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Money management can seem daunting, but with the right tools and advice, it can be easy to get your finances in order. In this article, we’ll discuss effective budgeting techniques, money-saving tips, and ways to stay on top of your finances. So, whether you’re just starting out or you’re looking for ways to improve your money management skills, read on!
The Importance of Financial Health
There’s no question that personal finance is important. After all, money is a key part of our lives and can have a big impact on our overall health and wellbeing.
But what exactly is financial health? Financial health is a state of being where your finances are in good order and you’re able to meet your financial goals. It’s about more than just having enough money to pay your bills – it’s about having the financial security and freedom to live the life you want. Learn more about financial health.
So why is financial health so important? Here are a few key reasons:
- It can help reduce stress and improve your mental health.
Money worries are a common cause of stress and can have a negative impact on your mental health. If your finances are in good shape, you’ll have one less thing to worry about and you can focus on enjoying your life. - It can give you peace of mind.
When you’re financially healthy, you have the peace of mind that comes with knowing you’re on track to reach your goals. This can be a huge weight off your shoulders and can help you enjoy your life more. - It can help you make smart decisions over time.
If you’re financially healthy, you’re in a good position to make smart decisions with your money. You can invest in your future, save for retirement, and make other choices that will help you reach your goals. - It can help you avoid debt.
One of the best things about being financially healthy is that you’re less likely to end up in debt. If you’re living within your means and not overspending, you’re less likely to find yourself in a difficult financial situation. - It can help you stay healthy and live longer. Financial stability is important for your overall health and wellbeing. Studies have shown that people who are financially healthy tend to be healthier and live longer than those who aren’t.
Why You May Not Be Aware Of Your Spending
If you’re like most peopl, you probably have no clue how much you spent last month. In fact, a recent study by Intuit found that 65% of people in the United States can’t even estimate their monthly spending within $500.
This is a big problem we are facing in society. With rising costs of living and stagnant wages, it’s more important than ever to be mindful of our spending. Yet, most of us are completely in the dark when it comes to our finances.
There are a number of reasons why this is the case. For one, we simply don’t like thinking about money. It’s painful to confront our spending habits, especially when we know we could be doing better.
Secondly, we don’t have any good tools for tracking our spending. Our bank statements and credit card statements don’t give us a clear picture of where our money goes each month.
Lastly, we’re not taught how to manage our money. Most of us never receive any formal education on personal finance. As a result, we don’t know how to create a budget, track our spending, or even save for the future.
The good news is, it’s never too late to start getting your finances in order.
How to Start Budgeting
Step 1: Start Tracking Your Expenses (Debt Reality Check)
Get started by tracking your expenses and income. Knowing how much you’re spending and earning will give you a good overview of your financial health and help you set goals. Grab a piece of paper, a notebook, a spreadsheet, or a budget template, and get started by pulling out your banking app or bank statements!
Fair warning that this may be the most difficult step because people don’t want to face their finances. Breaking free from financial denial is the first step to getting your finances in order. You have to be honest with yourself about your financial situation, and you have to be willing to make changes. This may mean making tough decisions, like cutting back on your spending, or finding ways to develop additional streams of income. But it’s worth it, because once you’re honest with yourself and take steps to improve your finances, you’ll be on the path to a more secure future.
You can get started with a debt reality check. Here’s how it works:
- Analyze all your debt. This includes your mortgage, car loan, student loans, credit card debt, and any other outstanding debts. Make a list of all your debts, along with the interest rate, monthly payment, and total balance.
- Track your spending for at least one month. This will help you get a sense of where your money is going. You can use a budgeting app or simply track your spending manually.
- Compare your income to your debt and expenses. This will give you a good idea of how much debt you can realistically pay off.
Step 2: Choose Your Budgeting Tool
Ok, well you may ask, how do I track my expenses? A great way to get started is to categorize your spending; there is no specific way to do this. Find out which categories work best for you such as bills, dining out, subscriptions, savings, income, etc.
There are a lot of budget tracking tools out there. How do you know which one is right for you?
Well, it really depends on your needs and preferences. If you like to keep things simple, then a pen and paper might be all you need. But if you want something a little more sophisticated, then a budget tracker template or spreadsheet might be better.
There are a lot of free budgeting tools out there, so you don’t necessarily have to spend any money. However, if you want something that’s really easy to use and gives you a lot of features, then you might want to consider a paid app. This is my take on the tools out there:
- Pen and Paper: You can get started with a simple notebook by writing down your expenses. Personally, I feel that this is a good way to get started if you haven’t done any tracking before but I feel it is easier to have more guidance. There are several budget tracking journals out there. My favorite one is the Erin Condren Budget Planner. I use this planner religiously to track my budget.
- Spreadsheet: You can create your own budget tracking spreadsheet based on your needs but I really enjoy a spreadsheet budget template by Erika Kullberg. There are even free budget templates int he Google Sheets library. Find or create the one that works best for you!
- Budgeting Apps: There are several free budget tracking apps out there but you may need to connect your bank account. I personally use mint and I did need to use the Oauth system where I connect my bank account so it can track my expenses. If this is something you are not comfortable with, an app may not be the option for you. On the other hand, they are fairly easy to use, they alert you of suspicious activity and help analyze unused subscriptions.
- Spreadsheet Tool: This is a type of budget tracking that may involve a more sophisticated spreadsheet tool outside of Google Sheets and Excel. Most of these tools are free! The advantage is that you can create a more visually appealing budget tracker, you can categorize your income and expenses easily, and in general they allow you better visibility of your finances, however, you may have to familiarize with the software at first. My favorite tool is Airtable! You can download my free Airtable Budget Template Below.
You can also use a combination of 2 of these systems if it helps you stay on top of everything. I personally use my budget journal for an overview of my sending and my Airtable template to enter all transactions.
Step 3: Analyze Your Finances
After writing down and seeing how your money is being spent. There are some important questions you need to ask yourself:
- How much money do I owe? How much debt do I currently have?
- Am I spending more than I am actually earning?
- How much money am I saving? Am I saving around 10% of my income?
- Is any money being wasted, meaning are there any subscriptions I am not using but paying for?
- Could I be maximizing my spending even more by doing certain things such as cooking at home more often?
- Am I paying my bills on time or am I having trouble keeping up?
Upon reflecting, you will not only see numbers on paper but possible gaps in your personal finance that you can absolutely fix with a little bit of effort and diligence. Then when you have a good idea of where our money is going, you can start to make changes. If you’re spending too much on unnecessary things, you can work to cut back in that area. If you’re not saving enough, you can make a plan to start putting more money away each month. By taking the time to reflect on our finances, you can make sure that you’re on the right track.
Step 4: Set A Realistic Financial Goal
Don’t overcomplicate things. Don’t be afraid to dream big, but be realistic about what you can achieve. You may want to start saving a lot of money and cut expenses left and right but the truth of the matter is, by trying to do everything, you may end up not accomplishing anything. If you are constantly eating out, try focusing on cutting that first. Don’t try to focus on saving $1,000 a month and also paying off all your credit cards in the short term. You may be stressing yourself even mre.
Step 5: Start Budgeting
Now that you know where your money is going and set a goal, it is time to start allotting fixed amounts to your chosen categories and keep them within reason, and achievable amounts. List all of your bills, and fixed expenses and think about things that are coming up this month. For example, if you have a doctor’s appointment make sure to set some money aside in your budget.
It definitely helps to set your monthly budget right at the beginning of the month so you know what to expect. Of course, there are always things that come up that you don’t anticipate (that is why it is helpful to also have an emergency fund) but in general you are able to have a good idea in mind as to how much you can expect to spend.
Your budget should include both your fixed expenses (like rent or car payments) and your variable expenses (like groceries or entertainment). It’s also important to have a savings goal, so you should include that in your budget as well.
Step 6: Be Consistent
Tracking your expenses and keeping up with your budget is not a one-and-done deal. To ensure effective money management, consistency is key. By setting a budget every month you will get a better sense of your money spending habits, and find a system that works for you.
Another important factor in budgeting consistently is to track your credit score and credit history. This can help you to monitor your progress and make sure that you’re on track to reach your financial goals. There are many different credit monitoring services available, so be sure to find one that works for you.
* Please Click “Copy Base” upon download.
Learn how to use this Airtable Template!
