Many Americans struggle with managing money and are stressed trying to make ends meet. According to Bankrate, nearly 60% of Americans couldn’t afford common unexpected expenses in 2017. And unfortunately, it’s not about if unexpected expenses will pop up in the future—it’s about when, Bankrate says.
So to set yourself up toward the path of financial success, we’ve outlined a few ways you can start managing your money today. From creating a spending plan to getting the right insurance, these personal finance basics are the perfect place to start when learning how to manage your money.
Before you can start anything, you need to first take the time to really understand where you’re starting from. Regardless of if you’re fresh out of college or nearing retirement, it’s imperative that you know exactly what financial situation looks like today.
Understand your expenses and income
What does your cash flow look like? Start first with outlining your income, including all recurring income from your day-to-day job, but also hobbies, side hustles, second jobs, etc.
After you know where your money is coming from, it’s important to know where your money is going. Take a look at your bank account, credit card statements, and receipts if you keep them. You might be surprised by where you spend your money.
In our courses we provide a spreadsheet that will walk through tracking your income, expenses, and more, such as compiling a net worth statement. If you would like support taking inventory, review our course offerings here.
Check your credit report (and understand it)
Credit reports have a direct impact on your future ability to borrow money if necessary. Your credit report will follow you wherever you go, from graduation to retirement. Having a solid understanding of your credit report, and how credit scores are impacted by their content, at the beginning of your financial journey can help you set financial goals and set yourself up for financial success.
You’re going to need motivation to make this work. Take time to write down why you want to understand your finances and live a healthier financial life. Is it because you want to pay for your kids’ colleges? Or build your dream home?
Whatever your financial goals are, writing them down and putting them out into the universe is a great way to start (and stay) on the path toward a better financial future.
Track your money
You certainly can’t save money if you have no idea what money you have (or don’t have) to begin with. Be realistic with yourself and your finances by tracking your income and expenses and create a spending plan that makes sense.
Understand your fixed costs
Fixed costs are things that don’t change every month, like rent, loan payments (car, student, etc.), insurance premiums, and more. Knowing these costs is the very first step toward finding a financial solution that makes sense for your situation.
Because once you know what these things are, you can start seeing where else your money is going if it’s not toward these big-ticket and predictable items.
Create a spending plan
This blog isn’t going to tell you how to create a budget because that subject deserves its own post. So, be on the lookout for another one coming! What we propose instead is create a spending plan. In other words, create a document detailing where your inflows of money will go before you have the money.
By doing this, you ensure you pay yourself first (i.e. building emergency savings, putting money towards your goals and paying down debt) and minimize frivolous spending. It allows you to plan for large up coming expenses and smooth out your cash flows.
Change spending habits
Knowing your fixed costs and having a spending plan in place shows you how much money is left for extras. If you find you have no extra for things you consider to be needs or your biggest wants, you’re now ready to make decisions on where is best to make changes in your habits.
This part is tricky and changes from person to person. For some people, this may mean eating out less, for others it may mean that having three streaming services isn’t necessary, and for others it may mean borrowing tools from family/friends instead of always buying. There’s no real end-all-be-all solution to cutting expenses besides understanding what’s important to you and what’s not. Don’t sacrifice what you want most, for what you want right now.
Work toward a secure financial future
It’s time to plan for the future! Start making saving a habit, whether it’s $5 or $50 and be smart about where your money goes and how it works for you.
Start an emergency fund
First things first: You need an adequate emergency fund. Things are bound to happen, from a flat tire to a medical emergency. Having some money squared away is the best way to prevent these mishaps from completely overhauling your financial plan and are a great way to put yourself in the driver’s seat.
A good rule of thumb is to have at least three months of savings in your emergency fund. If that amount seems too large to start with, start smaller. Maybe make your goal $250. Then from there, you can move it to $500, then $1,000, then to your target amount.
Save for retirement
The best day to start saving for retirement, was the first day you had earned income. The second best day, if you haven’t already started saving is today. If your company matches funds you contribute to your employer retirement plan, at a minimum contribute enough to this plan in order to get the match—because it’s basically free money! After that, you can figure out other ways to save for retirement that make sense for your situation.
Not sure where to start? Our Richer Retirement course is all about planning for your specific retirement goals.
Get adequate insurance coverage
One often overlooked aspect of financial planning is having adequate insurance coverage, such as car insurance and health insurance. While there are state minimums on car insurance, that amount of coverage is not typically adequate if an accident occurs. With bad or no insurance, it can set you back if you have a situation arise out of the norm. Set yourself up for success with insurance that fits your budget and protects it at the same time.
We highly recommend that you shop smart and work with insurance agents you trust, but it’s very important that you don’t underbuy.
Lastly, keep at it! Review often, revise when necessary, and celebrate accordingly. With a good financial plan and motivation in place, you will be off to a great start on your path to financial security.
If you’re looking for a partner to help you along the way, reach out to our team about our online financial coaching or online financial education classes.