find An Accountability Buddy
An accountability buddy is someone who you can check in with on a regular basis to help you stay on track with your goals. Find someone with similar financial goals to help motivate and encourage you.
It can be helpful to have someone to talk to about your finances. Our society has a rule that you shouldn’t talk about finances in casual conversation.
If you have someone to be accountable to, it will be easier to talk about your personal finances and progress. This person can help you through the tough times and may be surprised at how much they can help you.
The Bottom Line
If you want to avoid financial disasters, it’s important to get started on managing your finances ASAP. Many people think that managing their finances is difficult, but it doesn’t have to be. Taking small, preventative actions can save you a lot of money and trouble in the future.
Choose to start managing your finances today. Gradually implement each of these money management tips. Avoid feeling overwhelmed by taking it one step at a time.
Leave a Reply