Before we begin, here are a few questions to ask your-self first.
- Do you know your credit score?
- Do you track or review your spending?
- Do you know the approximate interest rates on your loans, credit cards and savings accounts?
- Have you set money set aside for emergencies?
If you are ready to be the boss of your money, I am going to take you through a few steps of how to manage your money better. But First, find out where you stand financially by taking this financial wellness quiz.
Now that you are done with the quiz, and know how good you are with money, let’s talk about some smart money habits.
Create a Budget
With a budget, you will have adequate resources in terms of money for the things you need and the things that are important to you.
Some people say they have the budget in their head or already know what they spend every month. The TRUTH IS! You cannot possibly remember every little thing you spent your money on in a month. However, seeing it on paper or on your laptop helps you visually bring your expenses to life and having a spending plan keeps you out of debt. Here is a simple and easy budget template that I am currently using for free.
Let’s JUMP ON IT …
Get On a Money Management and Savings Plan
Now that there is a budget in place, next is Money management. These are strategic practices that yield the highest output value for any amount of money spent. Dave Ramsey who is a renowned personal money-management expert and extremely popular national radio personality suggests creating a customized financial plan that fits your lifestyle basing on these 7 baby steps.
Baby Step 1: Save $1,000 for your starter emergency fund.
Baby Step 2: Pay off all debt except mortgage using the debt snowball (paying off a loan or card with the smallest balance first regardless of the interest rate). However, I have found that paying my debt starting off with the high interest debt has worked out better for me, because the longer interest accrues on a balance, the more I will pay. I focus on putting as much money as possible toward the debt with the highest rate so that when I pay it off, I can apply that amount to the next debt on the list.
Baby Step 3: Save 3–6 months of expenses in a fully funded emergency fund.
Its better to wait to save for a fully funded emergency fund until you have completed Baby Step 1 and Baby Step 2. However, this might now work for everyone depending on how much debt you have. If possible, put aside what you can on that $1,000 account until you raise it up to six months of monthly expenses as you pay off your debt.
Also, as you save for different goals, having multiple savings accounts is very effective. For example, your emergency fund should be in a separate savings account so you are not drawn to tap it for an itching purchase like a booking a vacation in the Caribbean, which means you need to have another savings account for your non-essential needs besides the emergency fund.
Baby Step 4: Invest 15% of your household income in retirement.
Dave suggests to Start by investing enough in your company’s 401(k) plan to receive the full employer match and then investing the rest into Roth IRAs, one for you and one for your spouse if you’re married. He recommends only 15 percent because the extra money will help you finish the next two steps.
Baby Step 5: Save for your children’s college fund.
We all know how expensive college is and you wouldn’t want your kids completing a four year college with $80,000 loan. The earlier you start saving for the kids, the better it is for both the parent and the child.
Baby Step 6: Pay off your home early
Put all extra funds (based on having created a solid budget) toward that mortgage and get it paid off in full as soon as possible
Baby Step 7: Build wealth and give.
Obviously you shouldn’t wait to give back to your community until you are wealthy. Giving comes in different forms and can be done whenever you have the means. This is just a reminder to not forget GIVING back to the community (through Donations, participating in Fundraisers or charities) or whatever you find suitable.
Get Rid of Any Extra Credit Cards
Credit cards are a great tool but you don’t need a lot of them, having one or two credit cards is manageable. Avoid using credit cards as part of your emergency fund due to the high interest rates involved, unless you are using a 0% APR credit card that does not charge interest on purchases for a certain number of months after account opening and you are able to repay that amount before the offer expires.
Choose Value over Quantity
One lesson I have learnt throughout the years is that quantity will never make you happy entirely. This can apply to all parts of your life, be it clothes or friendships. Although it’s enticing to choose the more “cheaper” version of an item, in the long run choosing quality over quantity will save you more because you are choosing more sustainability and you get more enjoyment from quality things. So, save up your money and get the best-quality product you can afford.
A lot has been going in 2020, emotionally, financially and physically, half the year is gone and things need to change but as financial expert Dave Ramsey says, “You will either manage money, or the lack of it will always manage you”. No matter where you are on your financial journey, I encourage you to incorporate these smart money habits in a financial plan that fits your lifestyle and feels right to you.
For more financial tips and advice, check out what I posted about Tools and Tips to help you gain over you finances.
Was this content helpful? Let me know how you are managing your money