Getting control of your finances can be overwhelming, so if you share with a significant other it will be important to share every step of the way so that you are on the same page (and so the full burden does not fall solely on your shoulders). Whether you are just getting out of college or have a family of your own, it is never too late to start looking at the bigger picture, which is making sure you are taken care of not only now, but have enough to life off in your retirement years. So where is a good place to start?
Look at Your Entire Financial Picture
To get a grip on where you stand you at least need to know exactly where you are with income, bills, and what your goals are. If you have credit card debt, try and see realistically when you can get it paid off by, and stick to that. Fair warning, it will take time, patience, and discipline to get in a place where you probably want to be, but stick with it, as it will be worth it. You can start to piece together current monthly spending to have an idea of where all of your funds are allocated to (and why you never seem to have much left after each paycheck).
Create a Budget
Now that you have a clear picture of where you stand financially, it is now time to get a plan together on how to minimize spending and maximize money left at the end of the month. If you take all of the money coming in, then less your necessary monthly bills such as mortgage, utility, and car lease payments, the rest you have left will go towards spending and savings. Here comes the tricky part, as you will want to allocate funds to necessary expenses such as gas and grocery bills, so figuring out the optimal amount may take time. You will also need to set regular contributions to savings, with the hopes of increasing as you decrease unnecessary spending.
Start an Emergency Fund
If you are on a strict budget, what do you do if you all of a sudden have a huge car repair that you cannot afford? What if your prized possession TV breaks you need to buy the latest and greatest? The dryer breaks? Putting on a credit card could set you back for months trying to pay off, so it would be wise to have some extra funds available in case of emergency. Experts say that you should have three to six months’ worth of expenses on hand in case of emergency, with six being on the high end in case you need to cover for being in between jobs.
Maximize Contributions for Retirement
With the hopes that you now have a pretty good idea of where each dollar is going throughout a given month, you should be opening up extra money leftover at the end of each month that you can start to contribute more for retirement. If your company offers matching 401(k), that would be a great place to start, as otherwise it would be leaving money on the table. After that, opening a brokerage account could be a great way to invest for your future.
Stay Out of Debt, but Earn Rewards
Simplifying purchases to a single credit card may be a way to monitor every purchase that occurs in a month, not to mention the balance, during the month. Using a credit card can be risky if you are not disciplined enough to have a spending limit, so you will have to watch yourself there. You do not want to go into debt if you cannot pay the full balance by the statement due date. One plus of using a credit card, however, is the rewards that can add up just by making the normal purchases that you would have made anyways, you just get points or actual cashback dollars in return for the purchases. This extra money could add up to hundreds of dollars each year just for doing nothing, so to speak.
Constantly Review Goals
Much like your career, you do not want to stand pat forever, so every time you meet a financial goal (i.e. are following a successful budget, have an emergency fund, reducing unnecessary spending), you will want to set new goals to continue your progress. Maybe you can pay debt off sooner and continue to see your net worth continue to rise!