How to manage your money is a subject that is not taught in many schools, but is something that nearly everyone has to deal with in their lives later on. Here are some statistics: Some 58% of Americans do not have a retirement plan in place for how they’ll manage their finances when they get old.
For one month, keep track of all your expenses
You don’t have to limit yourself; just get an idea of what you spend money on during any given month. Save all your receipts, make note of how much cash you need versus how much you expense to credit cards, and figure out how much money you have left over when the calendar turns.
After the first month, take stock of what you spent
Don’t write down what you wished you had spent; write down what you actually spent. Categorize your purchases in a way that makes sense to you.
Now, write down your actual budget
In your budget, make separate columns for projected budget and actual budget. Your projected budget is how much you intend to spend on a category; this should stay the same from month to month and be calculated at the beginning of the month. Your actual budget is how much you end up spending; it fluctuates from month to month and is calculated at the end of the month.
Many people leave significant room in their budget for savings. You don’t have to structure your budget to include savings, but it’s generally thought of as a smart idea. Professional financial planners advise their clients to set aside at least 10% to 15% of their total earnings for savings.
Be honest with yourself about your budget
It’s your money — there’s really no sense in lying to yourself about how much you’re going to spend when making a budget. The only person you hurt when doing this is yourself. On the other hand, if you have no idea how you spend your money, your budget may take a few months to solidify. In the meantime, don’t put down any hard numbers until you can get realistic with yourself.
When you can borrow/rent, don’t buy
How often have you bought a DVD only to have let it collect dust for years, without using it? Books, magazines, DVDs, tools, party supplies, and athletic equipment can all be rented for smaller amounts of money. Renting often saves you the hassle of upkeep, keeps room in your storage, and generally causes you to treat items better.
If you have the money, pay a high down payment on your mortgage.
For many people, buying a home is the most costly and significant payment they’ll ever make in their lives. For this reason, it helps to be in the know how to spend your mortgage money wisely. Your goal in paying off your mortgage should be to minimize interest payments and fees while balancing out the rest of your budget.
Understand that owning a credit card may be very important for establishing credit.
A credit score of 750 or above may unlock significantly lower interest rates and opportunities for new loans — nothing to sneeze at.
Start by putting away as much of your expendable (excess) income as possible
Make savings a priority in your life. Even if your budget is small, tweak your finances so that you save greater than 10% of your total earnings.
Start an emergency fund
Saving is all about frittering away expendable income. Having expendable income means not having debt. Not having debt means being prepared for emergencies. Therefore, a rainy-day fund can really help you out when it comes to saving money.
When you’ve started saving for retirement and put money in your emergency fund, put away three to six months’ worth of expenses
Again, saving is all about being prepared for the uncertainty of it all. If you’re unexpectedly laid off work, or your company reduces your commission, you don’t want to take on debt in order to finance your life. Setting aside three, six, or even nine months’ worth of expenses will help ensure that you’re in the clear, even if disaster strikes.
Begin really ramping up for retirement
If you’re getting to be that age (45 or 50), and you haven’t started saving for retirement, it’s really important to start ramping up right away.