It’s easy to get overwhelmed by managing your finances. Usually it’s because we make it too complicated. Where should I be investing? What is crypto currency about and am I missing out? Truth is, the best money goals are the simplest ones. They have won the test of time, proving again and again that these 5 steps can spell financial success, for anyone.
Split your money goals into smaller milestones
Immediately lower your stress by setting smaller milestones: you will still land at your destination, but this method makes the goals feel achievable along the way. For example, if you want to save for retirement, focus not on “the Big Number” (i.e. how much you think you need in retirement), but this year’s number. Start with, say, a $6,000 annual goal, saving $500 a month. This method helps keep you motivated as you gradually complete smaller milestones one after the other. Then keep increasing your goal to get you to your personal finish line.
Get detailed in keeping track of your expenses
This can seem like a tedious task, but it is a time-tested surefire way to find out where your money is going. Whether you use an app (like Mint or Money Manager) or keep everything in an Excel sheet, do the work of noting everything you spend in a week. And then in a month. Every item: coffees, tolls, extra gas, that bunch of flowers you bought on a whim.
It’s common for people to overspend on “small” items they may not necessarily need — without realizing how much all those small daily items add up to in a month. That’s why writing it all down (or entering it into an app) is so useful: you can see once and for all where your “extra” money is going, and decide to cut out all those “little” items.
Get serious about making a budget
Aside from tracking your expenses, you should also set a monthly budget. Fortunately, tracking all your daily expenditures, as suggested above, makes that super easy to do! Start with what you bring home every month, then subtract the necessities (food, home, gas, electric). And no, cell phones aren’t necessities and neither is cable. Once you do that math, you are left with how much money you have to spend on Wants. This is where you want to make choices, and choices that might be hard choices (i.e. cell phone vs. streaming services). But do what you must to spend less than what you make! This is the number-one “secret” to financial stability: figure out how to live on less than what you make. Every single month.
Automate your savings money goals
By setting up automatic contributions to your savings account, you can make savings literally automatic — instead of hoping there’s some money “leftover” that you can save. Think of it as placing a bet on yourself and your future, every single paycheck. Even if it’s only $5 a month to start, it’s a worthwhile habit to begin. Over time, increase your “pay me first” savings account deduction and watch the money collect.
Commit to saving an emergency fund
Unexpected and unplanned life events have a way of knocking us off our routines — and costing us money we weren’t planning to spend. But the simple truth is, we should always be planning for the unexpected to happen, especially in our budgets! So if you started automated savings, as we mentioned above, consider this first to be your “emergency fund,” that you can draw on when the car breaks down or the cat has an emergency vet visit. Ideally, you will save up at least three months’ worth of expenses (those necessities you laid out in Item 1 above) to get you through a short-term tight pinch.
Crush your credit card debt
If you are carrying significant credit card debt, though, don’t save a full three months worth of expenses. Why? Because high-interest rate credit card debt has the power to undo all your other good-money habits. Because compounding debt (which is what happens when you don’t pay a balance off in full every month) can increase exponentially over time, it’s important to get out ahead of it and make a plan. Consider a debt consolidation loan, if you qualify, to allow you to gather all your payments into one, lower-interest payment. For more info about debt consolidation, how it works, and whether you are a good candidate for this form of debt relief, reach out to White Mountain Partners.