Managing your money doesn’t have to be complicated. A few simple steps can go a long way to help many people stay on top of their finances. Here are our top tips for budgeting, expense tracking, saving, investing and more.
1. Keep track of your cash flow
Keeping track of money going in and out of your bank account is one of the most important moves you can make when it comes to getting your finances in order. This includes keeping track of any W2 income from a regular job, income from freelancing or side hustles, and income from other sources, like investment income.
You should also keep track of all of your different financial accounts, like checking accounts, savings accounts, credit cards, retirement savings accounts, investment accounts, and more.
Finally, you should make note of where your money is going each month, including recurring bills like rent and car insurance, as well as discretionary spending.
2. Make (and stick to) a budget
Once you have an idea of where your money is coming from and where it’s going each month, the next step is to make (and stick to) a budget. You should make sure that your budget is realistic – drawing up an unreasonable budget can make it harder to stay on track.
Your budget should include both fixed, recurring costs like rent and utilities, as well as spending goals for flexible categories like groceries and dining out. Unless money is truly tight, it’s also often a good idea to build in a little discretionary spending. For example, you may want to set aside $100 per month to spend on new clothes, household items, or other splurges.
You can make a budget the old-fashioned way using pen and paper or a simple excel spreadsheet, but there are also a variety of budgeting tools, like Mint (mint is shutting down in 23rd of march 2024, there are many better alternatives to mint like YNAB)
3. Regularly review expenses
Unless you regularly review your expenses, you could be paying more than you have to without even realizing it. Subscriptions you’re forgotten about, services you don’t use anymore, and even fraudulent charges – reviewing your expenses on a monthly basis can help you to keep these costs in check.
One way to quickly and easily review expenses and cancel services you no longer need is by using a subscription and budgeting tracker like Rocket Money or Trim. These tools make it easy to stay on top of recurring monthly expenses, monitor any unusual or suspicious charges, and make sure that you’re not paying more than you need to. In some cases, these services may even help you to negotiate bills for services like phone or internet.
4. Keep tabs on your credit score
A good credit score can help you to qualify for financial products like loans and credit cards, and can even help you to secure housing or lock down a job. You should regularly monitor your credit score to ensure that all the information on your credit report is accurate and dispute any errors that you spot.
You can also take steps to improve your credit score. Ways to improve your credit include making on-time payments each month, reducing your credit utilization, paying down debt, keeping your oldest accounts open, and strategically opening new accounts when you can.
5. Borrow responsibly
Borrowing money can help you to achieve your financial goals, but only when done responsibly. In some cases, borrowing is one of the only realistic ways to afford high-ticket items, like a new car or even a new house. In other cases, borrowing can be a way to take advantage of perks and rewards on everyday spending.
For example, opening a credit card that comes with a hefty welcome bonus and cash back on purchases can be one way to earn a little extra on things you were planning on buying anyway. But if you do put expenses on a card, you should be sure to pay it off as quickly as you can, in order to avoid accumulating any interest. Borrowing money is one financial tool in your toolkit, but you should take steps to avoid getting into more debt than you can handle.
6. Cut costs where you can
In some ways, your finances are pretty simple—money comes in each month, money goes out each month, and ideally you’d like the former number to be higher than the latter. One way to do this is to decrease your spending.
Cutting costs where you can, whether that means moving to a cheaper apartment, trimming your grocery bill, or cutting back on discretionary spending like clothes and takeout, can help you to balance your budget and stock more away in savings for longer-term financial goals.
7. Increase your income
Increasing your income is the other half of the money in/money out equation. The more money you make, the more you’ll be able to save and invest, as long as your expenses remain steady. While increasing your income is easier said than done, there are a few strategies you can take to try to boost your earnings.
First and foremost, you should see if there are any opportunities to increase your earnings at your day job. Whether you ask for a promotion, switch employers, or learn an additional skill that could make you more marketable, this is one of the most high-impact areas to bump up your income. Aside from your day-job earnings, you could also try to earn a little extra from a side hustle, or a part-time job. Freelancing or working on the side could be especially lucrative if you have in-demand, remote-friendly skills like writing, programming, or design.
8. Build up a safety net
Building up a financial safety net can help to provide you with a little cushion if things don’t go your way financially. Ideally, you should aim to save up six months to a year’s worth of expenses in a saving account.
But for many, that goal can seem out of reach—especially if you’re saving for multiple goals at once, such as a safety net, retirement, and the down payment for a house. Consider doubling up on retirement and emergency fund savings by stashing spare funds in a Roth IRA. Since these contributions are after-tax, you can withdraw them penalty-free if you’re faced with an emergency expense.
Even if you’re not able to save up a whole year’s worth of expenses, it’s a good idea to have at least a few thousand dollars – or as much as you’re able – stashed away in a savings account. This can help you to weather unexpected expenses, like a surprise car repair or medical bill, without going into too much debt.
9. Invest in your future
Once you’ve got the basics down, including sticking to a budget and building up your savings, it’s time to look toward your financial future. If your employer offers a retirement savings account, like a 401(k), it’s a good idea to start making contributions, especially if they offer an employer match. Otherwise, you can contribute to retirement accounts like a traditional or Roth IRA. Investing even a small amount as a young person can pay off handsomely in retirement, thanks to the power of compounding interest.
10. Keep things in perspective
If you’re struggling financially, you might be tempted to think that you’re just bad with money. But the reality is that your financial situation has a lot more to do with your income and your cost of living expenses than whether you splurge on fancy coffee or the occasional takeout. While you should try to live within your means when possible, don’t beat yourself up if you’re still trying to get back on track financially.
Instead, it’s a good idea to keep things in perspective and work towards small, achievable goals. Whether that’s paying your bills on time each month, saving up $500 in an emergency fund, or setting aside some spending money for a rainy day, even small money moves can be a step in the right direction.