By Danielle Jackola
It’s time to take control of your finances and enjoy the freedom of financial security. A few simple techniques can set you up for success. Here’s how to get started:
Where Does Your Money Go?
The first step to fiscal fitness is knowing where you spend your money. Digging deep into the details of your spending gives you power. Track every single expense for one month utilizing an app, Excel or even an old-school notebook. Capture all expenditures, including those on Venmo, the pack of gum you grabbed at the gas station and the cash you spent getting coffee with a friend. It all adds up.
Next, list the annual expenses that require funds like holiday and birthday gifts, car repairs, travel, taxes and savings. Reverse engineer the annual totals into monthly amounts and create savings accounts for each category, or better yet, open a high-yield savings account with funnels for each goal. Knowing that you have saved the funds for these items alleviates stress. Your sister’s birthday is next month? No problem since you already budgeted for her gift.
What if There’s a Deficit?
Once you have all of your spending identified and your savings targets created for reoccurring annual expenses, you might find that you’re upside down. What now? Take a deep breath and understand you have some control in this situation. Look at the splurges and decide what you can eliminate. Take the Marie Kondo approach and ask if each item or experience sparks joy. The coffee with a friend may have given you connection, a mental health break and needed support. If so, that’s great. The random drive-thru meal you grabbed because you didn’t pack your lunch? Perhaps not so much. Cut unnecessary spending.
To tackle a deficit, you can cut expenses, find ways to earn more or both. I’m a staunch advocate of the side hustle. Manage your time, how much you want to work and what services you will offer to make additional money. The key is striking a balance between something you enjoy and finding something others need and are willing to pay for. You can consult, tutor, do rideshare, design websites or whatever—the only limits are your skillset and time.
Savings Strategies
Pay yourself first. The most important thing in your budget is you. Once you’ve identified your monthly goals for retirement savings, travel and other items you value, set up automatic transfers into your accounts. Depending on the timing of your paychecks vs. expenses, you may do this monthly or bi-monthly. Resist the temptation of the wait-and-see approach. If you wait to see what funds remain at the month’s end, spending your money on extras you don’t need becomes tempting.
Emergency Savings
Your budget must include funds that go into an emergency savings account. When you prepare for hiccups, an unplanned expense won’t derail you. If you don’t already have a solid emergency fund saved, that’s OK. Even small steps toward a goal will get you to the finish line. When your water heater unexpectedly goes out, or you need dental work, this account will be your lifeline. The goal is three to six months of living expenses. While this may cause your heart to skip a beat, there is no expectation that you’ll create this overnight. Saving money as a habit is the secret to fiscal success.
Reframe Your Thinking
Our thoughts are powerful. Be mindful of the language you use around money and your budget. If you keep thinking, “I’m broke, and I can’t afford that,” you are setting that tone in your life. Shift your mindset to positive thinking around money. “That’s not in my budget right now” and “I’m choosing not to spend my money on that” are phrases that put you in charge. You choose where you spend your money, you create your spending goals, and you can decide how to manage your finances. You are in control.
You Got a Raise. Now What?
Enjoy a little; save the rest. It’s tempting to adjust your lifestyle every time you get a raise. Resist the temptation. Treat yourself to a reasonable splurge, like a nice meal or pair of shoes you’ve wanted for ages, not an F150. Put the rest into savings. By saving more now, you’ll enjoy freedom later.
Retirement
Most of us don’t want to work forever. You will need money for retirement, and the best time to start saving for it is yesterday. The next best time to start is right now. Does your employer offer a 401(k) savings match? That’s free money! At a bare minimum, contribute funds to capitalize on your company match. Research the differences between traditional and ROTH IRAs to determine which is better for you.
Knowledge is power, and endless tools are available to reach your financial goals. Become a research guru and learn about investing and managing your finances. Utilize the library to borrow books and check to see if your local branch offers eBooks. Stick to your budget and learn how to make your money work for you.
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