A brighter financial outlook might be on your wish list for 2020–but if you’re like many people, achieving that milestone is easier said than done. Learning how to manage your money better is a matter of setting a plan and sticking to it–whether you’re looking to pay off debt, save for a major expense like a summer vacation, or simply ease up on your spending. On the path to your financial makeover, here are our top proven tips for how to manage your money better in the new year.
1. Create a Budget
A budget is the single most valuable tool for creating healthy financial habits. Start by cataloging your current expenses according to the category, such as rent, utilities, food, entertainment, insurance, and hobbies. When you compare your budget to your monthly income, determine how much wiggle room you have and where you can afford to trim some expenses. Even ditching the daily latte or bringing a homemade lunch to work can free up some room in the budget. Keep updating your budget regularly throughout the month and adjust as needed. Reviewing your budget regularly will help you figure out how to manage your money most effectively.
2. Track Your Spending
If you think you might be spending excessively on items you don’t really need, challenge yourself to track your spending. Write down everything you spend money on for a week (or more, if you like). The exercise will force you to take a hard look at your purchasing decisions and evaluate what you actually need. You can use a personal finance app like Mint to simplify the tracking process on the go. Another option is withdrawing a certain amount of money in cash per week for entertainment, dining, and other miscellaneous expenses—and only allowing yourself to use cash for those purposes.
3. Set Aside a Portion for Savings
Each week or month, set up an automatic recurring transfer to a savings account. It’s a good idea to have at least six to nine months’ worth of expenses set aside in an emergency fund account. That way, you won’t have to worry about borrowing money or racking up credit card debt in the event that you lose your job or you need to pay for your pet’s unexpected surgery. Once you have a solid emergency fund, create a separate savings account for more exciting future adventures — such as that long-awaited vacation. Aim to save at least 10-15% of your income, but it’s OK to start smaller with what you can afford.
4. Consolidate Credit Card Debt
If you want to learn how to manage your money, addressing your credit card debt is essential. Instead of paying off your credit card gradually over time at increasingly higher interest rates, consider taking out a low-interest personal loan through a lender such as Prosper. You’ll be able to lock in the interest rate over the entire loan period, typically either three or five years. That way, you can shorten the overall time it takes to pay off your debt and—most importantly—save yourself money.
5. Talk to a Financial Planner
If you find yourself spinning your wheels as you try to overhaul your finances, consider hiring a financial planner. Financial planners work with directly clients to help them realize both short and long-term financial goals. They’ll be able to evaluate your income and expenses and design a plan to help you manage your money more efficiently in 2020 and beyond. Building a stable foundation for your future could be well worth the initial upfront investment.