Regardless of how much money you make, good financial habits can and will go a long way to securing your financial future.
Below I’ve listed 5 things that you can do, starting today, to improve your finances and save some money. These are things that many people miss with their finances, that can make a huge difference.
It’s easy to fall into bad habits when it comes to money. Being financially responsible takes a lot of hard work and discipline. I want to share these tips with you because they’ve all worked for me personally.
Stop relying on credit cards
When I first started my career, I faced thousands of dollars in credit card debt. I was not financially responsible, not in the least bit. As a teen, fresh out of high school, I didn’t think twice about getting credit cards (“free” money in my mind), and splurging on things I didn’t need. As I got older and wiser, my poor choices started to catch up with me.
At an early age, I had fallen into the trap of relying on credit cards. Spending money that you don’t have is one of the biggest mistakes that you can make financially. Why would you want to borrow money to pay for things (that you probably don’t need right now anyway), just to end up paying back more than you borrowed after interest?
A good budget and an emergency fund are necessary to stop relying on credit cards. An emergency fund is exactly that, savings that are put away in case of an emergency. A good rule is to save 3 to 6 months worth of expenses as an emergency fund. But that can be a lot. So start with a smaller amount for the time being, such as $500 or $1,000.
After you have the first $1,000 saved, you can slowly build your emergency fund up to the 3-6 months.
With a budget, you won’t be tempted to spend money that you don’t have, because every dollar will be budgeted. Therefore, you won’t really have a need for credit cards.
Credit card debt can become a real trap that’s hard to get out of. And with the average credit card interest rate hovering around 16%, you might find yourself paying back much more than you borrowed.
You can see my section on credit cards for more info on handling credit card debt.
Make a budget and stick to it
As I mentioned above, you definitely need to create a budget if you don’t have one already. A budget is your gateway to full control over your finances. How can you save money, or spend effectively, if you don’t know how much money is coming and going out each month?
Start a budget today and stick to it! It doesn’t have to be complicated. It can be as simple as grabbing a pen and a sheet of paper, or an Excel spreadsheet. Write down all of your expenses, everything. Then, as you spend and make money, record your transactions.
You’ll quickly start to see where your money is going, and where you can cut back on unnecessary expenses. Having a budget has made a world of difference for my expenses.
I’m personally too lazy to write everything out with pen and paper, and I prefer to use Personal Capital and YNAB to manage my finances. Personal Capital is a free website and app that I use to track all of my bills and my net worth. You can see my complete writeup of Personal Capital here.
YNAB, on the other hand, is my #1 tool for budgeting. It’s so easy to create a budget, input your income, and record your transactions on the website and in the app. YNAB will run you $5/month, but it’s well worth the money.
YNAB easily helps me to save hundreds each month because it forces me to be on top of my finances. Also, it comes with a 34-day free trial, to see if it’s for you.
Make payments on time
Always make your payments on time. Always. If you have credit cards, student loans, a car payment, or anything else that requires a monthly payment, make sure to never miss a payment or to have a late payment.
Late and missed payments will have a negative effect of your credit score, which will make it harder to get important loans in the future (such as a mortgage.)
Lenders will see you as higher risk, which will lead to them giving you higher interest rates.
On top of that, there are almost always late fees associated with late payments, which is basically equivalent to throwing money in the trash. So don’t miss your payments.
Start an emergency fund
I put starting an emergency fund right up there with creating a budget in terms of financial importance. An emergency fund will save you in the event of a real emergency. What’s a real emergency? A general rule I like to follow is: If you’re expecting it, then it isn’t an emergency.
So, a sudden injury or critical illness is an emergency. Your electric bill being due in a few days isn’t an emergency.
You should aim to have 3 to 6 months’ worth of expenses saved in your emergency fund. This should be enough to get you through most crises, such as loss of a job or an unexpected medical emergency.
I understand that 3 to 6 months’ worth of expenses isn’t exactly easy to come by, so I suggest starting with a smaller amount, typically $500 or $1,000. This will help you withstand most minor emergencies, such as a flat tire.
Start by saving up the $500 or $1,000 first, then pay off all high interest debts, such as credit cards. After these are paid in full, go back to saving for your emergency fund and put aside however much you can spare each paycheck until you get to your 3 to 6 month mark.
Having a solid emergency fund will help you to stop relying on credit cards, as I covered above. When you actually have a safety net for financial emergencies, you don’t end up falling back into the trap of borrowing on high-interest credit cards.
Stop buying on impulse
Buying on impulse is an issue that affects a lot of people When you have money burning a hole in your pocket, it’s easy to want to go out and splurge on things you don’t necessarily need. Buying things that make you happy isn’t necessarily a bad thing, though.
It’s ok to spend money on yourself every now and again, as long as it isn’t on impulse. You should aim to budget and plan for your purchases, so that way you are still fully in control of the money coming in and going out of your possession.
Also, when you’re not buying on impulse, you’re not tempted to use your credit cards. See how it all comes full circle?
Impulsive buying is a budget killer, because it completely throws your spending out of whack. I’d suggest keeping a miscellaneous or shopping category in your budget, and allocate a reasonable amount to yourself each month. And only spend within your budget.
Remember, budgeting doesn’t mean that you have to deny yourself of the things that you want. It simply means that you plan for every expense, which gives you a better grasp of your finances. If you see that you’re spending $200 per month on clothes and shoes, you might decide that you want to cut back in that category and up your savings.
Since you’re here, you might as well take a second to check out my free savings guide. I put together this guide as a collection of some of my top tips for saving effectively. These tips have been a huge help to me in my financial journey.
Please feel free to click the link above or enter your email below to get a free copy of the savings guide. Enjoy!