Money management is really about taking the time to understand financial literacy, and then applying it to your financial goals. Focus on the following money management tips to start your journey to financial success!
Determine Your Short and Long-Term Financial Goals
Before embarking on your journey to financial wellness, start to consider your goals. These will be your drivers to sticking with positive financial habits and healthy money management.
A short-term goal is any goal you’d like to achieve within five years. Some common examples are buying a new car or building your emergency savings, which coincidentally, is another top tip for money management. A long-term financial goal can be anything from buying a house to saving for retirement. Long-term financial goals are any goal that is five years or longer.
When listing out your goals, it’s okay to include large financial goals, you can then determine the length of time and amount you’d need to get there.
Create a Budget
Now that you have goals, your budget will be like your financial roadmap. As long as you take the time to create a budget that works for you, and follow it, you’ll be well on your way. All budgets are not necessarily a one-size-fits-all. There are many different budgeting methods, so find the best method by doing your research. Remember that you can adjust your budget at any time if your circumstances change.
When budgeting, include spending categories and allocate funds for savings and investments. Stick to your budget as closely as possible, but remember to be realistic as well. Try your best to avoid what we like to call “financial FOMO”. Comparing yourself to others is a surefire way to lose sight of your goals and stray from your budget. If you’re unsure of how to start your budget? Use our money manager tool for a streamlined and step-by-step guide to your financial goals.
Build an Emergency Fund
Having some form of savings is essential. A good baseline is to have at least $2500 in an emergency savings account, but a great savings goal would be to have at least six months of your monthly expenses in an emergency fund. If you’re just getting started, that could seem like a heavy lift, so remember to go slow and be realistic about how much you can contribute to savings. Even if it’s a very small amount each month, build savings into your monthly budget.
Prioritize Paying Off Debts
Prioritize paying off high-interest debts such as credit card balances to avoid getting caught in a debt trap. Make a plan to systematically pay down debts, focusing on the ones with the highest interest rates first. It’s recommended that you pay down bigger debts as well by contributing an extra payment or more than the minimum requirement each month.
If you have credit card debt, prioritize your monthly contributions by including them in your budget and then sticking to it. This could require reducing your spending as well. Paying off your debts gives you a fresh start to focus on building up your savings even sooner!
Start Tracking Your Spending
Many if not most people with what they consider exposable income have been guilty of overspending. We often say to avoid spending money you don’t have. But the truth is that without fully understanding your budget, it’s extremely difficult to determine if you are overspending. Start by reviewing your spending habits and tracking when you spend. This will give you a good gauge of your spending while also helping you to avoid mindless spending.
Your budget will help you to differentiate between needs and wants and tracking will help you to make conscious spending decisions. If you determine you are spending more than you should, practice frugality and look for ways to cut down on non-essentials. Regularly review your expenses to identify areas where you can save more.
By following these money management tips, you can build a strong financial foundation and work towards achieving your financial goals!