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Managing your finances isn’t an easy task. Sometimes there’s just not enough money to cover everything. Sometimes, we just don’t know exactly what to do first or how to handle our finances. Maybe you didn’t learn personal finance skills growing up or what you did learn no longer applies. Whatever the reason, the good news is that it’s never too late to learn how to manage your money. And it’s not difficult either, or at least it doesn’t have to be.
2022 is a perfectly good time to finally take control of your family finances. If you don’t take charge, your money will control you.
Below are six things you can do right now to set yourself for financial success and get your finances on track heading into the future.
Start Tracking Your Spending
You need to start tracking your family’s spending habits.
Warning: It’s going to hurt at first.
When you do the work and start seeing all the various things money is spent on, you start to realize why your savings account isn’t where you would like it. Create an expense tracking spreadsheet, use your bank statements or a budgeting app, or just write it all down in a notebook. Learning where your family finances are going is one of the first steps to changing where it ends up. It will help you find holes in your budget and identify spending that isn’t necessarily beneficial or part of your plan. Knowing where you’re at is what will help you determine where you’re going and refine your spending habits to match your goals.
Eventually, you may not need to track everything. Sometimes too much tracking can lead to anxiety about money or even a scarcity mindset. But it’s an incredibly helpful tool when you first starting to manage your finances.
Create A Budget
Keeping a budget is not the easiest thing in the world to do, but it doesn’t have to be stressful. The key is to find a budget type that works for you and then find a system that works for you. Whether you keep your budget in a spiral notebook or create an excel spreadsheet or are more tech-savvy and use computer software or a budgeting app, find what works for you and stick to it.
Another popular option is called a zero-sum budget, which gives each dollar from your paychecks a job. It’s outlined in one of our favorite money books, “Zero Down Your Debt”.
What Should I include in my budget?
You can include anything you want in your budget. Obviously, your budget needs to include any recurring monthly expenses, like:
- Mortgage/rent payments
- Car payments
- Cell phone bill
- Monthly services and subscriptions
- Credit card/other bills
- Any debt payments (student loans, other loans, etc.)
Eventually, it should also include any saving goals you’ve made. We love using sinking funds as a vehicle for saving towards future goals like travel and Christmas presents.
Here’s our approach to budgeting. We prioritize what we value, like travel and entertainment, and build a values-based budget. Then, we try to find ways to aggressively cut spending in other areas. Maybe for you, it’s eating out. Build that into your budget each month, so there’s money to go out and find ways to cut back expenses elsewhere to fit your income and budget. Since you plan to eat out, you can buy the cheapest foods to save money when grocery shopping for the month. Make your money work for what you value and stop spending it on things that aren’t as important.
Create an Emergency Fund
If you’ve been “adulting” for more than ten minutes, you’ve probably learned that unexpected expenses seem to appear out of nowhere and always at the absolute worst time. The easy way to ruin your well-crafted budget is to not plan for the unexpected. Having an emergency fund set up can help to ease the pain when life happens.
How much should you save in an emergency fund? That depends on your family’s specific situation. e specific number is dependent on your family’s specific circumstances. If you are in a stable job with good insurance, three months’ worth of expenses might be enough. 6 to 12 months would be even better. what if you still have debt to pay off? Start smaller. In the end, you should have enough saved in your emergency fund that it provides peace of mind for you and your family.
Pay Off Debt
While not all debt is necessarily bad, getting out from under debt will help you move on to pursue other financial and life goals. Having debt is stressful, especially when it seems to never end. It can become a huge source of frustration and a pinpoint in your family if you let it.
Create a plan to pay off your debt. Even if you start small, every little bit helps. Several different strategies exist that can help you pay off debt quicker. A couple of those strategies include:
Debt Snowball Method
The debt snowball method seeks to pay off debts with the lowest balance first. Doing so creates “quick wins” and motivation to keep going with your debt payoff. Start with the lowest balance first, paying the minimum monthly payment on all of your other debts. Apply any extra money in your budget (or from windfalls like income tax returns and bonuses) to pay off your debt. Once you pay off one debt, apply all of the extra funds previously used to pay off the first debt to pay off the next lowest debt balance. Don’t forget to add in the new bill’s minimum monthly payment too.
Debt Avalanche Method
The debt avalanche method focuses on paying off the debt with the highest interest rate first. Doing so helps cut down on extra interest payments and ultimately can save you considerable money over your debt payoff journey.
Start by determining the bill with the highest interest rate and apply every extra dollar to pay it off. Continue to make minimum monthly payments on your other debts. Once it’s paid off, move on to the debt with the next highest interest rate until they are all paid off.
Whether you chose the debt snowball, the debt avalanche, or another method, create a plan to pay off your debt and dig your family out of debt and onto savings and more financial freedom.
Set Goals and Save
Goal setting is usually at the top of most money management articles. Honestly, though, you need to develop the skills mentioned above to manage your family finances first, then worry about goals. With that said goals are important. We all have things we want to achieve with our lives or things we want to do and see. Maybe it’s taking an epic adventure with your family. Maybe it’s paying for your child’s education, buying your first home, or another worthy goal. Whatever it is, good for you!
Set those goals and find ways to build them into your budget. Just like you found extra money to go towards paying off debt, you can do the same when saving money for goals. A helpful tip I learned from reading “Stacked: Your Super-Serious Guide to Modern Money Management” is to timeline your goals. What does that mean?
Here’s an example. Let’s say you want to pay for your kid’s college. You can figure out when you need to have the money ready by looking at their graduation date. Let’s say you also want to become a one-income family or retire early. What’s your timeline for achieving those goals? Does it intersect with your goal of paying for college? Too often we don’t think of our goals in terms of when we actually need the money to pursue them, and far too often our goals intersect or require funds at the same time. For us, we have four teenagers who all plan to attend college. We’ve determined to set aside some funds for each kid for college. We also have several other financial goals, but unfortunately, we have to pick and choose right now because there’s only so much money to go around. Make sure our goals aren’t on the same timeline and require the same funding.
Investing is an important part of any successful financial plan. If you’re not already investing, now is the time to start. Where do you start?
If your employer offers a 401k, start there. Assign a portion of your paycheck to go into your 401k account. If your employer offers 401k matching, max it out. It’s free money and will help you grow your retirement savings faster. The earlier you get started the better. That’s because of compound interest. As your account earns money, it’s added to your account, and then you earn on your account balance and the money you’ve earned. It’s what will help your account grow to where you need it to be in retirement. Use this compound interest calculator to help you see just how quickly your investments will grow.
Beyond your 401k, there are tons of other investment options to explore:
- Roth IRA
- Traditional IRA
- Brokerage accounts
- SEP or Solo IRA (For self-employed individuals)
- TSP (Thrift Savings Plan)
The key with investment accounts is to understand whether it’s a tax-advantaged account, like an IRA, or not. A brokerage account isn’t a tax-advantaged account, so it uses post-tax money to fund it. You also pay
Where do you invest your money? Find a quality brokerage firm to manage your investments. There are tons of online brokers that can help you invest your money the right way, including:
- M1 Finance
- SoFi Invest
- Ally Invest
- TD Ameritrade
- Charles Schwab
Don’t get too hung up on which one to choose. Most of them offer similar services. Pay attention to customer service options, minimum requirements, and fees. It’s not difficult to change brokers later if you decide you want something different.
As far as how to invest your money, we prefer index funds. They are boring but historically offer great returns. You can also choose mutual funds and ETFs (Exchange-traded funds or individual stocks).
PRO TIP: will just sit in the account or a settlement account and won’t earn any money. You have to choose where to invest funds that are deposited into the account. You’d be amazed at the number of people who make this mistake.
We’re not investment experts. We have retirement accounts, IRAs, and other investment accounts, but we’ve spent considerable time over the last few years learning and growing as investors. Much of our investing education and knowledge came from following other awesome personal finance content creators. Our favorite investing experts include:
As we said earlier, it’s never too late to start taking control of your finances. Your future self will thank you. Regardless of your starting line, you can make money moves today to improve your situation and learn the skills needed to manage your money.
What money tips do you have that can help other families manage their money better this year? Let us know in the comments below.
Kevin Payne is the co-founder and budgeting and family travel enthusiast behind FamilyMoneyAdventure.com.
Kevin is a freelance writer specializing in personal finance and travel. He is a regular contributor to Forbes Advisor, MoneyGeek, CreditCards.com, Credit Karma, Money Under 30, and Student Loan Planner.