If you’re not sure why money management is such a big deal, then your money is probably managing you. There’s much more to financial security than just spending less than you make. If you can see past the numbers, you’ll give your money greater respect and do a better job of managing your personal finances.
Most people don’t spend enough time thinking about money until they realize that they are quickly approaching retirement age and need to implement a plan. With the right blueprint, you can avoid coming up short when it matters most.
Create a Realistic Budget
Budgeting is simply deciding how much to save and how much to spend. There are all kinds of models and templates on the internet. In the 50/30/20 plan, for example, after-tax income is allocated to one of three categories: 50 percent for needs, 30 percent for wants, and 20 percent for savings.
Whichever model you choose; take every expense you can think of into account. This will be easier if you track your spending for a few weeks using online banking and credit card tools.
Be flexible in the beginning. If you’re paying down debt, you might not be able to save as much as you’d like.
Comb Your Budget for Unnecessary Expenses
Your budget will expose careless spending, but it will also highlight opportunities to save. Consider stretching the time between pedicures. Cancel club memberships and subscription services you no longer want before they automatically renew.
Organize a carpool. Get rid of cable. Explore money-saving lifestyle changes too. Consider moving to a smaller place or sharing with a roommate for a while.
Adjust Your Mindset
People associate good spending habits with discipline, and that certainly plays a role. However, changing your whole mindset about money will make it easier to resist impulse buying and stick to the budget.
Don’t just think of money in terms of your bank balance or what you owe to Visa. Again, see past the numbers. Think of tangible things that every dollar amount represents
Deal with Your Debt
Whatever sacrifices you make to avoid debt or climb your way out of it will be worth it. Debt severely limits your ability to buy what you need when you need it. It keeps you from being generous, rewarding yourself, saving for the future, and fulfilling your dreams. Whatever accounting method you use, subtract credit card purchases from your bank balance as though you paid cash.
Your bank balance will appear smaller than it really is, but you’ll always have the money to pay your credit card balance in full. If you’re in debt but still have a fairly decent credit score, you may be able to consolidate certain loans and credit card accounts.
Start an Emergency Fund
Every day, people go into the red because they’ve set nothing aside for emergencies. Start socking away as much as possible each month. Experts suggest saving enough to cover three to six months’ worth of expenses. Mind you, Black Friday is not an emergency.
A Brazilian blowout is not an emergency. Examples of an emergency include job loss, a blown transmission, and rabies treatment.
Closely Monitor Your Credit Report
Traditionally, people were entitled to a free credit report once every 12 months. For now, at least, the big three credit reporting bureaus — TransUnion, Experian, and Equifax — are offering free access once a week.
Each bureau has slightly different methods of reporting, so check out all three. The reports show all your credit accounts, credit activity, and payments. They assign different weights to various things that impact your credit score.