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Staying on top of your finances can be challenging. Many Americans struggle to save money, pay off debt, and work to get out of the paycheck to paycheck grind. The good news is, there are strategies to getting your finances under control so that you're in a better place in the long run.
In this article, we'll discuss how to stay on top of your finances by managing your money effectively.
Let's jump in.
Table of Contents
1. Make Realistic Goals
The first step to staying on top of your finances is to make realistic goals for yourself. When creating goals, consider the SMART goals principle. SMART stands for:
An example of a SMART goal is “I want to save $300 per month for 12 months so that I can go on vacation that costs $3,600 next year.”
As you can see by this goal, it hits each characteristic of a SMART goal, given you're in a situation where you can save $300 per month and that you want to go on vacation next year.
Setting goals are important as they provide purpose and direction and are a great way to stay focused. In addition, people who set goals are significantly more likely to achieve success in whatever they're trying to accomplish than those who don't. Consider making short-term goals that you'd like to accomplish in the next year and long-term goals that you'd like to spend over a year working on.
2. Enact a Plan for Your Finances
The next step for staying on top of your finances is to enact a plan around managing your money. Now that you have goals, you'll want to determine how you'll reach them.
For example, you might decide that you want to pay off your credit card debt before 12 months are up. You determine that you have $4,000 in credit card debt and will apply an extra $350 each month towards your credit card's minimum monthly payment.
In order to come up with $350 each month, you decide only to go out to eat once a week instead of three times per week. Now, you're able to aggressively pay down your credit card because you made a plan.
Of course, your plan could be anything related to money. You could have a savings goal, an investing goal, a debt goal, or simply reaching a certain net worth or making a major purchase. Your plan will be specific to the goals you make. Review your plan on a regular basis to see how well you're doing, and adjust accordingly.
3. Learn How To Budget
For many, finances get out of control because of a lack of budgeting. It's easy to overspend when we don't know where all of our money is going. That's why it's a good idea to come up with a budget and track your spending.
There are a few ways to create a budget and track spending:
- Write down your income and monthly expenses on paper.
- Use Clean Cut Finance's home budget spreadsheet to track your inflow and outflow.
- Use an app like YNAB to budget.
- Use the free app Personal Capital to link all of your accounts and transactions in one place.
- Create physical envelopes to hold your money, where each envelope has enough cash to cover a specific monthly expense.
Budgeting doesn't have to be restrictive. In fact, it can be liberating. You'll feel more in control, and you'll save money by seeing exactly where you can cut back. Here's a guide on how to get started creating a realistic budget for your household.
4. Keep Track of Your Credit Score
Your credit score is an indicator of your creditworthiness to lenders. Your score affects the amount of interest you pay on loans, the ability to get loans and credit cards, and may affect auto and homeowners insurance rates.
Checking your credit reports from the three credit bureaus annually will allow you to find potential discrepancies and issues that are negatively impacting your credit score. You can get a free credit report once a year at AnnualCreditReport.com.
Here's our guide on how to raise your credit score by 200 points if your credit score needs work.
5. Save Money Regularly
Saving money is important, and saving regularly will help you stay on top of your finances and enable you to be financially healthy. Start off small, such as saving $50 a month. You can also save daily by just saving small amounts such as a few dollars a day and gradually increase that amount each week.
Saving even $5 a day can help you build wealth, and it'll also promote good savings habits. When you save money, you'll have cash on hand for emergencies as well as for big purchases or to cover fun family activities without having to go into debt. Having enough money to do things will also reduce financial stress.
6. Build an Emergency Fund
Build and store an emergency fund in a high-yield savings account so that you can be covered when life throws a curveball. The most common unexpected expenses, such as car repairs and appliance or furniture replacement, generally cost $500 to $1000, so at the very least, save $1,000 at the best pace you can.
Some ideas to save your first $1,000 include:
- Work a few extra hours at work each week
- Pick up a temporary side job or side hustle
- Sell things you own that you aren't using anymore
- Rent out your things on FriendWithA
- Fill out online surveys on Swagbucks, Survey Junkie, and Inbox Dollars daily.
Here's a more detailed guide on how to save $1,000 for an emergency fund.
Eventually, you'll want to save between three and six months' living expenses in your emergency fund, as that will protect you from more significant losses such as suffering from job loss or from a major medical bill. By having money locked away, you'll better keep your finances under control when something goes awry.
7. Monitor Your Living Expenses and Cut Them Where Appropriate
When you've made a budget, you'll start to see where all of your money is going, and several such areas are your various living expenses. Your living expenses include things that you need to spend money on and things you want to spend money on.
Some needs include:
- Utilities (electricity, gas, water)
For some needs, such as housing and food costs, you might be able to reduce your spending by opting for a cheaper alternative. For example, you could opt to only buy used cars instead of new cars, or you could go out to eat less and cook more at home.
Some wants, or discretionary spending, include:
- Fancy clothes
- Entertainment and going out on dates
- Getting your nails done weekly
- Buying video games
It's important to prioritize your needs over wants because it will help you stay on top of your finances. To find ways to spend less on both required and unnecessary expenses, check out this guide with 35+ ways to lowering your monthly bills.
8. Learn How to Invest
Investing is the key to building a secure retirement. When you learn to invest, you'll open up many opportunities to grow your money. To some, investing may seem daunting, but it doesn't have to be. Many books exist on investing, and if all else fails, many investment banks have a team that will sit down and talk to you to learn your financial goals and, from there, will manage your money for you for a small annual fee.
Charles Schwab bank is a great place to get started with investing in the stock market and if you need some assistance from a team. Additionally, M1 Finance is a good place to open an account as well, and M1 Finance uses Robo advisor technology to help pick investments for you.
With either place, you can also make all of your own investment decisions.
The benefits to investing include:
- Significantly increasing your retirement fund and nest egg.
- Having the ability to retire at a younger age.
- Building wealth that can let you get more out of life.
9. Tackle Your Debt
Around 8 in 10 Americans have some form of consumer debt. On top of that, many Americans have significant credit card debt. Credit card debt can be crippling, and it's even more damaging when coupled with high interest rates.
It's important to tackle your debt in order to stay on top of your finances. Two ways to tackle your debt include the debt snowball method and the debt avalanche method.
In the debt snowball method, you funnel all of your extra money into your debt source with the lowest balance, and then after that's paid off, you target the next debt source with the lowest balance, and so on.
With the debt avalanche method, you send all of your extra cash to the debt source with the highest interest rate until it's paid off. Then you target the next debt source with the highest interest rate, and so on.
Both methods have their pros and cons. The important thing is, you stick to a debt payoff method and aggressively tackle your debt so that you owe less money to others and can spend more time building wealth.
10. Automate Your Finances
A clever way to manage your money and stay on top of things is to automate as much of everything as you can. For example, set up automatic bill pay on all of your bills so that they get paid on time each month without you having to intervene.
You can also automatically transfer money from your checking account to your savings account and to your investment accounts so that you don't even have to think about saving money.
Wrapping It Up
In this article, we discussed how to stay on top of your finances so that you can better get your finances under control. Money management can feel overwhelming at times, but you'll open up many opportunities for yourself and have a bright financial future when you practice and keep at it.