They say, “More money, more problems”, but if you manage your money right, that 90’s lyric means nothing. Taking the time to assess your financial situation on a regular basis may be stressful or difficult to manage, but the more committed you are to taking hold of your finances, the better off you are in the long run. Rather than wait for a money miracle to happen (trust us, they don’t happen often), start managing your money today with these helpful tips.
Assess your current financial situation
Before we deep dive into how to assess your current financial situation, ask yourself these key questions:
- Are you afraid of checking your bank account balance?
- Are you in any credit card debt?
- Do you live from paycheck to paycheck?
- Are you more likely to ignore financial roadblocks than deal with them?
- Are you always searching for tax resolutions around tax season?
If you answered yes to any of these questions, you likely need some help managing your money. Without a consistent and comprehensive grasp of where you stand financially, you’re more likely to dip into the negative and accrue unnecessary debts.
Before grappling with a budget, figuring out what you can budget is an important first step. Follow these steps:
Step 1: Calculate monthly outgoing expenses (groceries, rent, utilities, transportation, personal loans, subscriptions, insurance, etc.)
Step 2: Calculate incoming cash flow (monthly pay, alimonies, child support)
Step 3: Subtract monthly outgoing expenses from incoming cash flow to calculate disposable income
With a well-rounded understanding of how much you’re making and how much money you’re spending, you’ll be able to determine where you can cut costs and where you can set aside savings.
Build a budget plan
Organizing your finances into a functional budget plan comes with a number of benefits. In essence, budgeting your own money ensures that you will always have enough money for the things you need to maintain your quality of life. In fact, people with established budget plans are:
- Less likely to fall into debt
- More likely to have a good credit score
- Less likely to struggle living from paycheck to paycheck
- More likely to be approved for a mortgage or loan
The first rule of budgeting is to be realistic. For example, if you have a monthly take-home pay of $3,000, you will always need to account for rent, bills, and other outgoing musts. Setting aside 50% of your income toward your needs, 30% aside for wants, and 20% to savings is a great place to start.
Assessing where you can cut costs is an important step in managing your money. Maybe you can tone down your unlimited data phone bill or maybe you can cut the cord on your cable subscription. Wherever you’re able to save a few dollars will eventually add up and leave you with more disposable income that you can deposit into savings or spend on nights out on the town.
Setting goals for yourself is an excellent way to keep your budget on track on a daily, weekly, or monthly basis. Whether you’re aiming to cut frivolous spending at the mall or simply want to minimize how many times you reach for your credit card, having a working budget in place will help you accomplish your money management goals faster than you think!
Prioritize paying off debts
The vast majority of debts come with nasty interest rates that tack on extra costs every month. The only way to avoid these burdensome debt interests is to tackle them head-on. Whether it’s a student loan or a credit card bill, nipping your debt obligations in the bud as quickly as possible gets you several steps closer to financial freedom.
By allocating a certain percentage of funds per month (which also cover accrued interest rates), you regain control over your expenses rather than letting your credit card or loan provider dictate how much you’ll pay in the long run.
Pro-tip: Pay off the highest interest debts first and the interest-free ones last.
Revisit your plan
One of the key elements of money management is constantly revisiting your budget plan. If you have a salary change, rent increase, or car payment decrease, you’ll need to reassess your plans to keep your goals perfectly aligned.