Are you often stressed about money? Do you get hit with late payment fees and wonder how your friends can afford to travel and plan for big purchases like a downpayment on a car or house? You’re not alone! According to CNBC, 70% of Americans admit to being stressed about their finances. Surprised? I am….that’s a lot of people! The important thing is that you know you need to make a change.
Learning to be responsible with money is a skill that you can learn, like any other. Remember when you were first learning how to use a computer or the first time you tried to make one of your favorite meals? The feeling of uncertainty might be similar, but think of how rewarding it’ll be to finally feel like you’re in control of your finances!
In this article, we’re going to give you the steps you need to take to start being responsible with money. Let’s get it together!
Step #1 – Get organized
First things first – do you know when your phone bill and car payment are due? How about when your car registration will be up for renewal? These are a few examples of the information that you will need to gather to get started. So pull out your credit card statements, bank account, and all other financial information and map out your finances in as much detail as possible.
A great way to do this is by creating a budget binder, click here to read everything you need to know about how to get started.
Knowing exactly when every payment is due and setting up auto-pay wherever possible will help you avoid late payment fees and other costly issues. Also, make sure that you keep track of any trial subscriptions and renewal dates so that you don’t end up paying for something that you don’t want or haven’t planned for.
Step #2 – Create a budget
Now that you know exactly when your bills are due and how much money is coming in and going out of your bank account, it’s time to create your budget! There are a number of budgeting models to suit your needs, from biweekly budgeting to 60/30/10 and 30/30/30/10 – you can find the budget that works for you.
While creating your budget pay close attention to where your money is currently going. Are you spending more than 10% of your monthly income on “wants” like eating out, manis/pedis, and shopping? Then it’s time to cut back on some unnecessary spending so that you can start allocating that money to more important things like paying off debt or savings/investments.
If your goal is to be responsible with money, you will need to let go of some old and probably bad habits. Start embracing discipline by being intentional with your spending and saving. Saying no to ourselves after a difficult day or week at work can be frustrating, but you have to think of your future. What you do and how you choose to spend your money each day will determine where you are a year and five years from now.
Interested in learning more about a biweekly budget or the 30/30/30/10 budgeting rule, click on the links to read all about them!
Step #3 – Pay off credit card debt
After you’ve decided on the budget that will work for you it’s time to get serious about your credit card debt. If you don’t know how much you owe or what the APR is on each of those cards, log in to your accounts and find out right now. Seriously…right now. Ignoring the problem or pretending it doesn’t exist is a great way to let that debt snowball out of control.
If you want to make real progress and pay off your debt you need to know exactly how much you owe and create a debt pay off plan. Start with the balances and APR for each account and then you can decide on the best strategy to pay it off. While you will need to continue paying at least the minimum balance on each card, you can focus your efforts on
One option is a debt snowball approach – with this approach you would pay the smallest debts off first, in doing so you would feel a sense of accomplishment as you pay each debt off. That would quickly snowball to you tackling larger debts and ultimately becoming debt free.
Another option is a debt avalanche approach – this method works a little differently, you would need to know the APR on each of your accounts and start paying them off from highest to lowest interest rate. With this approach you might get a little discouraged if the debt with the highest APR is also the biggest debt.
Ultimately, there is no right or wrong answer as to which approach is best. But, if you know you’re the kind of person that needs to see results quickly to stay on track – the debt snowball method may be the best option for you. There are many other ways for you to get out of debt, including debt consolidation or doing a balance transfer to a credit card with a 0% APR.
For more tips on paying off credit card debt, read our ultimate guide by clicking here!
Step #4 – Save for emergency savings
Do you have money set aside for emergencies? If you don’t, you’re in good company! According to CNBC, 56% of Americans would not be able to cover an emergency $1,000 bill with money in their savings. That’s an astonishing number and scary to think about. That means that in case of a medical emergency or serious car trouble – you would be turning to credit cards or loans.
A huge step that you can take to be responsible with your money is to consistently set money aside for emergencies. A good place to start is with a goal of 3 – 6 months of living expenses.
Trust me, you will feel much more at ease knowing that you have a nice safety net for unexpected/emergency expenses. There’s no need to get into credit card debt or ask friends/family for help.
When you start your emergency savings account, make sure you’re taking advantage of high interest rates by opening a high-yield savings account. Traditional savings accounts offer an APY of 0.01% which means your money will sit there growing at a snail’s pace. So take your hard-earned money elsewhere! Look into high-yield savings accounts to maximize your returns and grow that emergency fund.
Step #5 – Save for retirement
Lastly, a critically important way for you to be financially responsible is to save for retirement.
(Psst…I have a free class on investing you can sign-up for here.)
Is your dream to work well into your 70’s and 80’s? I know mine isn’t! That means you need to start saving and investing in your retirement fund TODAY.
Did you know that if you start contributing $400 p/month (at a 7% annual return) into a 401(k) at 25, you would have approximately $1,000,000 by age 65? That’s the magic of compound interest! The key is to start early – wherever you are in life, the time is now. So if you didn’t start at 25, that’s okay start at 29 or 35. The point is to get started investing consistently in your retirement plan.
If your employer offers a 401(k), find out what your employer match contribution is and make sure that you are contributing enough to get the FULL match. That is free money that your employer has set aside for you. It’s part of your contribution package and you should be taking full advantage of that money and letting it grow.
Did this spark any interest? Check out this article for the low down on IRAs and 401(k)s.
Final Thoughts
Learning to be responsible with money is like learning any other skill. So while it may be uncomfortable in the beginning, you can start growing that muscle little by little until you are so on track that nothing can derail you. These 5 steps will help you on your journey to becoming responsible with money, but an important thing to mention is that you need to learn to live within if not below your means.
So just because you got a Christmas bonus doesn’t mean you should make your way to the car dealership and lease out a BMW. Expensive habits like high car loan payments, excessive shopping, food delivery services (hello 50% markup to your fast food order!) and seemingly benign $40 – $50 manis and pedis will keep you in the red. It’s time to be mindful of your spending and more than that, think about your future and if you are taking the steps necessary to be in a better financial position year after year.
I have a free guide you can grab here that will help you take these steps and make them a game plan you actually implement in your life.
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