Setting monetary goals for yourself can give you something to reach for on a monthly basis; maximizing your savings account, reducing your overall debt, and carving a path through the financial jungle to a stable financial future. Here are 7 ways to be better with your money and start taking steps toward financial independence.
1. Create a budget
Every finance article you read will probably mention something about a budget, and there’s a reason why it’s an important factor in taking control of your finances. Budgeting is a simple process that involves 3 steps:
- Sit down with your bank and credit card statements
- Identify all of your expenses and sources of income
- Create a plan to maximize the amount of money you save each month
A budget typically includes fixed and variable expenses, and variable expenses like credit card spending should have a hard spending limit. Any extra money that you don’t spend can go right into savings or towards reducing your overall debt.
2. Reduce your overall debt
This year, focus on reducing debt instead of accumulating it. Debt is a strain on both our financial and emotional resources.
How stressed have you been about personal debt? No one needs that type of extra stress in life. Moreover, with debt paid off, you’ll be able to start saving and putting the money elsewhere to meet financial goals.
Debt is essentially a ball and chain around your ankles. It’s a weight, in other words. That’s because debt has the potential to:
- Affect your credit score
- Make it more difficult to obtain financing when you need it
- Increase your monthly expenses beyond what they need to be
And, most importantly of all, debt can cripple your motivation and leave you feeling stuck in a rut.
If you’ve accumulated a lot of debt, there’s no better time than now to start chipping away at it. Do you have accounts in collections? Start there.
Do you have small amounts that you owe to various creditors? Pay off the smallest balances first. There’s no right or wrong place to start, so long as you do start to reduce overall debt.
3. More ways to be better with money: Stop accumulating bad debt
When you work to reduce your debt, it’s also important to remember the difference between good and bad debt. Good debt is something like a student loan, obtained to obtain an education and (hopefully) a higher salary later on. Bad debt, on the other hand, is credit card debt and other unsecured debt usually used to purchase items whose value depreciates over time.
The bottom line: stop accumulating bad debt.
Bad debt reflects poorly on your credit history, and, let’s be honest here, it’s almost always unnecessary. Financing new electronics or other material items is purely a want, except for a necessary upgrade. Buying things you don’t need only serves to dig a larger financial hole.
4. Use apps and professional help
Using a money app like Mint or getting help from an advisor or planner can be a great way to take control of your financial future. Apps have incredible tools that help you plan your financial goals and identify where to improve.
Financial planners and advisors offer a second set of eyes on the subject, providing valuable insight you won’t get elsewhere. You can compare the best financial advisors on the Careful Cents site to ensure you’re getting the right one for your individual situation.
5. Think about retirement
Whether you’re 25 or 45 years old, retirement should be something you’re saving up for continually. If you haven’t started yet, there’s no better time to start than right now!
You’ll need a lot of money to retire comfortably, to be frank. Thus, making better financial decisions becomes not only a necessity for the present but also for the future.
Forbes advises that you start saving about 6% of your yearly income in your 20s and up to 15% when you reach your 30s. The more you save, the better off you’ll be when you retire.
Start thinking about retirement early so that you can decide how you’ll live your best life during your golden years in sunny California or wherever you decide to finally settle down.
6. Save up 3 months’ worth of expenses
If you suffer an injury or lose your job and suddenly can’t work for a few months, how will you survive? That financial impact is something to think about.
Not many people have large savings accounts to fall back on in the event of a crippling life event. Then, should they be out of work for an extended period of time, they feel helpless. Thus, make this year’s savings goal to save up at least 3 months’ worth of expenses in case of an emergency.
This emergency fund will help offset any type of emergency expense, such as:
- Being laid off
- Sudden medical bills
- Emergency car repairs
- Hot water tank at home breaks
Once you achieve this money goal of saving up 3 months’ worth of expenses, you can start investing your savings elsewhere. And that’s how you’ll build a nest egg for retirement, family trips, and more.
7. Final way to be better with money: Focus on experiences, not things
Let’s honestly consider the value of material things. Most purchases are impulse buys, except for those long-awaited high-price items you’ve wanted for years. Ahem, that means you could probably live without a lot of the things you have around the house.
So why do people spend so much money on things that don’t hold value? In a consumer-driven world full of constant advertising, it’s nearly impossible to turn off all the noise and find something of value among the chaos.
It’s easy to fall into the trap of thinking things are needs rather than wants. But when you get to the heart of it, spending money on creating memories is far more valuable than maxing out a credit card for material items.
As for what experiences you choose to put your money and time toward, that varies from person to person, depending on what’s important to you. It could be taking trips, meals with family and friends… The list goes on.
How do you plan to be better with money? Do you practice any of the 7 tips above?