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.
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.
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.
Money Giveaway
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!
Reader Question
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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Thanks Glen
Great list with simple and clear advice Glen. Thank you for share with all of us.
The step I like more is #5 about “Lifestyle inflation”. It is absolutely true that this way of living and this behavior can ruin your financial life.
I had an experience recently in S. America and for the first time i realize that people can live with very-very little material things and be happy the same time. Really a life change experience for me. Now I’m sure that i don’t have to “Keep up with the Joneses”!
Lifestyle inflation can get out of hand easily if you don’t realise it’s happening.
Thanks for taking the time to comment Vaptisi
Great advice here, Glen.. and stated very well..
I hope that everyone realizes how important it is to get that emergency fund in place. You will certainly fall of the wagon, and emergencies will crop up.. You need a buffer out there to protect you when this happens..
jefferson @SeeDebtRun recently posted..How to Stop Biting Your Nails
Emergency funds are critical, you never know when a curve ball is coming your way and it’s great to be prepared.
I like your 6 steps Glen. I am also a huge advocate of SMART goals as I have some of my own for 2013. Happy New Year!
Deacon @ Well Kept Wallet recently posted..Top 10 New Years Resolutions for 2013
If you are serious about setting goals then I think SMART goals are the only way to go.
what helped us get smarter with our money was to track all of our expenses. It really does work and one can make changes as they go along because they can look back on the figures. There’s more power in numbers when you have the numbers. Great post. Mr.CBB
Canadian Budget Binder recently posted..Finances In The New Year + New Budget = Success Formula
Without seeing where your money is going you are essentially flying blind when it comes to budgeting.
Great tips! I think tracking your expenses is the necessary first step. If you don’t know what you’re spending (and making) you won’t be able to tweak your finances effectively.
DC @ Young Adult Money recently posted..Get Financially Fit in the New Year – $100 Giveaway
Exactly DC, it’s such a simple thing to do, yet many people don’t do it!
Awesome tips Glen. These should be on everyone’s radar when it comes to their finances. I am working on building my emergency fund and it is growing slowly but steadily.
Grayson @ Debt Roundup recently posted..Setting Goals For My Finances In 2013 + $100 Giveaway
I leave most of my emergency fund against my mortgage in an offset account. It is really handy to have that money at call yet working for me.
Excellent advice at every point!
Thad recently posted..Looking Back at 2012
Thanks Thad!
Great common sense advice. Avoiding the lifestyle inflation has always been hard for me. You start to get proud of your finances and feel like you can start rewarding yourself and before you know it you have regressed in your overall goals. Best to you in 2013!
Kyle @ Rather-Be-Shopping.com recently posted..My Best Finance Tip for 2013 + a $100 Cash Giveaway
I think lifestyle inflation has been the hardest for me too. There are so many things that I want and some of the time I give in to the urge.
All the best to you too Kyle
Ahhhhhh, lifestyle inflation (insert fist-shaking here)! It’s been the bane of my existence lately. I’ve tried to avoid it, but like my husband’s five o’clock shadow, it just keeps coming back.
Elizabeth @ Broke Professionals recently posted..My Husband’s Coworkers Think I’m Cheap
As long as you are aware of it then you are that one step closer to controlling it.
It’s impossible to argue against any of these tips. I have spent most of my time understanding my mind. If we can understand why we do what we do (and learn how to eliminate the bad habits), then managing money becomes very simple.
funancials recently posted..Putting the Senate’s Fiscal Proposal into Perspective
Very sage advice. You have to want to understand first though, and I think that is the real key.
Easy and simple! I don’t have a killer tip, just that it is never impossible if you really work towards your goals.
Pauline recently posted..13 money resolutions for 2013: #1 start somewhere!
I reckon that’s a pretty killer tip. The biggest problem most people have is themselves.
Great tips Glenn! I don’t think I have anything profound to add other than to remain honest when setting your budget. I’ve said this before, but if you’re not honest about how you’re really going to spend your money your budget WILL fail.
Catherine recently posted..What Would You Do With $2013.00 (Giveaway)?
That is so true Catherine, it makes no sense at all to not do it honestly. You are only fooling yourself if you “cook the books”.
I plan on setting a regular amount of money aside from each paycheck for savings.
That’s a really great goal Chris. I would love to hear about your continued progress each month.
Awesome tips! Unfortunately sometimes expenses can’t be avoided for example over here in the UK they’ve increased the price for trains just after Christmas for the 10th year running and we have the most expensive rail prices in Europe!! What better way to screw over the average Joe commuter.
Money Infographics recently posted..How Much does a Beer Cost in Europe [Infographic]
It doesn’t seem fair does it? Just when you think you are getting ahead there is some new tax or increase in charges that sets you back.
Thanks for stopping by and taking the time to comment
I’m planning on paying more attention to sales and coupons to lower my grocery bills.
That is a really smart way to save money on a regular basis. I have a coupon post coming up on Monday Cynthia which may interest you.
I come here for all the amazing tips!
AverageJoe recently posted..5 Simple Steps to Kick 2013 Into High Gear
I think that’s the best tip I have heard yet!
I am really not planning on any changes at the moment.
Perhaps I should hire you to become a staff writer. I am sure you must be great with your money if you don’t plan on changing anything.
Our daughter got married last year, and that took a chunk out of our savings. This year, I am working toward a kitchen remodel. I have a special account that I put money into for my own personal “rainy day”. The wedding was paid for with no credit card or other debt and I hope to do the same for the kitchen.
That’s really great work! Weddings and kitchens can be so expensive, so I’m glad to see you are prepared.
I’m maxing out my 401K contributions!
Nice job Suzanne! That can be a great way to get ahead and ready for retirement.
All very good tips. I think lifestyle inflation is particularly dangerous in the post-holiday period when we all have new toys, see new sales, and have all the extra fancy things we CAN spend money on, but shouldn’t.
Alex recently posted..Money and Happiness: Where to go in a Career
I think lifestyle inflation is probably the easiest one to get sucked into, without realising that you are doing it.
I am planning on saving more.
I can’t argue with that. Good luck to you!
Spend less and save more for 2013!
It’s amazing how much an emergency fund can give you piece of mine. With the damage to our building by Hurricane Sandy we ended up paying a pretty good sized assessment. If we hadn’t had an emergency fund we would have been panicked. Fortunately it was just a bump in the road.
KK @ Student Debt Survivor recently posted..My Budget for 2013
use more coupons
increasing our retirement contribution
i’m planning to find a new job.
We are cutting way back on our eating-out expenses, and trying to learn more about saving at the grocery store as well.
Good job Susan, although make sure you don’t but it out entirely, eating out can be fun too.
Glen, great advice, and I couldn’t agree more about the “tracking your spending” part. We are new to the “getting out of debt journey”, and after analyzing last year’s expenses (which we’re just tracking now) we realized that we blew thousands on nickel and dime stuff.
Tracking your spending is crucial to financial security!
hope to reduce debt, pretty difficult when the budget is already cut to the bone
I’m going to try to save more and spend more carefully
I plan to work on cutting expenses, like groceries and utilities.
Thank you!
I want to start paying off my house quicker.
To be more money conscience and save more
I plan to cut out any un-necessary spending.
Paying off and down some credit cards!
Great post Glen; certainly a great idea to have an emergency fund – most of us waste so much money on crap when we could just be stashing a little aside every now and then, it would save us a great deal in the long-run… and imagine you lost your job, but had an emergency fund you’d been building for years – it would be a landing pad.
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