Having solid money management skills can impact so many areas of your life. Unfortunately, managing your money isn’t a skill taught in many schools, so many of us have to learn as we go.
If you’ve made poor financial choices in the past and are trying to dig yourself out of debt, we’re here to help. Here are four critical skills you’ll need to learn to build your money management toolkit to ensure a more stable financial future.
1. Track how you spend money every month
The best way to get ahold of your finances is by understanding how money comes in and out of your everyday life. Set up a simple spreadsheet that includes all of the categories you typically spend money in and record every penny that goes out of your checking account.
Keeping track of the money you receive every month is equally as important. Not only will you have the complete picture of your finances, but you may realize there’s more money coming in than you previously thought.
By tracking your finances, you’ll begin to see the full scope of your spending habits and can use that data to make changes that improve your overall financial health.
2. Set savings goals
Having savings set aside for emergencies is a critical step that too many people avoid making a priority. They know it’s something that they should do; they just can’t seem to find the “extra” money to put away.
One of the reasons it can be so tricky to make saving money a priority is that there’s no defined goal for what that money will go towards. If the thought of a future emergency is too abstract to motivate you, consider instead creating a specific purpose for how you will use those savings.
If you haven’t yet started an emergency fund, jump on that before working on any other goal. Set a reward for reaching your emergency fund goal and then move on to new savings goals. You can save for vacations, high-end purchases, retirement, or whatever else motivates you.
3. Create a budget that’s realistic for how you spend money
There’s a difference between the perfect budget and the budget you’ll stick to, so don’t try to create a budget that won’t account for your everyday routines. If you love getting coffee from Starbucks instead of making it at home, create a space in your budget for that. Having good money management skills is more about finding a way to live within your means while still spending money on the things you most enjoy.
4. Pay your bills on time
Paying your bills on time is one of the most minor steps, yet it has the most significant impact on your financial health. Having a history of late payments will severely impact your credit report. Unfortunately, the negative hits to your credit will have ripple effects that can increase the interest rates you’ll receive on car loans, mortgages, credit cards, and other loans in the future.
If you have a steady enough income, consider setting up autopay for your bills and using your budget to track how much you’ll need to have in your checking account to pay your bills when they’re due.
Having good money management skills takes time, so don’t feel like you have to make all of these changes at the same time. Start slowly with the easiest tip for your situation, develop the habit, and add as you go.