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How to Manage Your Money: A Complete Beginner’s Guide

How to manage your money

Money – we all need it, but it can also be a source of stress, especially when there never seems enough of it to make ends meet each month. While understanding your finances and creating a solid financial budget may seem overwhelming if you’ve never tried, it is actually quite manageable once you break it down by steps.

Here are five ways you can begin to better manage your money, and also save for the future.

1. Create a Budget

The first step to taking control of your finances is by creating – and sticking to – a monthly budget. Start by first identifying how much of your income you take home each month, after taxes. Next, list out all your monthly expenses, including items like:

  • Rent/mortgage
  • Utilities (electricity, cable/internet, phone, etc.)
  • Transportation costs (car payments, gas, insurance, public transportation, parking, etc.)
  • Groceries
  • Loan/credit card payments
  • Insurance (health, dental, homeowner’s/renter’s, car, etc.)
  • Entertainment (dining out, concerts, movies)

If you’re not sure exactly how much you spend, review your bank statements for the past few months to get a sense of how much you typically pay each month for every item on your expense list. Ideally, your expenses will be less than your income. If they aren’t, that means every month you are likely getting further into debt.

Next, identify areas where you can reduce expenses. For example, if you pay for multiple streaming platforms but typically only watch Netflix, consider ditching the services you aren’t really using. Ditto with other unused expenses, such as the membership to a gym you haven’t visited in months, or subscriptions to magazines you typically toss without reading.

You should also take a close look at your entertainment expenses. For example, if you’re grabbing a coffee every morning on your way to the office and typically go out for lunch, you could easily save $100 to $200 a month simply by packing a lunch and brewing your own coffee every morning.

Once you have a budget that you can think you can stick to, it’s time to move on to the next step, eliminating debt.

2. Pay Off Debt

If you’re like most Americans, you carry at least some debt, including student loans and credit cards. While some level of debt is necessary to make big-ticket purchases, such as a car or house, it’s better to eliminate as much unnecessary debt as possible. Otherwise, you’re just spending more money each month on interest that you could be putting into saving.

For example, let’s say you owe $4,000 on a credit card with an annual percentage rate (APR) of 13% and your minimum monthly payment is $100. If you pay only the minimum each month, it will take you four years and four months to pay it off, and you’ll pay almost $1,275 in interest. That’s more than 25 percent of what you owed to start with! Instead, if you can pay $300 each month, the balance will be paid off in just 15 months, and you’ll pay less than $350 in interest – a savings of more than $900!

Tackle your debt by looking at how much interest you’re paying each month and work towards paying off the debt with the highest interest rate first, then moving onto the debt with the second-highest rate and so on. You may also be able to work with your bank or other financial institution to consolidate your unsecured debt, such as credit cards and personal loans, into one loan. That way instead of making multiple payments each month to different companies, you’ll be making one large payment, and probably at a significantly lower interest rate.

3. Create an Emergency Fund

You never know when disaster could strike. Your car could need repairs, you could break a tooth and need a crown, or you could get laid off from your job. None of these possibilities are fun to think about, but it’s better to be prepared for unexpected financial difficulties by creating an emergency fund that you pay into each month.

Ideally, your emergency fund should be enough to cover three to six months’ worth of expenses. While that number can sound daunting, it doesn’t need to happen immediately. Evaluate how much money you have in your budget that you can allocate to your emergency fund, and then be diligent about socking at least that amount away each month.

And remember, this isn’t money that you should dip into to buy a new laptop or to take a vacation – it’s meant to sit in your bank account, earning interest, until you really need it. You may consider joining an affiliate network to monetize your blog for example, this can help you with additional funds.

4. Save for Retirement

When it comes to saving for retirement, the sooner you get started the better. Interest accrues over time, and the earlier in your career you start setting aside money for your golden years, the more you’ll have to enjoy once you leave the workforce.

Ideally, you should be putting aside 10 to 15 percent of your income each month for retirement. While that number sounds high, if you are saving through contributions to a company-sponsored savings plan, such as a 401(k), the money will be deducted from your paycheck pre-tax, which means your take-home pay won’t take as much of a hit as you might think.

Speaking of 401(k) plans, if your employer offers a matching contribution, be sure you’re contributing the maximum amount your employer will match. Otherwise, you’re leaving free money on the table!

5. Check Your Credit Report

Think of your credit report as a report card on how you’re managing your money. It provides creditors with detailed information about the debts you’ve accumulated, your bill payment history and additional financial information, such as if you’ve ever filed for bankruptcy. If you apply for a loan to buy a house or apply for a new credit card, you can count on the fact the bank or credit card company will run a credit report to see if you have a good score, meaning that you are likely to repay any money you borrow.

It’s important to check your credit report at least once a year for many reasons, including making sure that it is accurate. The credit reporting companies can occasionally make mistakes, and if you don’t know that your report contains errors that make you look like a bad financial risk, it could prevent you from being able to purchase a car or take out a college loan. Checking your credit report is also a good way to make sure you aren’t the victim of identity theft, which could also harm your credit report and ability to borrow money.

Effectively managing your money isn’t a skill we’re born with, but it can be learned. As you gain better control over your finances, not only will your stress over money decrease, but you’ll also gain financial freedom and ultimately, confidence in your ability to control your finances instead of the other way around.

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