Managing your money is more than just knowing what to spend on each category of needs; it also involves creating new habits and disciplines. This means you have to spend time understanding your financial life to perfect your skills. The good news is after a learning curve, budgeting and the like become second nature. Follow this plan to get yourself from financially illiterate to budgeting master.
Find Out Where You Are
The best way to take control of your financial life is to take a big picture look at your money. The best place to get started is your credit report. Print off your report, then go through and list every open account. Then print out statements from all those accounts and any checking, savings, and retirement accounts. You need hard numbers: what you owe and to whom, your current monthly pay, and what you have saved up.
Knowing these numbers will give you a clear picture of where you are in your financial life. You will have three areas of focus: the past, the present, and the future. Put a number to what you owe to the past, what you have available for the present, and what you currently have saved for the future.
Make a Plan
Once you have hard numbers, make a plan for your financial life. Start with the past. If you have debt, now’s the time to make a debt pay-down plan. The best method is to list every debt you owe, with the smallest balance debt first. Ignore interest rates. Stop paying more than the minimum on every debt except for the debt with the smallest balance.
Put everything extra you can afford toward the smallest debt. As you pay items off, move down the list. Unfortunately, you can’t neglect your present and future while focusing on your past. You should also still be contributing to your retirement fund and an emergency fund. While paying off debt, limit your emergency savings to $1,000. Once your debt is paid off, increase your savings to three months worth of expenses.
Your retirement savings are also extremely important. Your actual retirement date could be 40 years away, but what you save early is most important. Meet your employer’s match immediately if you aren’t already. Annually increase your percentage until you are maxing out the government’s cap.
Create an Actual Budget
This is the part that’s going to require a little more work. Your spending in the present is the greatest indicator of your future success. If you are currently spending more than you make, you have a serious problem. There is only one hard and fast rule of budgeting: don’t spend more than you make. That’s it. As you get a better grasp of your financial life, it’s time to see how your spending aligns with ideal spending percentages.
The rough percentages you should spend in each category based on your take-home pay are:
- Housing: 25%,
- Transportation 15%
- Food: 12%
- Savings: 10%
- Utilities & Phone: 5%
- Charity: 5%
- Clothing: 5%
- Medical: 5%
- Holiday & Gifts: 5%
- Miscellaneous: 3%
Your housing expenses should be very close to 25%; anything over 25% is going to put your financial life in a bind. The other categories, though, are a little more flexible.
Do you spend more on clothing than 5%? That’s okay; “steal” the money from a category you don’t use as much. Low medical costs? Cool, use the excess to fund your shopping habit. Everyone’s needs will be different. If you have a lot of debt, you will need to factor that in by taking from other categories.
Monitor your Progress
After an in-depth look at your financial life, you will have all the information you need to move forward. From there, you should only need to revisit your financial data once a month. Set a date and time to have a budget meeting every month. For this meeting, all you need is a printout of your last month of spending.
Look over last month’s transactions. How did you do? Did your spending line up with your goals? If not, adjust and set new goals for the next month. This is also a great time to set challenges for yourself. Complacency is your worst enemy when it comes to budgeting. Fight this by creating fun challenges for yourself. Try to save $500 one month, or try to only spend money five times in one week.
If you feel like there is not enough money at the end of the month to make ends meet, there are only two options. The first is to trim expenses even further. The second is to find a way to bring in additional income.
Once you have completed the steps above, you will have a much better idea of where you are vs. where you want to be. And if you’re like many Americans (around 13 million to be exact), you’re going to want to get a side job.
For many folks, a part-time job is no big deal. But some people already have a full plate between their full-time jobs, family obligations, and other responsibilities. Getting a second job can be burdensome for parents who need to secure additional child care, not to mention the lack of time they spend with their children already.
The answer to this dilemma lies in the increasingly popular side-hustle. More and more people are landing side gigs custom-made for their lives and schedules, and it’s a huge success. If you think a side-gig might be for you, here are a few ideas that might work:
Online Surveys: Paid online surveys are a legitimate money-making opportunity for those who want total control over their schedules. You can do surveys anytime and anywhere as long as you have a phone or computer and an internet connection. They are a fantastic way to make cash or score yourself some gift cards to use for other expenses.
Food Delivery Services: Food delivery services like Grub-Hub, Uber Eats, and DoorDash are becoming increasingly popular among consumers and gig workers. If you have a car and a little extra time, these platforms can allow you to make some extra money delivering meals at a time when it’s convenient for you.
Microworking: If the idea of working online at home appeals to you, check out microworking platforms like Mechanical Turk, GigBucks, or ClickWorker to find mini-tasks you can get paid for. Microworking can be a lucrative gig that you can fit into an already busy schedule.
If your financial life is stressing you out, you need a plan. Organization is the key to a manageable financial life. Spend the time necessary to fully understand how to budget, then make a plan and monitor it monthly. It’s really as simple as that.