5 Must Knows About Managing Money
BIG Ideas:
- Not having enough money to meet your monthly or unexpected expenses can lead to financial stress.
- To alleviate the toll of financial stress, start by creating a budget that identifies and categorizes all your expenses by “needs” versus “wants.”
- Paying down costly debt, managing your credit score, and saving early for retirement can help you build a bright financial future.
It’s long been said that “Money can’t buy you happiness.” Yet, not having enough money to meet your monthly expenses can lead to unhappiness, financial stress, and mental and physical health challenges. Fortunately, there’s a pretty simple way to prevent that: make managing your finances a priority.
It’s not all that hard. Here are five pointers to help you:
- Know your spending and create a budget. The first step in managing your money is understanding where you spend it. Start by reviewing your monthly expenses and categorizing them by “needs” (like your rent or food) or “wants” (like your streaming subscriptions).
Experts suggest using the 50/30/20 rule, which advises spending 50% of your income on needs, 30% on wants, and 20% on savings or debt payments.
Need a little help? Take advantage of budgeting apps and check out this 50/30/20 budget calculator.
- Know how to prepare for unexpected expenses. Life isn’t predictable, neither are your finances. You can’t predict when an unexpected expense or event, like a job loss, car repairs, or medical bills may pop up. You can, however, prepare for them by having an emergency savings fund and making a habit of saving.
How much money do you need to save? Shoot for 3-6 months of expenses and use this handy dandy savings calculator to help you identify all your monthly bills. Even having $500 in savings can make a big difference and help you sleep better at night.
To help make savings easier, arrange to have a portion of your pay direct deposited to your savings account or set up ongoing transfers from checking to savings in online banking or your mobile app.
- Know how much you owe and manage your debt. Debt can be a downer and drain your budget, especially if you make late payments or miss them altogether, which can leave marks on your credit score.
Take inventory of all your debt to know how much you owe and the interest rates. If you have debt weighing you down, try using the debt snowball method (paying your smallest debt balance first) or the debt avalanche plan (paying off your largest debt balances first).
Be conscious of your credit card spending and don’t charge anything you can’t afford to pay with cash.
- Know your credit score and how it matters. Your credit score isn’t just some random number. It can be the difference between qualifying for a loan or getting better rates on your insurance.
Monitoring and managing your credit score can not only help you save money but also help you detect fraud and costly errors. To check your credit scores for free with each of the three credit bureaus, Equifax, Experian, and TransUnion, visit annualcreditreport.com.
- Know the power of compounding interest investing early. You’re just starting your professional career, but now is the perfect time to plan for retirement. Yes, you read that correctly, retirement.
That’s thanks to compounding interest, which is essentially interest you get paid on interest you earn, not just the amount you save. So, saving early with even a small amount of money can make a big difference.
You can save easily by contributing to an IRA or 401(k) or other retirement plan your employer offers, especially if they offer matching contributions, which can really boost your retirement savings.
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