I have a decent-paying job but always spent my money unconsciously. I always had to wait for my next paycheck to cover my unplanned expenses. I felt like I was putting my family’s finances at risk.
I made a change to become more intentional with my money. For 10 years, I had over $250,000 in consumer and student loan debt. Now, my combined debt balance is less than $6,000!
Here are 4 CRAZY SIMPLE tips you can use to manage your personal finances:
Tip 1: Track Your Monthly Expenses
Review your monthly bank statement and track each expense. Give the expense a category, such as Utilities, Groceries, and Shopping.
You might be surprised to discover a subscription fee that you lost track of. Or, you might be shocked by the amount of money you spend on a particular category.
My guilty pleasure is coffee, and I would spend about $5/day. There are five workdays in a week, usually four weeks in a month, and twelve months in a year. That’s about $1,200 a year spent on coffee on me alone.
I still have my coffee daily, but now grind and brew it at home. I went from spending $5 a cup to $0.45 a cup. Savings taste so sweet!
Tip 2: Be Intentional with a Budget
Budgeting is the cornerstone of managing your personal finances successfully. A proper budgeting strategy can give anyone confidence and peace of mind when it comes to spending.
Ever since I entered college, I would input every transaction into a spreadsheet, believing I was budgeting. In reality, I was just tracking my spending and not being intentional with my money.
A budget sets limits to your monthly expenses giving you more opportunities with your money. There are various types of budgeting strategies, such as the 50/30/20 strategy. The one I recommend and personally use is a zero-based budget.
A zero-based budget gives every dollar a purpose and forces you to be intentional with your money. The money available after budgeting for your expenses can be assigned towards other financial goals, such as paying down debt or building up an emergency fund.
Tip 3: Use the Debt Snowball Method
Debt is the biggest deterrent to having more opportunities with your money. On the bright side, once you get rid of your debt (excluding your house), you can focus on fulfilling other goals.
The debt snowball method prioritizes paying off the debt with the smallest balance first while still making minimum payments toward the other balances. Once that balance is fully paid off, then that freed up money would go towards the debt with the next smallest balance.
For example, a person has three credit cards with different balances, each with a minimum payment of $50:
- Credit Card A with a balance of $2,000
- Credit Card B with a balance of $4,000
- Credit Card C with a balance of $7,000
With the debt snowball method, the person continues making monthly minimum payments (i.e., $50) towards Credit Card B and Credit Card C. As for Credit Card A; they budget to pay more than the minimum (i.e., $150).
Once Credit Card A is paid off, there will be $150 available to use towards the next lowest balance, Credit Card B. Instead of paying the minimum payment, the payment now becomes $200 ($50 + $150).
When you pay off more debt with the snowball method, you can increase your monthly payment towards the next debt in line.
Tip 4: Build an Emergency Fund
A budget can help limit your spending. However, there might come a time when you’ll be hit with a major expense, such as replacing a leaking roof or repairing your car.
One hot summer day, the air compressor in my husband’s car stopped working. The air conditioner no longer blew cold air, and the cost to replace the air compressor was over $1,400! Thank goodness we had an emergency fund.
I recommend everyone have at least three to six months worth of monthly expenses. This amount is for the unfortunate scenario when you or your spouse lose your job. In this case, a healthy emergency fund can buy you and your family time while you look for another source of income.
Managing your finances can be overwhelming. However, minor tweaks to how you manage your finances can lead anyone to financial peace.
Like any kind of management, personal finances require conscious decision making. You could automate your savings by having a set amount automatically transferred to a bank account. However, your personal finances should never be treated like a “set it and forget it”.
Instead, become efficient in how you manage your finances. This applies to personal life and business. Find opportunities to reduce your expenses or costs, and your “profit margins” will increase!