Managing your money is no easy task. Given how temptation is everywhere—from getting take-out to buying that flashy new gadget you've been eyeing—it's easy to stray away from budgeting and become lax when it comes to meeting a financial goal.
However, learning how to manage your money is an important skill. If you want to achieve a long-term goal such as buying a house, starting a business, or being comfortable in retirement, there's no other way around it: you need to learn how to manage your money.
Fortunately, you don't need to be a math wizard to do this. To help you effectively manage your money, here are ten of the best steps to get you started.
The hard truth is that managing your funds is a skill that you'll just have to practice and build over time. That said, taking stock of your current situation and seeing what's in your bank account may be the hardest step to take; once that's done, all you need to focus on is laying out the steps you need to take for your financial future.
It can be hard to fix your money habits without some kind of plan. You'll need to make sure that these plans cover both the short- and long-term so that you can stay financially protected through every stage of life. You can also go beyond just savings goals and instead aim for things like building your investment portfolio or 401 k retirement account.
The next step is determining your income every month, and make sure it's after-tax. Knowing how much you receive each paycheck will help you know the amount you are allowed for spending as well as for saving. And if you're not happy with your current numbers, you can use this as an opportunity to look into alternative income streams.
Mandatory expenses are more than just recurring bills like rent, food, and utilities. Such expenses may also include student loan debt or even payments towards your retirement nest egg. Taking stock of your expenses and measuring them against your paycheck can also help you prioritize your long-term goals.
It's important to work towards paying off student loans and credit cards, but it's unreasonable to expect yourself to focus purely on just these. Life is about balance, after all! Being smart with your cash also means knowing how to trust yourself with it, even if that means making some (reasonable) spending decisions that are just purely for your entertainment.
This can be tedious, but do your best to track your spending. You can do so through a phone app or physically writing it down on pen and paper; the important thing is that you have this data that you can then use to figure out where your paycheck is really going.
Again, this point bears repeating: even though you have an allocated budget for other expenses, you should be careful about spending within your means. It is easy to get excited to buy stuff when you know you have available money to use—but as Warren Buffet rightly said, "if you buy things you do not need, soon you will have to sell things you need."
This step is something that most people neglect, but it can truly make a difference in your bank accounts. Look at all your debt and assess which of them can be refinanced at a lower interest rate. Alternatively, you can opt to consolidate all your student loans and credit card debt into one account or transfer a balance to a credit card with lower interest rates.
Investing is a great way to create passive income while you are working full-time elsewhere. There's no shame in starting small, either: within six months, you're bound to see significant returns in all your accounts. Just remember to keep an eye on your stocks and ensure you aren't using the funds you set aside to pay off debt.
Credit cards are a great way to build a great credit score as well as pay for expenses. But when misused and overused, it can damage your credit score and put you in a lot of debt. You may want to consider taking out a credit report to see the current state of your checking account and savings accounts.
Make sure that some of these expenses are for emergencies so that you avoid taking out unnecessary loans with high-interest rates. It's a good idea to separate your emergency fund from your miscellaneous expenses so that you know that you always have a bit of cash tucked away for a rainy day.
Managing your finances means properly budgeting and saving to ensure your financial goals are being met. The specifics of each management plan will differ depending on people's current financial standing, but the underlying premise is that this is an important skill people of any age and income level need to master.
According to Smart Family Finance, these principles are:
Living according to these basic principles can help you become better at handling your money.
The 50-30-20 budget rule is a type of plan that people can use when they're just starting out with building their savings. Simply put, it requires dividing your salary into three categories: 50% on needs, 30% on wants, and 20% on savings.
All Your Worth: The Ultimate Lifetime Money Plan, co-written by Senator Elizabeth Warren, is a great personal finance book that offers a new way of thinking about and managing money to achieve financial independence—without incurring huge debts.
Investopedia has compiled a helpful article to you get started with the ins and outs of investing, including the different investment types you need to be familiar with.
Unlike what most people think, managing your finances is not that hard. The amount of steps involved may sound overwhelming, but you'll be able to acquire valuable income management skills and increase your net worth once you get the hang of it.
Also remember, if you fail to manage or control your funds, it will end up managing or controlling every other part of your life. It's crucial that your financial plan that is in line with your lifestyle to help you stick to them.
For other articles on money management skills, browse around AnyCredit.com! We meticulously compile everything you need to know from setting up a savings account to finding the best investments you can make today.