4 steps to get your finances under control – and achieve your dreams
If you make well above minimum wage, you should have plenty of money to live on. So why can’t you seem to save? You’re not alone. One study found that 78% of Americans live paycheck to paycheck – but you don’t have to be a part of that statistic. You can save money, invest and achieve everything you want in life, financially and personally. You can not only build up your savings, but also learn how to put it to work for you through investing. It’s all about money management.
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What is money management?
Money management is a business strategy that allows you to get the most return on your income. It involves tracking, budgeting, saving and investing your paychecks in a way that yields the highest output – and it is an essential skill for every person on the planet. Why? Your overall wealth has more to do with learning how to manage your money than it does with how much money you make. Whether you make $100,000 or $1 million, when you develop your money management skills, you can achieve financial freedom, retire comfortably and more.
How to manage your money
The good news is that you don’t need to be a math whiz or a millionaire to learn money management skills. At its core, money management is about changing your mindset and creating good habits.
1. Make a budget
Tracking your spending is money management 101. In today’s digital world, it’s usually easiest to track your spending on your phone, whether in your budgeting app or just in your notepad. You can also use pen and paper. Whatever you choose, follow these tips:
• Make time to enter your numbers
Tracking your spending won’t work unless you take the time every day to record what you spent. Ideally, you’ll do it right after you make a purchase. At a minimum, you must set time aside at the end of each day to enter your spending.
• Categorize your purchases
Typical categories include rent and utilities, other bills such as car payments or student loans, entertainment and food. Break your food category into groceries and eating out – groceries are a necessity, while eating out is not. And don’t forget any additional categories like charitable donations or supplies for your pets.
• Get detailed
Save your receipts. Record information like where you went out to eat or what exactly you bought on that shopping trip. Could you go somewhere cheaper? Did you really need what you bought? Keeping track of the details is the first step to cutting back.
Once you know what you’re spending – and if you’re spending more than what you make each month – you’ll know how to budget and where to cut back. Use the same categories that you used to track your spending and set a limit for each month.
2. Cut back
Even the smallest savings can add up. Here are some common areas where you can save on your monthly spending:
• Eating out
This doesn’t just include restaurant meals, but also takeout and delivery. A recent study found you save about $16 per meal by cooking at home. Bonus: You’ll eat healthier, too.
How much do you really use each of your streaming subscriptions? Can you cut one out or cut back to a cheaper tier? Don’t forget about other subscriptions like news or online gaming.
• Cell phone bills
You need a cell phone – but do you need unlimited data? Do you really need the latest iPhone model, which you’re probably financing through your service provider? Take a look at your bill and see where you can save.
• Cable and internet
Like your cell phone bill, your internet bill may have some hidden things you don’t really need. You may be able to scale back to a lower Mbps (megabits per second) to lower your bill and cut out cable altogether.
Cut back enough so that you are able to save. Even $100 per month will add up quickly. Make a savings goal part of your monthly budget – and stick to it. Better yet, dream big. Your savings goal will be much easier to achieve when there is a purpose behind it. Why are you working so hard? Do you dream of owning a home or traveling the world? Zero in on what you really want. Then create habits that will help you get there.
Having trouble with how to manage your money? Cutting back can be hard. Try these tips:
• Set SMART goals
SMART stands for Specific, Measurable, Achievable and Realistic goals with a Time frame. Setting SMART goals provides a roadmap to success and a way to measure your progress. And as Tony says, “Progress equals happiness.”
• Find your purpose
Saving money for something bigger than yourself can give you the drive you need to cut back. Whether you want to provide a better life for your family or be able to give back to charity, linking your purpose to saving money is essential.
• Visualize your goals
Goal visualization is proven to work – that’s why so many successful people use it. Start your day with a 10-minute session and you’ll feel refreshed and determined.
You might think you’re going to immediately buy that house, nice car or dream vacation. Think again. If you want to move beyond money management into truly growing your wealth, the first thing you need to do with your money is invest it – because what is money management if not your pathway to becoming financially independent? Here’s how to get started:
• Throw out misconceptions
Investing isn’t just for wealthy people. The truth is, you can start investing right now – with whatever amount of money you have. You can get started in real estate investing with as little as $500 to $5,000. Thanks to the power of compounding, even $1 per week becomes $1,067 in 20 years.
• Get educated
Compounding is just one financial term that educated investors need to know. Use online resources and people in your network to learn about financial terms like expense ratios and no-load mutual funds. Educating yourself will also help you avoid pitfalls like hidden fees and untrustworthy financial advisors.
• Get professional help