According to Experian, about 60% of Americans don’t understand their own finances. Within that group, another two-thirds say this has led them to mistakes costing $1,000 or more. So if you don’t feel like you have a great handle on your money, you’re not alone. To improve your personal finance management, consider taking these five steps. A financial advisor can also help you when it comes to how to manage personal finances.
1. Get Advice From Professionals, Not Social Media
While exact numbers are hard to nail down, reporting suggests that a majority of people under 40 receive some or all of their personal finance advice from social media accounts. This is risky, particularly when it comes to short form platforms like Instagram, Twitter and TikTok. Influencers on these platforms organize their work by engagement and, especially when it comes to money, the most entertaining work is frequently the least accurate.
From tax tricks to credit card points and beat-the-market strategies, these accounts may spread dubiously legal and badly misinformed takes, and are not the safest option when it comes to guiding your finances.
2. Think in Terms of Habits and Goals
A good way to start managing your money is by thinking in terms of habits and goals.
Don’t think about your money in a general sense of “saving up.” Instead, set clear financial goals. For example, “save up $10,000” or “invest $500 in a retirement account each month” are concrete and achievable. You can see yourself progressing toward those goals, and since they have an end point, you know when you meet them. Once you’ve invested your $500 for the month, you can relax.
And don’t think about your finances in terms of “spending less.” Instead, look at specific habits you can build or change. In the same way that someone will simply cut out potato chips or add a daily run to lose weight, you can set a cap on entertainment spending each month or add a spending alert to your credit card. Like with goals, thinking about your finances in terms of specific habits to adopt will turn a vague, abstract idea into something concrete.
3. Make a Budget and Audit
It’s almost impossible to manage your finances unless you know how much money is coming in and going out.
First, make a budget. This takes into account your salary, and helps you plan how you intend to manage your money going forward. Based on your income, goals and other factors, you’ll answer a few questions, such as:
- What are your fixed and variable monthly expenses?
- Which of those expenses are necessities, and which are discretionary (i.e., wants)?
- How much do you want to save and invest?
Always leave a little room for flexibility. Life is more fun if you can spontaneously go out for a movie or a beer, but have a structure in place.
Then, conduct an audit. This is your analysis of how you currently manage your money. Pull your bank and credit card statements and look at the money you actually spend each month and where it goes. If you spend a lot of cash, grab a small notebook or use a budgeting app and spend a month tracking your daily spending.
This can help you determine where to make cutbacks in discretionary spending to reach your saving and investment goals.
4. Monitor Credit, Debt and Regular Spending
Recurring charges can eat away at your wallet every month. Not to mention, debt adds up quickly, not only generating monthly bills, but prolonging your spending through interest rates, fees and payment charges. Paying down debt should be a priority, especially anything with a high interest rate.
It’s important to monitor these things, especially your use of credit cards, as they can have a significant impact on your credit score.
Your credit score can make or break major life events, like getting a job, or buying a car or home. This is why it’s important to not only monitor your spending and credit usage, but verify that information listed on your credit report is accurate. If it’s not, you can dispute it with the credit bureau.
5. Treat Finance As Maintenance
Financial management is something you should pay attention to regularly. Check your spending against your budget each month. Check up on your habits and recurring expenses every few months. Monitor your credit once or twice a year.
That way, any changes you need to make will be small and incremental, which will make your financial life far easier and less stressful.
Bottom Line
Managing your personal finances is a large, often complicated task. But it doesn’t have to be an overwhelming one. Get your information from good sources. Think in concrete terms of habits and goals. Make a good plan and stick to it.
Tips on Sticking to a Useful Budget
- These financial planning resources can help you make a financial plan and stick to it.
- A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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