With so much uncertainty in the world at the moment, there has never been a better time to learn how to get smarter about money. It is possible that any time throughout the coming year you may lose your job, get injured and be unable to work, or simply not have enough money to pay all the bills on time.
Obviously we all hope and assume that this type of situation will never happen to us, but unfortunately it does happen. Peoples lives can be ruined by not having a fall back position when financial hardship comes knocking on your door, and so in this post I am going to quickly run through a few things that you can do to hopefully improve your financial situation throughout the year.
Step 1 – Set a Realistic Budget
First things first, you need a budget. I know you have probably heard this before, but seriously, if you haven’t setup a budget yet then you are definitely not being smart about money. A budget alone won’t turn your finances around, but it can be a valuable tool in aiding you to understand where you money should be being spent.
Check out my budget post if you need help in creating a budget.
Step 2 – Track all of your Expenses
It’s one thing to create a budget, but it will be pretty useless if you don’t also start to monitor your expenses. Knowing where your money is going is the real key to getting smarter about financial management. How can you possibly get ahead financially if you don’t know where you pay is going every week.
When I first started using financial management systems, one thing that I found when I was tracking my spending habits was just how much things can add up. It’s not always the big things either, quite often it is the little yet regular purchases that can impact your bottom line the most significantly. Something as simple as your daily coffee can really put a dent into the amount of money you are able to save each week.
Step 3 – Start an Emergency Fund
Everyone needs an emergency fund or at the very least, a way to access cash if something stops you from being able to work. I recently had a guest post about having your emergency fund accessible as a part of your mortgage in an offset account.
Regardless of how you set up your emergency fund, be sure to remember the following key points:
- An emergency fund is for an emergency, not a big screen TV.
- The money you put into the emergency fund needs to be easily accessible and not subject to days or weeks worth of wait times.
Step 4 – Manage your Debt
If like me you have a lot of debt, then you need to make sure that you can adequately service that debt without bringing on financial hardship. Many people struggle with the burden of excessive debt and can end up bankrupt as a result. Remember that if you find yourself in this type of situation, there is help available and that it is possible to avoid bankruptcy.
Even if you have your debt under control, it is still a good idea to actively manage your money and try to pay down debt as soon as possible.
Step 5 – Avoid Lifestyle Inflation
Lifestyle inflation can wreak havoc on your finances. Lifestyle inflation normally occurs because most people want what others have. It’s human nature, and it is called keeping up with the Joneses. Trying to keep up, or even out do your neighbour, can end up setting you back years on your retirement goals if you let it get out of hand.
A simple way to avoid lifestyle inflation is to stop comparing yourself with others, be happy with what you have and evaluate each non-essential purchase on its merits. Before you buy, remember to ask yourself this question – Do I need it, or do I want it?
Step 6 – Set SMART Financial Goals
Finally (and my personal favourite) – set yourself SMART goals. I believe that setting SMART financial goals are critical to getting smarter about money and money management. Goals can be simple or they can be complex, but no matter how big or small the goal is, it is important to set them the SMART way and to regularly check your progress in order to stay on target and to stay motivated. If you need help setting SMART goals, I created a SMART goal example not long after I created this blog which might be of use to you.
Most people have some sort of goals, but all too regularly they fall by the way side and never get completed. To prevent this from happening, I like to set meaningful goals and really challenge myself. When I compete a goal (depending on how big it is), I then like celebrate my success so that I have something to look forward to at the finish line. This helps to keep me motivated and drives me to achieve more than I ever could without setting goals.
To start you off on your journey to get smarter about money, I am teaming up with Savings Advice to offer you the chance to win $100. What better way to start off your savings or emergency fund in the new year than to kick it off with $100!
How are you smart when if comes to money? Have you got any amazing tips for the rest of the community?
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