There is no better time than today to gain control of your finances. Did you know that nearly 70% of Americans have less than $1,000 in their savings account? And that 57% cannot cover an unexpected $500 expense? If you’ve been following along with this website, it isn’t the first time I’ve referenced those numbers, but I keep doing it because it’s important.
Even if you do have the money to pay that $500 expense, are there areas that you can improve? Are you investing enough? Have you started a separate fund for the purchase of your first house?
I don’t want to overwhelm you with all of these questions, but they are important questions that need to be asked.
If you do one thing today, make it this: take a deep dive into your finances and really assess where you want to be in 5 years.
You should be asking yourself questions like:
- How much money do I make?
- How much money do I owe?
- What are the interest rates on my debt?
- Am I investing enough of my salary?
- Do I have a plan in place to build my savings?
- Do I need to make more money?
- If I got fired today, how long could I survive off of my savings?
These are all tough questions when you really sit yourself down and get real with yourself.
Now, I didn’t bring you here to worry about your life, I came here to offer a helping hand to a problem that you might have.
Here are 3 tips to gain control of your finances today
Make a Budget
You hear that stupid word everywhere. Budget this, budget that. Yeah, yeah.
I can honestly tell you that even the most rich and successful people have budgets in place, and it’s because they work.
If we are living by spending more money than we are making, how will we be able to look out for our future? As much as I think that life is precious and we should take advantage of every moment, don’t go to Bali for a week if it means spending most of your available cash.
There are great budgeting tools such as You Need a Budget, Mint and Clarity. I’ve used all three and gave an in depth review of them in another budgeting post.
These three apps aren’t the solution to financial issues, they’re just apps. But having them and seeing the money you spend laid out in an organized and categorized format helps you see where you are spending too much money.
Once you have your budget lined up, you can allocate proper funds to each type of expense like rent, food and entertainment. More importantly, you’ll be able to allocate more money to your savings and investing.
I’ll be honest, from time to time, I spend way too much money taking my girlfriend out to a fancy dinner or going to a bar with my buddies. It happens. As long as you are disciplined and stick to your budget, you’ll be able to reach your financial goals.
Start a Side Hustle
In 2020, with the COVID-19 pandemic, it has been even more important than ever to find multiple streams of income. Think about the question I wrote above, if you got fired, how long could you survive off your savings?
With more and more businesses laying off people as the economy worsens, it is putting more people into financial trouble. Don’t let that be you.
The internet is full of ways to make a little bit of extra money on the side. From writing blogs and starting podcasts to selling hand-made products and building a course, there are an inredible amount of ways to make extra money online. Please, please just don’t fall for those get-rich quick schemes like the instagram “turn $100 into $800” craze.
All a side hustle takes is some hard work and dedication. We’re not talking about ideas that are going to bring in millions of dollars a year (although I encourage everyone to try to build a business), we’re talking about bringing in an extra few hundred dollars a month. How great would it be to monetize something you love doing and make enough money to cover your monthly groceries? Or your monthly loan payment? An extra few hundred bucks a month goes a long way.
If you are lost on where to start, check out this recent blog post where I give 5 examples of a side hustle.
Save First, Then Spend
This is such an important lesson. There is a great quote by Warren Buffet. He says:
“Don’t save what is left after spending, spend what is left after saving.”– Warren Buffet
Warren Buffet built his investing empire on this exact mindset. Save first. Spend second.
Now I know that some things HAVE to be paid, like rent, utilities, car payment, loans, etc.
The point here is for your leisure expenses. The clothes, alcohol, video games and restaurants.
When you get a paycheck, pay yourself first. Put more money than you are comfortable with in your savings, or better yet, into the stock market.
If you reach your savings goal before spending any money for leisure purposes, you know exactly what you can spend before your next paycheck. It’s a lot better of a system than realizing you didn’t reach your savings goal at the end of the month because you spent too much money during the month.
This does take some getting used to, but you will thank yourself in a year when you have a great savings account for a rainy day.
These three previous tips will certainly help you if you give them the attention and effort that they require. But I do have one more.
Last year, I changed all of the due dates for my expenses to be in the first half of the month. That means my rent (1st), credit card (5th), student loans (7th), and so forth.
What’s the point of this?
Think about it, if you get paid bi-weekly, you are getting two paychecks a month. If you are able to cover most, if not all, of your expenses with your first paycheck of the month, you have no expenses to cover with your second paycheck.
Here’s how it works.
Log onto your accounts where you owe money, you can most likely change the due dates of your bills without getting on the phone. How great is that?
Once all of your bills are front loaded, all you need to do is have 2 paychecks worth of income in your checking. Keep in mind this will deplete your savings temporarily.
Putting it Into Practice
The following example will explain how this works. Let’s consider you get paid on the 15th and the 31st of every month and make $2,500 every pay period (to make the math easy)
You will want $5,000 in your checking on the 30th. You get paid on the 31st.
Boom. $7,500. You’re rich.
Then the 1st comes, out goes rent. $6,500. Credit card on the 3rd, $5,000. Loans on the 5th, $4,000. Other expenses on the 8th, 9th, 10th, etc., $3,500.
I understand you will have more expenses than listed above, but for the example, you had $4,000 in monthly expenses. Your balance went from $7,500 to $3,500, but as of the 10th of the month, ALL of your expenses are paid.
When the 15th rolls around, you get your next paycheck which bumps your account up to $6,000 ($3,500+$2,500).
Since you have no more expenses, reset back to the starting point of $5,000. Take that $1,000 ($6k-$5k) and put it to your savings or an investment account.
Then rinse and repeat starting at $5,000 again the next month. Some of these expenses won’t fluctuate, like rent and loans. The area that matters most is your credit card payment. If you can work on lowering that to a respectable level, you’ll be able to save all the money you need.
Keep in Mind, This Isn’t Perfect
Now I will say, this approach isn’t exactly “save first spend second”, but it is a plan that keeps savings in mind. It is a system that works and helps you keep track of how much you can save.
If you don’t feel comfortable with this, then try the other version. Save first, spend second.
Keeping that simple phrase in your mind will help catapult your finances forward.
I am a big believer of delayed gratification. Save now so you can enjoy later. Help future you out. Put these ideas in practice and see what works for you.