Good money management does more than just ensure your bills are paid each month. When you are actively managing your money, you’re thinking ahead and you have a plan for your income and expenses, you set money aside for future expenses, you save money, and you are comfortable spending your money for needs and wants.
- Budgeting can help you manage your day-to-day spending and saving
Your budget should reflect your goals. A budget is a plan to ensure that you know where your money is going. You should track your income and your expenses. List your bills, amount you owe and when they are due each month. Are you spending more than half of your income? Does your income consistently cover your expenses and what can you change if it doesn’t? You should have emergency, short-term and retirement savings. A good guideline is to try to put at least 20% away in savings each month. If that is too much start smaller, but start! Use First Bank’s free Digital Banking budgeting tools to help you stay on track.
- Take advantage of an HSA or FSA to help save on medical expenses
If you’re eligible, saving money in a flexible spending account (FSA) or health savings account (HSA) can help you save on health care costs. Both of these accounts allow you to save money pre-tax to pay for qualified health care expenses. With no federal income tax due on contributions or qualified withdrawals, you will have more money to put toward costs you are paying anyway. Not only can contributing to an HSA or FSA reduce your taxable income for the year, it also makes sure you’re saving ahead of time for necessary expenses that are inevitable like doctor visits and prescriptions.
- Have an emergency fund to protect you when the unexpected happens
Having money set aside for those unexpected expenses is one of the best ways to avoid taking on debt or going over budget. Saving enough to cover essential expenses for at least 3 to 6 months consistently transferring a little money into the account with every paycheck will ensure you will have the money you need, even if you face multiple emergencies back-to-back.
- Take advantage of workplace retirement plan matches if offered
Get the full match to your workplace retirement plan. The earlier you’re able to begin investing, the more time you have to take advantage of the power of compounding. Compounding refers to the value of an investment increasing because the earnings on an investment are reinvested and earn additional returns as time passes. Workers who have access to a workplace retirement plan, like a 401(k) or 403(b), can set up an automatic contribution to the account with every paycheck. If you can afford to contribute enough to receive your employer contribution match, that is a great way to help ensure that you’re making the most of your money. If not, start contributing what you can afford, and increase the contribution amount each time you get a raise. Don’t have access to a workplace retirement account? Consider an individual retirement account or IRA. You can set up automatic transfers from your checking account or have money directly deposited from your employer.
- Paydown high interest debt by taking advantage of lower interest balance transfers
There are good reasons to use credit for big purchases—you might get cash back or other rewards that can add up. To make sure you’re not overpaying, make a plan to pay off debt as quickly as possible. Paying the statement balance in full every month is the best option. If that’s not possible, consider picking a strategy to help you pay off debt fast: the debt snowball or avalanche method. Make a list of all your debts including the balances and interest rates. Then rank your debts first by balance, lowest to highest. Next rank them by interest rate. For the debt snowball method, you would begin with the lowest balance debt. Pay the minimum on other debts while focusing extra payments on the lowest balance account. Once it’s paid off, move on to the next lowest balance and do the same, putting all of your extra money into that account while paying the minimums on others. Eventually you’ll knock out all of your debts. The debt avalanche is similar, but you start with the highest interest account. This strategy can be more efficient and could save you more money than the snowball approach. Credit card companies often offer low- or no-interest balance transfers if you have good credit. Though it does cost money to transfer, typically about 3% of the balance, it can still save you money. It can really help reduce interest charges as you whittle down what you owe.
Money management is an ongoing process. It takes time to develop money management skills and grow your confidence. Along the way, celebrate your victories and do the best you can day to day, month to month and year to year. Though it may take a little extra effort at first, it can be tremendously empowering to one day realize you’ve gone from struggling to stable. After that, the sky is the limit.
Get organized, set your goals and create a flexible plan that works for your life.