Some people are taught financial literacy from a very young age, while others only learn the value of frugality after their finances have spiraled out of control. Student loans start stacking up, car payments become past-due, the cable gets turned off, and suddenly you don’t know how to pull yourself out from under the mess.
If this sounds familiar, you’re more than likely feeling a bit overwhelmed as you struggle to manage your money. As stressful as it may be, know that there is an end in sight and that budgeting gets easier with practice. By following these tips, you can learn how to manage your money and stop living paycheck to paycheck.
- Compare Income to Expenses
The first step is to create a clear picture of the money coming in versus money going out. In one Column A, tally up all possible sources of cash flow, such as:
- Salary or wages
- Loan proceeds
- Rental income
- Child support or alimony
- Social Security benefits
- Side hustles or freelance gigs
Then, in Column B, added up all of your fixed monthly expenses. Note that fixed expenses are different than variable expenses in the sense that they’re mandatory and stay the same every month. Some examples may include:
- Rent payment
- Loan payments
- Cell phone bill
- Grocery expenses
Fixed expenses are non-negotiable and should be built into your standard cost of living. Variable expenses, like a Fantasy Football League buy-in or Netflix subscription, can be controlled and monitored.
- Consolidate Debt
The next step is to tally up all your outstanding credit card debt. Prioritize paying off the cards with the highest APR, as interest adds up quickly, but it’s also important to make the minimum payment on each account to avoid late fees.
If you have multiple lines of credit open, it can be hard to stay on top of all your bills. One strategy you can use to better manage your money is consolidating your debt under one lender, so that you’re only responsible for one monthly payment. Balance transfer credit cards allow you to merge multiple accounts for a fee that usually ranges between 0% and 5%. Depending on your balance, you might have to pay a couple hundred dollars to initiate the move, but that could save you more in the long run by avoiding compounding interest at a rate of 20% or more.
- Set Up Auto-Payments
Whether or not you consolidate your credit card debt under one account, it’s wise to set up automatic payments so that you have less to worry about on your plate. Most banks require minimum payments in increments of $35 or less, so fitting them within your budget shouldn’t be too much of a stretch.
If funds are tight, dial back variable expenses to ensure no overdraft charges are incurred. Can you afford to dine-out as frequently as you do? Maybe you can cancel your gym membership and save money with at-home workouts online. Are there grocery store coupons you can clip to make meals more affordable? Saving a few dollars here and there may seem insignificant, but every penny counts.
- Automate Savings
An old saying says to “Pay yourself first”, and it’s a great piece of advice when it comes to money management. Essentially, it means that before paying for nonessential goods and services, you should pay yourself by depositing money into a savings account for safekeeping.
When you’re struggling with debt, this is much easier said than done. That’s why it’s smart to set up automated savings contributions in conjunction with automatic bill payments so you’ll know that your obligations are met at the beginning of every month.
If you can’t set up direct deposit through your employer, consider installing an app that links to your bank account and allows you to create rules based on your transaction history. For example, you can round each purchase up to the next whole dollar and stash the spare change, or establish a “guilty pleasure” contribution for each time you visit your favorite coffee spot.
- Apply the 50:30:20 Rule
If you’re having trouble deciding how much to allocate on spending versus saving, fall back on the golden 50:30:20 rule. This suggests spending 50% of your income on the cost of living, 30% on variable expenses, and 20% on contributions to a personal savings account or brokerage account. Use this investment calculator to create investment goals, forecast investment growth and search for opportunities to boost your portfolio’s success!
Money management might not come naturally at first, but after a few months with these guidelines in place, you’ll be significantly closer to achieving financial freedom.
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