I get asked for easy money management tips all the time, so I’m going to lay out five of my favorite tips to simplify your finances and support YOUR lifestyle!
1. Review Your Income and Expenses
While this step sounds like something most people would already be doing, it’s also frequently overlooked. I want you to sit down, and review your household income and expenses. If you live alone, this is your income and expense obligations. If you have a partner, take into consideration the finances for both of you. List out any debt payments you have and their minimums, such as student loans, credit cards, personal loans, and mortgage or car payments. Then add all of your regular monthly expenses (gas, groceries, utilities, etc). I recommend reviewing your bank and credit card statements for the past 3-6 months to get a feel for your average monthly spending in each of the recurring categories. Then add at least twenty percent to your average monthly expenses. This covers one time or unexpected expenses such as veterinary, medical, car repair, or others.
Now it’s time to compare your monthly average income with your average expenses. Are there shortfalls? Do you have extra money that could be used for doubling down on investments or debt payoff? If you’re able to meet all your goals laid out in tip #3 below, great, continue on! If not, or if you find yourself struggling to earn enough to pay for all of your expenses, then now’s the time to get creative! While you can cut a certain amount of discretionary spending where possible, I’m a big advocate for keeping entertainment, nights out, travel, etc as a part of your life, even while working to pay off debt (possibly in a decreased amount until you’re caught up). The easiest way to flip being negative every month is to make more money! You can only decrease your spending so much before you’re left with the bare essentials. In most cases, it’s significantly easier and quicker to make an extra 1k/month than it is to cut it from your budget. Upwork, Virtual Assistant gigs, and freelance work are all great low/no cost ways to start earning more money.
2. Review Your Priorities
What’s most important for you in your life now? In 10, 20, or 30 years? You want to lay out what aspects you want to prioritize in your life, in the order you want to accomplish them. By laying out an actionable roadmap, you make a plan for now and the future. If your number one priority is to buy a house as soon as possible, you’d want to prioritize increasing your income, paying off your debt, and saving for a downpayment. If you want to retire early in 15 years, that could look like prioritizing non-retirement investment sources, buying a rental property, establishing citizenship or a residence in another country, living more frugally, and increasing your income. The point here is that your life doesn’t have to look like someone else’s. It gets to be fun, it gets to be unique, and it gets to be yours, but you need to consciously choose it and take actionable steps to fulfill that life.
3. Plan for Your Future Self
When you went through reviewing your income and expenses above, you may have had enough for your expenses as they are now. But if that doesn’t include at least 20% for retirement, then you’ll want to add that into your monthly expenses, and aim there or higher for your contribution goal (much higher if you want to retire early). You can start small with 5 or 10% of your income and increase 1% every 3 months until you hit your goal contribution. A great way to increase retirement or savings contributions is by absorbing any raises that come through your job by increasing contributions by that same amount. Then you’re not losing any money and you’re still paying it forward to your future self.
This is also a good time to review your plan with a financial expert. This could be a financial planner, a fiduciary, or another trusted money expert. Make sure you’re clear about your current and future goals, and work collaboratively with them to maximize tax deductions now, while achieving your long term goals along the way. Reviewing your career path is also good to do at this point. If you’re employed, does your career field line up with the income levels needed for your future goals? If you’re self-employed, have you reviewed your profitability, analyzed bottlenecks, and forecasted future growth trends to confirm you’re headed in the right direction?
4. Automate Your Money
Once steps one through three are sorted, and you feel confident in your plan, it’s time to automate your financial goals! You can set up automatic payments for almost everything in your life. First, you’ll start with your fixed monthly debts like rent/mortgage, car, student loans, personal loans, etc. These are simpler because they have one set amount to pay each month.
Next, you’ll want to create automatic payments for any credit card debt you have but you’re going to do these a bit differently—you’ll make it so the minimum amount due is set to autopay each month. This is important because it prevents you from ever having a missed payment, subsequent credit ding, and allows you to still send additional payments to your card to speed up payoff. If you don’t have any credit card debt, or you have a card you’ve paid off but still use, you’ll want to set that one up to automatically pay the statement balance each month in full.
Once the basics are covered, then we get into the fun expenses! This is where retirement (outside of an employer plan), investments, savings, and focused debt payoff come into play. You’ll want to automate these payments to come straight out of your account so it’s one less thing to think about. Don’t go overboard here, you want to start with small, confidence building amounts like $50 or $100/month until you adjust to your new normal and can increase your contributions.
If you’re actively working to pay off your debt, that comes into play here, and you’ll want to automate additional payments throughout the month to align with your paychecks. Multiple, smaller payments to many loans are better than one large payment of the same amount, this is due to interest compounding daily. So depending on your pay schedule, it could make sense to set your extra payments up to be weekly rather than biweekly or monthly.
*One key note: With most service providers, you can call them to move your payment due date to better align with your monthly bills. For example, having your mortgage/rent and utilities come out the first half of the month, and credit card debt, student loans, car loans, etc could be scheduled for the second half.
5. Spend with Abandon
When your goals and bills have been automated, your income is flowing in, your future-self has been planned for and is being taken care of, you get step #5—spend with abandon! We all need to be able to enjoy the fruits of our labor, and spending on yourself is something that is vilified or frowned upon in many financial circles. Fear no more! Spending on what matters to you is like having dessert after a nourishing meal, a great addition once your nutritional needs have been met!
Our goal is to get to a place where you can spend guilt free and play, have dinners out, go to concerts, travel, brunch, you name it. If there’s cash in your pocket (or bank account), and you want to do, go, or buy something, you have free reign. This is the whole point of an anti-budget, to not have to sit and scrutinize over a budget, use an envelope system, or track every penny. Make your money work for you by using systems and automation to your advantage. And better yet, watch your net worth grow on autopilot!