Figuring out how to manage your personal finances can seem like a daunting task, but there are actually simple steps you can take to master your finances. The sooner you learn how to make smart, strategic personal finance decisions, the easier it will be to live the life you want.
Get started with these nine quick and painless money moves you can make right now and see for yourself the impact they have on your personal finances.
1. Track Your Spending
This is the easiest thing you can start doing to better manage your money, mostly because you don’t have to do anything. There is no shortage of apps for your phone that allow you to aggregate your accounts. These kinds of systems can not only track your spending, but also categorize it for you so you can easily see where your money goes.
The best approach is to use a budgeting tool that comes with ongoing financial guidance. It's not about just tracking your spending, it's about determining how to make smarter choices about how you use your money to live the life you desire. (For related reading, see: 8 Best Personal Finance Apps of 2018.)
2. Contribute to Your 401(k)
If you’re not contributing to a 401(k) or the employer-sponsored retirement account available to you, start now.
You’ll want to put at least enough money into your plan to get your full employer match. Then, check out other ways you can keep saving for retirement in your 20s and 30s.
3. Invest in Other Accounts, Too
Your 401(k) is a good start, but don’t stop there. Open a Roth IRA if you haven’t yet, or even a taxable brokerage account.
While saving is important, investing is even more critical when you’re in your 20s and 30s because you have time on your side, and time is the most important ingredient in building wealth thanks to compounding returns.
4. Set Goals and Write Them Down
It’s tough to make progress if you don’t know where you’re going. Your goals can help serve as signposts and markers to guide you in the right direction when you make financial decisions. You don’t necessarily need a laundry list of goals. In fact, the more you have, the more overwhelmed you might feel. To get started, here are some goals that make sense to work toward:
Short term (less than five years):
- Build an emergency fund
- Save up for a vacation
- Pay off credit card debt
Mid-term (five to 15 years):
- Pay off student loan debt
- Save up for a down payment
Long term (15 or more years):
- Financial freedom
Once you set one or two goals, estimate how much money it will take to reach them. Divide that number by the number of years between now and when you want to reach your goal.
For example, if you want to save $50,000 for a down payment on a house and you want to buy a home in eight years, you’d need to save $6,250 per year. That means putting $520 per month aside to achieve this goal. (For related reading, see: 4 Ways to Make Extra Money to Fund Financial Goals.)
5. Automate Your Finances
After you get a clearer sense of your goals and what you need to save to reach them, set up automatic contributions from your checking account to your savings account for those goals. That makes it easier to save and can eliminate the temptation to spend rather than save. You can also automate contributions to your investment accounts. The fewer decisions you have to make around money, the easier it will be to make smart decisions when it matters. Automating reduces the work you need to do to get to financial success.
6. Consider Refinancing Your Student Loans
It won’t make sense for everyone, but in some cases refinancing your student loans can help lower your monthly payments. If you can get a lower interest rate through refinancing, you could save money over the life of your loan, too.
You may not want to go this route if you have federal student loans, because refinancing means switching to private loans and losing some protections that federal loans grant borrowers. Instead, you can get strategic about how you pay those balances so you can get rid of them quickly and in the cheapest way possible.
7. Use Credit Cards Wisely
If you have a lot of credit card debt and tend to overspend, the best thing you can do with your cards is to put them away, or even cut them up. Switch to using cash instead until you can develop better money management habits.
On the other hand, you might want to leverage credit cards to earn cash back on your normal, necessary spending if you can manage your cards responsibly. Earning cash back is like saving 1-2% on everything you buy, and every little bit of savings helps. (For more from this author, see: What's Keeping Your From an Excellent Credit Score.)
8. Save Your Spare Change
This is another smart money move you can take that requires very little action on your part. Download a smartphone app that will help you automatically save or invest your spare change. Banking solutions with apps like Digit and Chime will round all your purchases up to the nearest dollar and transfer the change to your savings accounts.
9. Stop Wasting Money on the Little Stuff
You’ve heard it a thousand times before: That daily coffee habit is costing you over a thousand bucks a year. The thing is, it’s not spending $4 on coffee a day that’s hurting your financial life. It’s spending $4 on coffee, and another $4 on a muffin with that coffee, plus $10 on lunch every day, and another $10 on the dinner you pick up on the way home, plus the $30 you spend three days a week on your boutique fitness class, and the $75 you spend when you go out with your friends every Saturday and Sunday, etc.
None of things things are bad or wrong, and any one of them, even the pricier nights out, probably won’t stop you from reaching your financial goals. But the combination of all this spending will get you into trouble. You truly can afford whatever you want most, but you can’t afford everything you want.
Think about what brings the most value to your life. If those expensive fitness classes are important to you, then keep them in your budget, but eat breakfast at home before you leave, grab a free cup of coffee at the office and bring your lunch to work.
You don’t have to be cheap, but if you want to be better with your personal finances, you need to identify the waste in your spending and eliminate it. That will leave you with more money to save and invest, which is how you’ll grow your wealth.
(For more from this author, see: 5 Ways to Stop Living Paycheck to Paycheck.)