Many of us have an array of financial goals — to own our own home, to get a new car, to retire by age 50…heck, even just trading up to the latest smartphone — but we may not have the know-how to make those a reality. Well, you’re in the right place to learn how to manage your money better.
It’s sad but true that you can earn a high-school or college degree without a class in the basics of smart money management. So let’s dive in for a little self-ed that will help you minimize debt, boost wealth, and make crushing your goals as simple as possible.
We’ll give you wise guidance in the form of 11 tips that:
• Help you understand your personal financial landscape
• Manage your money better
• Avoid debt traps (they’re out there!)
• Create positive net worth
Ready to build your financial skills? Class is now in session!
11 Tips to Manage Your Money Better
Money management can help you save more, spend less, improve your credit score, and more. Here, we’ll cover 11 of the most effective money management tips to adopt.
1. Set up the Right Bank Accounts
Your bank accounts are the hub of your financial life, so make sure you have ones that are geared towards optimizing your money and facilitating your cash management. You’ll want a checking and a savings account, because keeping cash solely in your checking account has a way of enticing you to overspend. Linking those accounts is wise, too, so that you can easily transfer funds back and forth as needed.
What’s more, you want to strike the perfect balance between accounts that pay some interest and don’t deduct fees for every little transaction. Interest rates have been notoriously low of late, making those minimum balance, monthly maintenance, and overdraft fees all the more painful. You don’t want your balances declining just because you are paying too much for the privilege of banking. A quick online search will reveal interest rates and fees. Typically, online banks pay higher APYs and have lower fees than traditional bricks-and-mortar institutions.
2. Review Your Current Financial Status
With money, it’s vital to know where you stand. It may be tempting not to check your bank balances, how much you owe on your credit cards, and what an upcoming tax bill looks like. But knowledge is power.
Go look, and write down your assets and debts. Confront any issues like a low credit score, bills put in for collection, and/or a negative bank balance. If you’re feeling overwhelmed, consider seeking professional guidance to help you know how to clean up your finances. Acknowledging any issues is a major first step in the right direction.
3. Make a Money Plan
Because we haven’t been schooled in money management, many of us just live day to day, getting and spending, paying the minimum amount due on bills at the last possible moment. This kind of reactive stance won’t move your finances ahead the way a proactive budget will.
While the word “budget” can strike terror in the hearts of some, who think, “There goes all my fun spending,” the opposite is true. A budget helps you understand how much money you have coming in and what your monthly non-negotiable expenses are (rent/mortgage, utilities, food, and the like). Then it helps you divvy up the remaining funds towards debt, future savings, and discretionary spending.
There are several different budgeting methods. Shop around and find one that suits you best. Some popular ones are zero-sum budgeting, an envelope budget, and the 50/30/20 budget.
4. Check in with Your Finances Regularly
As you become more familiar with your money, it’s a good idea to check your balances regularly. We’re not saying every single day, but a couple of times a week works well for many people
Where exactly are you looking? Definitely look at your checking account balance to see how it’s doing. Perhaps you forgot about an automatic bill payment that you’d scheduled and now your balance is in the danger zone and are about to be charged overdraft fees. Maybe you have so much sitting in savings that you can siphon some off into a separate emergency fund. And how about that credit card statement? Are there any transactions you don’t recognize? Early action can help ward off or resolve fraudulent activity and identity theft. Online apps can make it one-click convenient (or almost) to check where you stand.
5. Set Smart Financial Goals
As you get on top of your everyday expenses, also think big. Setting money goals helps you keep on track and achieve your financial aspirations. Take some time to think about your five- and ten-year plan and beyond. What would you like to achieve in life? Financially? Among the common goals are paying off debt; saving for a big vacation, a wedding, or a home; bankrolling a child’s education; and enriching one’s retirement fund.
It’s possible to set up separate savings accounts for each goal you have. What’s more, you can create automatic withdrawals from checking on payday to help plump up those accounts. Even if it’s a small sum, like $10 or $25 per pay period, it will help. And having it deducted before it sits in your checking account, tempting you to spend it, is a wise money maneuver.
6. Cut Back on Your Expenses
Don’t wince when you hear about cutting back on spending. Some of this is just about being a shrewd customer and not letting your hard-earned cash slip through your fingertips. Take a look at your debit card and credit card transactions. Have those TGIF lattes become a daily thing? Are you still being charged for some premium channel you haven’t watched in ages? Some expenses are rather easy to ditch and can save you hundreds of dollars a year.
If, after eliminating the no-sweat stuff, you are still tight on funds every month, look again and cut deeper. If you’re, say, saving for your first home, could you downsize to a less amenity-packed rental for a year or two to make your dream happen? How about that pricey gym membership? Could you perhaps find some free workouts on social media to try? Find some trade-offs and trade-downs so you can balance spending and saving.
7. Take a Look at Your Income
This may sound like super-obvious advice, but do consider your earnings. Take a look at your take-home pay when formulating a budget. Also consider what you might do if you’d like a bit of wiggle room in that budget. Could you take on a side hustle? Many people are finding that they can pad their income with money from, say, driving for a ride-share service on occasion, walking dogs, selling their handcrafted items online, and more.
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8. Create a Plan to Pay off Debt
One of the trickiest parts of managing your money is dealing with debt. You might think of debt as existing in two different varieties: good debt vs. bad debt. “Good” (meaning relatively low-interest debt, like a mortgage) can help build your credit history and improve your credit score if handled well), unlike “bad” (the high-interest, “how will I ever get out from under this?” kind, like credit-card debt).
Without ignoring the “good” debt, focus on paying off the high-interest debt first. Credit card interest is currently averaging between 14 and 18+%, and paying the minimum due on your monthly statement will unfortunately keep you in debt for quite a while. Develop a plan to curtail credit-card spending and pay it off ASAP. Consider whether you might consolidate credit card debt into a low interest personal loan and focus on paying off that one loan. Or You might investigate transferring your debt to a zero- or low-interest balance-transfer card. This might give you between 12 and 18 months to have no interest accrue and knock down the balance. If you think that won’t do enough, consider consulting with a debt-counseling organization, like the nonprofit NFCC . (If you’re having trouble opening a checking account due to a poor record with banking, look into a second chance account.)
One last debt management tip: If you have student loans, they may or may not be at a low rate, and regardless, they may or may not feel manageable. It can be a good strategy to investigate how much money you can save when you refinance your student loans into one convenient, low interest loan.
9. Understand Your Credit Score
Your credit score is an important three-digit number that typically ranges from 300 to 850, with 690 to 719 being considered good, and 720 and higher being excellent. Having a solid credit score helps you in many ways, from impressing those considering hiring you or renting to you, to snagging you the best rates when you apply for a home or car loan.
You can get an annual credit report for no charge at Freecreditreport.com . Check your score, and scan the report for credit score errors about which you should alert the credit-reporting agencies. If your score could use some support, be meticulous about clearing any late bills or payments that are with collection agencies. Pay debts on time, and limit the lines of credit you apply for (loans and credit cards, as well as bank accounts with overdraft privileges possibly). Keep your credit utilization at 30% or lower; 10% is ideal. This means if your credit limit on a card is $10,000, your balance would be no more than 30% or $3,000; no more than $1,000 or 10% is better still.
10. Build an Emergency Fund
Here’s a fact about emergencies: You don’t see them coming. Say a flash flood ruins your kitchen, or a car accident involves thousands of dollars of repairs. Or you get hit with an unexpected and major dental bill. Whatever the situation, having an emergency fund to cover these kinds of events can be a life-saver.
But only one in four Americans has six months’ worth of living expenses socked away, according to a recent survey. Join their ranks by starting an emergency or rainy-day fund and adding a small amount every paycheck until you meet your goal. A high-yield savings account can be a good, interest-bearing and accessible place to hold your funds.
11. Save for Big Expenses
Your home-renovation or retirement fund won’t create itself. Your attention is needed to prepare for these big expenses. This is where the pay yourself first principle comes in handy, having money automatically deducted from your paycheck to put into a savings account. As mentioned above, even earmarking $10 or $25 per paycheck to big, long-term goals can start you on a path to achieving your financial goals.
Smart money management needn’t be hard or time-consuming. It requires a bit of attention, organization, and a commitment to priorities. By following the simple strategies we’ve outlined, you can minimize debt, grow your savings and wealth, and make your financial dreams come true.
We can also help with another path to better money management. SoFi offers Checking and Savings accounts that charge no account fees while paying a super-competitive 1.25% APY. Plus, our app makes deposits, transfers, and more transactions fast, secure, and so simple.
SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members
without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change
at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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