The first of a new year is a great time to think about how to manage your personal finances. Developing a straightforward money management system (or breathing new life into an old one) can help you make smart decisions about budgeting, saving, borrowing, and investing.
Here are six tips to help you organize your financial strategy this year.
1. Track your spending.
The most basic money management strategy is to track your spending and use that to help you develop a budget. To get started, use a simple spreadsheet or a personal finance app to calculate what you spend in basic categories, such as groceries, shopping, eating out, and entertainment. Keep your receipts so you can track cash purchases, and be sure to include your online spending as well.
Reviewing your spending not only tells you where most of your money is going, it can also help you catch mistakes in your bills. Dedicated budgeters say they catch hundreds of dollars’ worth of mistakes every year. Take a minute to review your spending first thing in the morning, right before you go to bed, or every Saturday morning—just make sure you do it regularly.
2. Set financial goals.
Establishing financial goals will help you stick to your budget because you will know what you are saving for and why. You are likely to have a mix of short-term goals, such as buying a new laptop; mid-term goals, such as taking a vacation; and long-term goals, such as saving for retirement.
Set a plan for your goals, but be sure that your plan is realistic and flexible. It’s better to progress slowly than to get frustrated and stop saving. You may want to set a monthly dollar amount and put that money aside before you start spending. For some people, it also helps to put that money in a different bank account—one not connected to online banking, for example—so that it’s not easily accessible.
3. Talk about your budget.
Talking about your budget and goals with a spouse, partner, friend, or financial advisor is essential to get organized, stay motivated, and keep your spending under control.
Budget discussions will differ depending on your financial situation and the number of people involved. For example, a single person may only need to meet with his or her financial advisor once a month, whereas a couple with two children may need to discuss expenses and bills every week.
Whenever it is, make sure you are consistent and thorough. You should come prepared with your transactions accounted for and your bills ready to be paid. You should also review your money goals, your progress, and how long it will be before you’ll meet your goal.
4. Make a money calendar.
An important part of money management is paying your bills on time every month. Late payments can lead to extra fines and can also impact your credit score. A money calendar is a tool that is both simple and effective, and it can help you keep track of your bills. Create a calendar with every due date, and then set an alarm to notify you to pay on that date. If you use automatic deductions, make sure to note those items on the calendar as well.
5. Check your credit score.
Your credit score is an important aspect of money management because it helps determine if you can qualify for new credit and at what interest rate. Your interest rate directly impacts the affordability of your loan, with higher interest rates making a loan less affordable.
You are entitled to one free credit report annually from each of the three credit reporting agencies (CRAs) through AnnualCreditReport.com, and you can also purchase your credit report and credit score directly from Equifax or another CRA. Order your credit report and review it. If you see any negative information, such as late payments or overdue accounts, make a plan to settle those debts as soon as possible.
As you pay down those debts, try working with your creditors. For example, if you have a credit card with a high-interest rate, consider calling your credit card company and negotiating a lower rate. You should also tell your lender if you need help paying your debt because the lender may offer you better repayment terms if you communicate about financial hardships.
6. Identify your spending triggers.
Discretionary spending should be built into your budget so that you feel free to spend occasionally. In order to stay within your limit, consider what causes you to spend more. The reasons may be social, environmental, or emotional. Anticipate your spending triggers, and identify something enjoyable that you can do when the triggers arise. For example, if you always stop at the local coffee shop at 9:30 AM, consider bringing a thermos of coffee with you from home instead. It may take some time and preparation, but knowing your habits will help you avoid impulse buys.
While successful money management won’t boost your income, it may enable you to stretch your dollars further and keep your financial wellness plan right on track. Now that you’ve gotten started, what are some other ways you’re keeping yourself financially on track throughout 2018?