Being smart with money

Being smart with money doesn’t have to involve high-risk investments or having thousands of dollars in the bank. No matter what your current situation is, you can be more financially savvy in your everyday life. Start by building a budget to help you stay within your means and prioritize your financial goals. Then you can work on paying down your debt, building up your savings, and making better spending decisions.

Managing your budgets

1. Set your financial goals:

Understanding what you are working toward will help you build a budget to meet your needs. Do you want to pay down debt? Are you saving for a major purchase? Are you just looking to be more financially stable? Identify your top priorities so that you can build your budget to fit them.

2. Look at your overall monthly income.

A smart budget is one that doesn’t overextend your means. Start by calculating your total monthly income. Include not just the money you get from work but any cash you get from things like side-hustles, alimony, or child support. If you share expenses with your partner, calculate your combined income to figure out a household budget.

You should aim to have your overall monthly spending not exceed what you bring in. Emergencies and unforeseen occasions happen, but try to set a goal of not using your credit card to cover non-necessary items when your bank balances are low.

3. Calculate your necessary expenses.

Your first priority in building a better budget should be those things that need to be paid every month. Paying these expenses should be your first priority, as these items are not only necessary for daily activities but could also damage your credit if you fail to pay them in full and on time.

Such expenses may include your mortgage or rent, utilities, car payments, and credit card payments, as well as things like your groceries, gas, and insurance.
Set up your bills on autopay to make them easy to prioritize. This way the money comes out of your account on the day the bill is due. Set up autopay only if you’re sure you’ll have enough money each month to pay those bills in full.

4. Factor in your non-essential expenses.

Budgets work best when they reflect your daily life. Take a look at your regular, non-essential expenses, and build them into your budget so that you can anticipate your spending. If you get a coffee every morning on the way to work, for example, throw that into your budget.

5. Look for places to make cuts.

Creating a budget will help you identify things you can cut from your regular expenses and roll into your savings or debt payments. Investing in a good coffee pot and a mug, for example, can help you save on your morning fix for years to come.

Don’t forget your longer-term expenses. Check things like insurance policies, and see if there are places you can scale back. If you are paying for collision and comprehensive insurance on an old car, for example, you may opt to scale back to liability insurance only.

6. Track your monthly spending.

A budget is a guideline for your overall spending habits. Your actual spending will vary each month depending upon your personal needs. Track your spending by using an expenses journal, a spreadsheet, or even a budgeting app to help you ensure that you are staying within your means each month.

If you do exceed your budget goals, don’t beat yourself up. Use the opportunity to see if you need to revise your budget to include new expenses. Remind yourself that getting off-target happens to everyone occasionally and that you can still get to where you want to be.

7. Build some savings into your budget.

Exactly how much you save will depend upon your job, your personal expenses, and your individual financial goals.[8] Aim to save something each month, however, whether it’s $50 or $500. Keep that money in a savings account separate from your primary bank account so that it doesn’t accidentally get spent.

This savings should be separate from your 401(k) or any other investments that you have. Building a small general-savings balance will help you protect yourself financially if an emergency comes up, such as a major repair on the house or unexpectedly losing your job.
Many financial experts recommend a target savings of six months’ worth of expenses. If you have a lot of debt you need to pay down, aim for a partial emergency fund of two months’ expenses. Then focus the rest of your cash on your debt.