4 tips to mastering your money
7 minutesBy mastering your money, you can make it work better for you to help reach your financial goals. To make things easier, we’ll break this lesson into 4 steps: spending, saving, borrowing and protecting.
step 1: spending
This is the first step because spending money is easy, right? When you use a budget to understand and manage how you spend your money, you’ll be setting yourself up for success with the other three steps.
make a budget
First, write down your monthly income. Use your net pay, the amount you get after deductions like taxes and benefits. Include tips, government benefits and other sources of income. If your income changes from month to month, use the average from the past three months.
Next, use your bank, utility and credit card statements to estimate what you spend each month. Make this part easier by breaking expenses into categories like housing, family, food, transportation and entertainment.
Now subtract your expenses from your income to see what you have left over. You can use this money to save or pay down debt.
If your result is zero or lower, take another look at your expenses. Are there ways you can cut back a little and save money?
use your budget
You can now use your budget as a tool to manage your spending and work toward financial goals.
Compare your budget to your actual spending each month and make adjustments if they’re out of line.
Planning for holidays or special occasions? You can add them temporarily to your budget.
step 2: saving
Now that you know more about spending, you’re ready for the next step in mastering your money – saving.
getting started
Ever heard of the saying, “pay yourself first”? Set aside an amount from each paycheck to put into a savings account. You may be able to use direct deposit through your employer to put part of your paycheck in savings automatically.
Don’t know how much to save? Start small and see how it fits into your budget. If you have money left over every month, add that to your savings amount.
set a savings goal
Do you dream of owning a home? Retiring in comfort? Setting a savings goal can help those dreams come true.
First, decide on your savings goal. Here are some ideas to get you started: Save for emergencies. An emergency fund can help you with unexpected expenses like car repairs or medical bills.
Save for a big purchase. This could be a new TV or a vacation. Divide how much you’ll need by the number of months it may take you to save it.
Save for retirement. You may have a 401k option through your employer or choose an IRA or other plan. Many plans let you get started with a small amount.
SMART goals method
This method is a popular one you can use to set financial goals. The letters in SMART stand for Specific, Measurable, Achievable, Relevant, Time Bound.1
By making your goals SMART it may be easier to follow through and reach them. As you plan, ask yourself, is it:
Specific: What am I saving for?
Measurable: How much do I need to save?
Achievable: Can I reach this goal?
Relevant: Is now the right time to do it?
Time bound: When will the goal be complete?
Once you set a savings goal, add it to your monthly budget, then enjoy watching your savings grow.
step 3: borrowing
Even if you’re good at saving, there are times when you may want to borrow money to cover a large expense.
choosing a credit account
The Consumer Financial Protection Bureau (CFPB) recommends you shop around and compare offers before you open an account.3 Why? Because they offer different rates and come with fees that you may not want to pay.
APR
One way to shop credit offers is by annual percentage rate (APR), the yearly interest rate charged for a loan or credit account. A credit account with a higher APR will cost more and could take longer to pay off.
other things to consider
Credit offers may have annual fees, late-payment fees, cash-advance fees, balance-transfer costs and penalty APR.3
growing a healthy credit score
Your credit score is a three-digit number that shows how likely you are to repay debts. Making payments on time, every time, is the best way to grow a healthy credit score.
Your budget from Step 1 can help you set aside money to pay off debts. Setting up automatic payments or electronic reminders are other ways to avoid missed payments.4
Also, keep an eye on the credit limits for your accounts. Staying too close to the limit can affect your score. Try to keep your balance low in proportion to your total credit limit.
step 4: protecting
Taking basic steps to protect your money can help prevent financial pain.
preventing identity theft
Identity theft is when someone steals personal or financial info – like your name, Social Security number or credit and bank account numbers5 – and uses it to make purchases or open accounts in your name, which can hurt your credit.
ways to stay safe
Keep documents secure. Use strong, unique passwords for credit, financial and medical accounts.
Use multi-factor authentication (MFA), which requires an extra step to check your identity when logging into accounts.6
Check credit and bank accounts regularly for charges or withdrawals you didn’t make.
Be watchful when you’re away from home. Avoid public Wi-Fi, which may not be secure. In stores, watch out for card-skimming devices that may be attached to card readers.
Review your credit report for accounts in your name that you don’t recognize.5
By taking these 4 steps to master your money, you’ll be able to make better decisions on how to spend, save, borrow and protect it.
1 https://files.consumerfinance.gov/f/documents/cfpb_your-money-your-goals_SMART-goals_tool_2018-11.pdf
2 https://www.experian.com/blogs/ask-experian/what-is-a-thin-credit-file-and-how-will-it-impact-your-life/
3 https://files.consumerfinance.gov/f/documents/cfpb_adult-fin-ed_how-to-find-the-best-credit-card.pdf
4 https://files.consumerfinance.gov/f/documents/cfpb_adult-fin-ed_understand-your-credit-score.pdf
5 https://consumer.ftc.gov/articles/what-know-about-identity-theft
6 https://www.experian.com/blogs/ask-experian/how-to-protect-your-identity-during-the-holiday-season/