Does the mere idea of looking at your bank balance give you a knot in the pit of your stomach? Whether your spending is a bit out of control, or you’re just looking to have a healthier relationship with money, it’s important to get a better handle on how you manage your finances.
Learning how to effectively manage your money can reduce your stress and allow you to achieve more of your long-term goals, like getting out of debt or saving for retirement. Here are some steps you can take to build better money management skills.
1. Start budgeting
Gaining control of your finances starts with a solid budget. A budget is an estimate of your income and expenditures over a given amount of time. Most people create a bi-weekly or monthly budget, depending on their income cycles.
To start, use your pay stubs and bank statements to figure out how much money you have coming in and going out each month. Then track your spending over the next month, doing your best to make sure that your monthly expenses are less than your income. You can use the extra money left over in your budget to create a nest egg or start paying down your debt more aggressively.
2. Cut spending and save more
It can be intimidating to assess your financial situation, but it’s the only way you’ll ever start improving your relationship with money. And facing the reality of where and how much you are spending can be hard, but not knowing could lead to even more problems down the road.
Look at your bank and credit card statements over the past year and note what you spent your money on, including student loans, credit cards, mortgages, car payments, and seasonal expenses. If you find that you’re spending money you don’t have by using your credit cards and not paying them off in full at the end of the month, try to think of ways to reduce your spending—like eating out less often, spending less on clothing, canceling subscriptions, and only purchasing what you truly need.
By paying close attention to your finances, you can pin down and correct bad spending habits, improve your ability to save, and achieve various financial goals much faster.
3. Set ambitious financial goals
While sticking to a budget puts you in the driver’s seat with regard to your money, having financial goals gives you direction. Do you hope to own a house, get out of debt, or retire someday? You can take steps now and prioritize your money management skills to make those things a possibility down the road.
Creating a savings account to save up for a down payment on a house, or opening a 401(k) to save for retirement can lead to a huge payoff later in life. Similarly, working to pay off your debt could help you reach your other big financial goals faster. Write down your goals and return to them frequently to check your progress, celebrate successes, and re-prioritize to accommodate your shifting needs.
4. Build up an emergency fund
Before you start tackling any big financial goal, you need to make sure you have money socked away for unexpected expenses like medical bills, car repairs, or a sudden loss of employment. In other words, you need an emergency fund.
Paying for emergencies with credit cards or a personal loan turns your momentary setback into a long-term financial burden. Having an emergency fund can ensure that unexpected expenses don’t end up plunging you further into debt.
A general rule of thumb is to set aside 3 to 6 months’ worth of expenses. With that much money saved, you should be able to deal with most expenses that come your way. And luckily, there are many ways to start building an emergency fund, even on a lean budget.
5. Know when to get help
If your financial situation seems like it’s getting out of control and is too much for you to handle even with a battery of money management skills, that’s ok. There are many reasons a person’s finances could spiral out of control, so don’t be ashamed to ask for help.
Credit card debt in particular is a problem for millions of Americans. Luckily, there are many resources to help you manage and pay down your credit card debt, including do-it-yourself debt payoff methods, or getting help from debt professionals through credit counseling or debt settlement.
However you choose to handle your debt, it’s crucial to start as soon as possible. Not only will it help you build a better relationship with money, it could also help you achieve your other long-term financial goals.
Use a money management guide
While confronting your financial situation and improving your financial literacy might be daunting at first, the benefits of finding smarter ways to spend and save your money will become apparent as soon as you start. And thankfully, learning how to deal with debt, money, and planning for your future doesn’t need to be hard. At Freedom Debt Relief, we’ve developed a simple to follow guide to help you find the tools you need to move to a better financial future. Get started by downloading our free guide right now.