There's no wrong time to learn smart money management—or to start practicing it. That's especially true if you've recentlychanged jobs,started earning a higher income, or simply have goals you want to achieve. There's no time like the present to boost your financial IQ.
How to Get Smart With Your Money
Managing your money wisely starts with understanding your financial picture. Then you can learn how to create a financial plan that will adapt as your life changes.
1. Identify your money stressors.
Before you can build good financial habits, you need to see your money situation clearly. That's hard to do when you're holding on tomoney-related fears and stressors. Take some time to identify what scares you most when it comes to money. Whether it's debt, out-of-control spending, or simply not knowing how to budget, you can start from a better place once you know what bothers you most. After all, it's hard to fix a problem when you don't know what it is.
2. Sit down and make your budget.
Take some time to create your monthly budget—andstick to it. Setting a budget is especially important if you'rejust starting out and new to living on your own. Begin by allocating portions of your income to basicbudget categories, including housing, food, insurance, utilities, transportation and debt payments. With what you have left, you can set aside a monthly amount for savings, personal care, giving, entertainment and recreation.
3. Manage your debt.
Don't ignore your debt. Whether it's credit cards,student loans, car payments or a combination, get a clear idea of what you owe. Then plan how you'll pay it back. You can even automate monthly loan repayments. If any portion of your debt is in credit cards, consider whether acredit card balance transfercould help you lower your interest rate. And remember,not all debt is baddebt. Some types of debt are investments in your future and can help you build a good credit history.
4. Create a savings plan.
Once the essentials of your budget are in place, you can think about saving money. Depending on your finances, consider whether it makes sense tosave money while paying down debt. Mostfinancial advisorsagree that your first saving goal should be anemergency fund. Start with a manageable number, likesaving $1,000. Once you get into the swing of things, you can consider savings goals around specific things like vacations, a new car or a down payment for a house. Name yoursavings accountsafter these goals and look for ways to continuegrowing your savingsand evenmake saving fun.
5. Spend wisely.
Try not to indulge in the habit of mindless impulse spending. Instead,spend mindfully. Each time you part with money, consider whether the purchase is worth it. Will it improve your life? Is it a good value for the price? Knowwhen to splurgeandwhen to save. For instance, sometimesbuying a used carmakes more sense than buying new.
6. Build your credit and track your credit score.
Having strong credit can give you more options and save you money in the long term. That's because people withgood credit scorestypically get lower interest rates when they borrow money. Start by finding out your owncredit score—all of them—and then find out which steps make the most sense for you toimprove your score. Finally, decide how and when tomonitor your creditto make sure it's not being used by someone else.
7. Get the most out of your work benefits.
Chances are you don't just get paid at work—you getcompensated. Your total compensation goes beyond your wages. Make sure you understand the details of your benefits package from human resources. Make sure you’re taking advantage of everything that you can. You might have 401(k) matching, a fitness stipend, a flexible saving account (FSA), ahealth saving account(learnHSA basics), free preventative check-ups, mental health benefits, and more. These can be valuable benefits. Don't miss out.
8. Look into retirement plans.
Saving for retirement can seem overwhelming (and far away), but once you get started, it becomes a simple habit that pays off big time. You'll thank yourself later. There are severaltypes of retirement accounts, fromindependent retirement accounts(IRAs) to 401(k)s. Take some time to learn about them. If you're still not sure which way to go, it may help to ask a financial advisor. Then make time once a year toreview your retirement plan.
9. Learn the basics of investing.
Investing helps make your money work for you. Once you have some extra income that goes beyond your regular expenses (or if you want to invest a windfall), you may be ready tostart investing. Grow your money and build wealth in the long run without too much extra effort. Check out thisbeginners' guide to investing.
10. Team up with your partner.
Whatever you do, don't ignore money talks with your partner. For a happier relationship that stands the test of time with less stress, be open about money. Considerhow to manage your money togetherand how you canplan a combined financial future.
11. Stay up to date on fraud and scams.
Identity theft is a real threat. It can negatively impact your credit while also taking up mountains of your time to untangle and reemerge. Look for ways toprotect yourself and any dependents from identity theft. These include monitoring your credit report and keeping important identification information (like Social Security numbers) secure.
12. Work with a financial advisor.
Making a financial plan is one thing, but making adjustments as you move through various life changes is another. Keeping up with retirement planning and evolving tax rules can feel like a full-time job. For some people, it is. If your finances feel overwhelming, you don't have to go it alone. Considerworking with a professional financial advisor. These professionals make it their job to stay up-to-date on the latest financial news and money strategies, so they can guide you through the process and help you evolve your financial plan as your needs change.
Your financial IQ affects every single decision you make about money: how you earn it, spend it, save it, and invest it. By making managing your money a habit, you have a path to reach your financial goals throughout every stage of life.
