If you’re worried about your finances, learning better money management may be exactly what you need.
According to a 2020 Bankrate survey, 48% of U.S. adults reported losing sleep over their finances, at least occasionally. (1) As for the type of financial issues that had them tossing and turning at night, 23% pinned the blame on their ability (or lack thereof) to pay everyday bills. (2)
So, how do you ease money woes and plan for your financial future? Learning some better tried-and-true money management tips can help.
Create a Budget
Creating a BETTER budget is the best and easiest way to begin to manage your money.
A budget is simply a financial plan comparing income to expenses. It allows you to see your financial health at a glance. You can then analyze this information and find ways to adjust it to meet personal and financial goals.
Creating a monthly budget is the best way to manage your spending and is most recommended by financial planners. However, you may also make an annual budget if this fits your needs more closely.
Make a Budgeting Worksheet
First, you need to fill out a budgeting worksheet.
You can find free budgeting worksheets online to print out, or you can purchase a financial ledger. Alternately, you can create your own Excel spreadsheet to track your income and expenses.
In one column, enter your monthly income from ALL sources, including salary from your job, bonuses, dividends, child support payments, side work, tax refunds, etc. Please be sure to include any money you expect to receive for the month, even if it’s sporadic.
Add up the column to get your total income for the month.
In another column, list all of your monthly expenses, which will likely be a combination of fixed and varied costs.
These are the type of expenses that are of the same amount each month. These would be things like mortgage loans, rent, car payments, etc.
As the name implies, varied expenses are those that can change month-to-month. Examples include food/groceries, electricity, gasoline for your vehicle(s), etc. Because the amounts can vary, you’ll need to enter estimates for each of them.
Though variable expenses can be troublesome, they can also offer you a way to adjust your budgeting needs. For example, if you want to increase your disposable income or pay more money toward debt, you can find ways to spend less on food.
When estimating varied expenses, be sure to determine needs vs. wants. For instance, you may add an estimate for clothing expenses, but is this a need or a want? If it’s not a need, you can use that money for other purposes.
Be sure to add “savings” to your list of varied expenses. Experts recommend that you save at least 10% of your gross income, which not only helps cover unexpected expenses but can also be part of your retirement fund.
Subtract Expenses from Income
After subtracting expenses from income, you’ll see how much money you have remaining for the month. This amount can help you pay down your debt and take control of your finances.
Ways to Reduce Your Expenses
There are many ways to reduce your expenses, pay down credit cards and other debt, and save for retirement.
Here are a few methods that will help you manage your money.
Groceries can be a costly expense, but fortunately, it is also the most flexible. Here are several ways to reduce your monthly food bill.
Eat out less
Americans love eating out. According to Business Insider, Americans dine out an average of 5.9 times a week. (3) The cost of eating out varies quite a bit by state. People in California, for instance, spend an average of $3,295 per year eating out, while those in Ohio spend an average of $2,408 per year. (4)
Research suggests that it’s 3 to 5 times more expensive to eat out than it is to cook your meals from scratch, so imagine how much money you could save by preparing your meals at home. (5)
Buy in bulk
Buying in bulk from warehouse clubs like Costco can save you a LOT of money on food. But, of course, that’s an ideal option only if you have plenty of storage space in cupboards and refrigerators/freezers!
Clip coupons/Buy Sale Items
You can save a lot of money by waiting for sales. Grocery stores often slash prices on various foods to bring shoppers into their store. They also reduce costs on foods that are nearing their expiration dates.
Say “No” to soft drinks!
If you try hard enough, you can find savings in unexpected places. Case in point: Americans drink an average of 44 gallons of soft drinks annually. That’s equivalent to nine 12-ounce cans per week. At roughly $0.35 per can if bought in bulk from a grocery store, that comes to $657 per year for a family of four! (6) (Thanks goes to Money Ahoy for the analysis.)
By simply cutting soft drinks out of your life, you could save hundreds of dollars to pay down your debt.
Rising gas prices can derail your budget fast. Fortunately, there are a few steps you can take to reduce these costs.
Regularly check the air pressure in your tires.
Low tire pressure uses more gasoline. According to Carnegie Melon, you can save as much as $432 annually simply by making sure you always have proper air pressure in your tires. (This is based on $3 per gallon gas prices). (7)
Switch to bike riding.
Weather permitting, bike riding is a great way to reduce transportation costs while improving physical fitness.
Join a rideshare program.
Rideshare programs have become very popular as they reduce fuel and maintenance costs on your vehicle.
Adjust your HVAC thermostat.
You don’t need the same level of heat or cooling when you’re at work or in bed, so why not adjust the thermostat accordingly and save money on your energy bill?
Work with your utility company.
Many people initially sign up for certain services they never use, yet forget they signed up for them! Call your utility companies to see if there are any services you can cut to save money on your bill.
You can often get a big discount if you bundle certain utilities, such as your cable, internet, and phone services. This can translate into hundreds of dollars in savings for the year.
Purchase energy-efficient appliances
Energy-efficient appliances are prevalent these days, and they can save you a lot of money on your electric bill. To make your search easier, look for machines with an “Energy Star” label.
Turn off any lights that are not being used.
The cost-effectiveness, however, depends upon the type of bulb used. According to the U.S. Department of Energy, “Incandescent lights should be turned off whenever they are not needed, because they are the least efficient type of lighting. 90% of the energy they use is given off as heat, and only about 10% results in light.” (8)
Devise a Strategy to Pay Off Debt
Now that you’ve saved some money with the strategies above, what should you do with it? That’s up to you, but it’s a good idea to pay down your debt for financial security.
There are two basic ways to do this.
The first is to pay off the smallest bill first. That is, pay extra money each month, say $25, toward your smallest account while paying the minimum due on all your other bills. Then, once you’ve paid off the smallest account, take the money you’ve been paying for it (minimum payment plus the extra fu
nds) and start paying that on your next smallest bill. Again, you’d pay this in addition to the minimum payments. This is called the “snowball” method.
There’s only one problem with this scenario. You’re paying a lot of interest for the more significant bills while paying off the smaller ones. So, you may want to reverse this process, paying the largest bills off first. (Try to pay off debt with the highest interest rate first.) This is called the “debt avalanche” method.
Save for Retirement
Saving for retirement is a crucial aspect of money management. After all, you won’t make much money on social security alone. Therefore, you’ll want to plan by taking some of these steps:
Save a percentage of your income.
Experts recommend saving at least 10% of your gross income each month, putting it in high-interest certificates of deposit, or investing it in real estate or the stock market. You can also put it in any of the accounts below.
Sign up for a 401(k) plan through your employer.
This allows you to deposit pre-tax dollars into the program, meaning you pay taxes on the funds only when you withdraw them in retirement. In addition, your employer will often match your contributions up to a certain percentage, which is a great way to build a retirement nest egg.
Open an Individual Retirement Account (IRA).
Contributions you make to an IRA are not tied to your employer, and they are tax-deferred. However, there is a limit to how much money you can deposit each year.
Open a Roth IRA. Unlike a 401(k) or IRA, contributions to a Roth IRA are not tax-deferred. However, you may be able to access your funds tax-free during retirement.
And Don’t Forget Your Brain-Booster!
It can be difficult or impossible to manage your finances if you can’t focus on the task at hand.
>> Learn about the 4 “brain transforming” ingredients and how they can help you think BETTER in this widely researched and trusted formula here!