How to Be Smart with Money?

Being smart with money doesn’t have to involve high risk investments or having thousands of dollars in the bank. You can be financially savvy in your everyday life, no matter what your current situation is. Start by building a budget to help you stay within your means and prioritize your financial goals. Then, you can work on paying down your debt, building up your savings, and just being generally more financially secure in your everyday life.

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Managing Your Budget

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Set your financial goals. Understanding what you are working toward will help you build a budget to meet your needs. Do you want to pay down debt? Are you saving for a major purchase? Are you just looking to be more financially stable? Make your top priorities clear to yourself so that you can build your budget to fit them.

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   Look at your overall monthly income. A smart budget is one that doesn’t overextend your means. Start by calculating your total monthly income. Include not just the money you get from work, but any cash you get from things like side-hustles, alimony, or child support. If you share expenses with your partner, calculate your combined income to figure out a household budget.
   

   • You should aim to not have your overall monthly spending exceed what you bring in. Emergencies and unforeseen occasions happen, but try to set a goal of not using your credit card to cover non-necessary items when your bank accounts are low.
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   Calculate your necessary expenses. Your first priority in building a better budget should be those things that need to be paid every month. Paying these expenses should be your first priority, as these items are not only necessary for daily function, but could also damage your credit if you fail to pay them in full and on time.^[3]
   

   • Such expenses may include your mortgage or rent, utilities, car payments, and credit card payments, as well as things like your groceries, gas, and insurance.
   • Set your bills up on autopay to help making prioritizing them easy. This way, the money comes right out of your account on the day the bill is due.

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   Factor in your non-necessary expenses. Budgets work best when they reflect your daily life. Take a look at your regular, non-necessary expenses and build them into your budget so that you can anticipate your spending. If you get a coffee every morning on the way to work, for example, throw that in your budget
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   Track your monthly spending. A budget is guideline for your overall spending habits. Your actual spending will vary each month depending upon your personal needs. Track your spending by using an expenses journal, a spreadsheet, or even a budgeting app to help you make sure that you are staying within your means each month.^[5]
   

   • If you do mess up or go over your budget goals, don’t beat yourself up. Use the opportunity to see if you need to revise your budget to include new expenses. Remind yourself that getting off-target happens to everyone occasionally, and that you can get to where you want.

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   Build some savings into your budget. Exactly how much you save will depend upon your job, your personal expenses, and your individual financial goals. You should aim to save a little something each month, though, whether that’s $50 or $500. Keep that money in a savings account separate from your primary bank account.
   

   • This savings should be separate from your 401(k) or any other investments that you have. Building a small general savings will help you protect yourself financially if an emergency comes up, such as a major repair around the house or unexpectedly losing your job.
   • Many financial experts recommend a target savings of 3-6 months’ worth of expenses. If you have a lot of debt you need to pay down, aim for a partial emergency fund of 1-2 months, then focus the rest of your cash on your debt.

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Paying Off Debts

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Figure out how much you owe. To understand how to best pay down your debt, you first need to understand how much you owe. Add together all your debts, including credit cards, short-term loans, student loans, and any mortgages or auto financing you have in your name. Look at your total debt numbers to help you understand how much you owe, and how long it will truly take to pay it off.

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   Prioritize high-interest debts. Debts like credit cards tend to have higher interest rates than things like student loans. The longer your carry a balance on high interest debts, the more you ultimately pay. Prioritize paying down your highest interest debts first, making minimum payments on other debts and putting extra money into your top debt priorities.
   

   • If you have a short-term loan like a car title loan, prioritize paying that down as quickly as possible. Such loans can be devastating if not paid off in full and on time.
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   When one debt is paid off, move money to the next. When you pay off one credit card, don’t roll that payment amount back into your discretionary funds. Instead, roll the amount you were paying into your next debt.
   

   • If, for example, you finished paying down a credit card, take the amount you were putting toward your credit card and add it to the minimum payment for your student loans.

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   Look for places to make cuts. When you start paying off debts, your budget will let you look for things you can cut from your regular expenses and roll into your debt payments. Look for things that you can cut or reduce, and roll the money over into savings or debt payment.
   

   • Investing in a good coffee pot and a quality to-go mug, for example, can really help you save long-term on your morning fix.
   • Don’t just look at daily expenses. Check things like your insurance policies and see if there are places you can scale back. If you are paying for collision and comprehensive insurance on an old car, for example, you may opt to scale back to just liability.

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Setting Up Savings

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Pick a savings goal. Savings tends to be easier when you know what you’re saving for. Try to set a goal, such as building an emergency fund, saving for a down payment, saving for a major household purchase, or building a retirement fund. If your bank will let you, you can even give your account a nickname such as “Vacation Fund” to help remind you of what you’re working toward.

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Keep your savings in a separate account. A savings account is generally the easiest place to put your savings if you are just starting out. If you already have solid emergency fund and have a reasonable amount to invest, such as $1,000, you may consider something like a certificate of deposit (CD). CDs make your money much harder to get to for a fixed period of time, but tend to have a much higher interest rate.^[13]

• Keeping your saving separate from your checking account will help prevent you from spending your savings. Savings accounts also tend to have a slightly higher interest rate than checking accounts.
• Many banks will allow you to set up an automatic transfer between your checking and savings accounts. Set up a monthly transfer from your checking to your savings, even if it’s just for a small amount.

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   Invest raises and bonuses. If you get a raise, a bonus, a tax return, or another unexpected windfall, put it in your savings. This is an easy way to help boost your account without compromising your current budget.^[14]

   • If you get a raise, invest the difference between your budgeted salary and your new salary directly into your savings. Since you already have a plan to live off your old salary, you can use the new influx of cash to build your savings.
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   Dedicate your side gig money to your savings. If you work a side gig, consider rolling that money directly into your savings. Build a budget based on your primary source of income and dedicate all your earnings from your side-gig to your savings. This will help grow your savings faster while making your budget more comfortable.