There’s no magical answer when it comes to improving your finances. That’s because it takes more than just one change — you have to adopt several money management habits. For one, you need a good understanding of your income and expenses. You also need to budget, track your spending, and live within your means. In this article, we’ll teach you how to do all three and more so you can achieve financial well-being.
1. Use a Budgeting App
If you haven’t already, consider downloading a budget app to help keep track of your finances. Budgeting apps pull information from all your accounts — savings, checking, 401k — and display it on a single dashboard. That way you can monitor your finances in real time. These apps will review your finances and offer a budget to help you reach your financial goals.
If you link your credit and debit card to an app, some can automatically record purchases and send alerts if something looks suspicious. For example, if you’re based in California, but $500 is withdrawn from your account in Iowa, some apps will send an alert. Setting this up can help you spot fraudulent behavior and report it immediately.
2. Understand the Why
According to a survey by The Penny Hoarder, an estimated 53% of Americans do not use a budget to manage income. That’s a pretty low number considering the average American has over $90,000 in debt.
The problem is, budgeting has a reputation as a downer. Creating a budget is thought to be difficult and time-consuming — even with a budgeting app. While budgets can take time to perfect, the issue isn’t creating one, it’s following the budget.
Having to restrict expenses isn’t easy for anyone. But it’s important to improve your financial well-being. Having a budget can help you achieve your savings goal, improve your debt strategy, and set you up for success.
It’s important to note that your budget doesn’t have to be too restrictive. In fact, it shouldn’t be. The more flexible and realistic your budget is, the easier it’ll be to follow.
3. Create a Budget
Maybe you want to create a budget, but you don’t like the idea of using an app. You can take a more manual approach. There are several budgeting methods out there that have proven to be successful. For instance, you can use the 50/30/20 budget. This requires you to put 50% of your income toward needs, 30% toward wants, and the remaining 20% toward savings or paying down debt.
There’s also the envelope system method, which is a bit more disciplined. With this method, you plan out how you’re going to spend your money each month. Then you categorize your expenses and label them on envelopes. For example, one envelope might say “grocery shopping” or “insurance.” Then you withdraw the cash you need to fill each envelope based on your budget.
Finding the right budgeting method is as simple as figuring out what works best for your specific lifestyle. And remember, if after a month you want to change your method, you’re free to do so.
4. Focus on Your Debt
One of the best things you can do to improve your finances is get rid of debt. Easier said than done, right? It’s no secret many Americans find it difficult to pay down debt. And while there are many reasons why some struggle, not everyone has the best strategy in place. Do yourself a favor and reevaluate your debt payoff strategy, especially if it doesn’t seem to be working.
There are two popular strategies to pay down debt: the debt avalanche method and the debt snowball method. With the debt avalanche method, you make minimum payments on all but one of your debts. Then you devote additional funds to paying off the one remaining debt with the highest interest rate.
With the snowball method, you also pay the minimum payments on all your debts but one. Then you use the extra funds available to pay down the one debt with the smallest balance. Once that’s paid off, you move on to the debt with the next smallest balance and so on.
The snowball method allows you to see more progress, as accounts are paid off one by one. But you will likely end up paying more in interest than with the avalanche method. Either approach is valid; what matters most is finding the method that works best for you.
5. Pay Your Bills on Time
Paying your bills on time sounds easy enough. But you’d be surprised by how easy it is to forget to make a payment. It might not seem like a big deal to wait an extra week to pay a bill (especially if it’s a small amount). But it can do serious damage to your wallet.
Missing a payment or paying later means you’ll acquire late fees and/or interest. That means you’ll end up paying more money than if you made the payment on time. Plus late payments can lower your credit score and make it difficult for you to get approved for a loan.
You may struggle to pay your bills on time due to a lack of finances. If so, consider working with your bank to see if you qualify for a payment plan. That will hopefully keep you from incurring late fees. On the other hand, maybe you simply forget to pay your bills. If that’s the case, set up automatic payments or reminders to help you remember.
6. Avoid Recurring Charges
Some recurring charges, like rent and car insurance, are inevitable. Others, like multiple music subscriptions and a gym membership you never use, aren’t exactly necessary. And while you might want access to every streaming service, do you really need it? The answer is no, especially considering how expensive these charges are.
Before creating a budget, review your expenses for the last several months and flag all of your recurring charges. Look for unnecessary subscriptions and maybe even subscriptions you never knew existed. Even if it only costs $10 a month, that’s an extra $10 that could go to something else.
Once you identify the recurring charges you could live without, contact the service and cancel the subscription. You’d be surprised by how much you’ll gain from canceling subscriptions you don’t really need or even use.
Regardless of your income or spending habits, you could probably stand to improve your finances. Using the tips above will help you gain control of your spending so you can achieve your financial goals.
