It is safe to assume that this situation has gotten worse due to the coronavirus-induced financial crisis. But industry experts assert that this has been a problem for years before the pandemic. For example, a May 2019 study reported that a third of Americans do not use a budget. This might explain why half of consumers do not even possess $250 to cover an emergency.
If the COVID-19 situation taught the nation anything, it is clear that households need to do better when it comes to managing their money. Although the personal savings rate soared to an all-time high during the early days of the pandemic, there are plenty of reports hinting that consumers are going to spend billions of dollars in pent-up savings.
But rather than heading to the nearby shopping mall, why not use this as an opportunity to give your money a makeover? We have compiled a guide on the best strategies for smarter money management:
1. Create and Use a Budget
After reading some of these statistics, what is the moral of the story? Now is the time to create a budget!
Your budget should outline how much income you have, your list of fixed expenses, debts, savings and investments, and estimates for your variable expenses. This will give you an idea of what you have to work with and where your hard-earned dollars and cents are going every month. But there is a catch: you need to actually stick to your budget!
Indeed, it is easy to create a budget, but the hard part is using your budget for your financial situation. Put simply, create a budget, stick to your budget, and regularly update it as your income or needs change.
2. Monitor Your Spending
A $5 morning latte, a weekly trip to the cinema, and your Cadillac smartphone and cable packages – they all add up.
Since many U.S. consumers are unsure where their money is going, it might be time to reconsider this approach to money management. The simple solution is to track how you spend your money, which can be accomplished by periodically scanning your statements and combing your bills. If you need a little extra help, explore the many innovative mobile applications that can help you monitor your spending behaviors.
3. Be a Better Shopper
We can all be better or smarter shoppers. But what does this entail exactly?
Here are a few things that can help you become a more mindful, savvy consumer:
- Price match, whenever you can, to ensure you’re getting the best deal.
- Search for discount codes or promotional offers on items you need.
- Plan for large purchases by saving money in the weeks leading up to the transactions.
- Do not be afraid to ask for a lower price for your regular services.
- Create shopping lists and resist impulse buying.
4. Start an Emergency Fund
Your desktop computer is fried. Your oven is not heating your food. Your kid needs new eyeglasses. All of these things cost money – and a large sum too! Rather than dipping into your savings or retirement fund, why not utilize your emergency fund?
An emergency fund is a great mechanism to avoid losing sleep and experiencing a headache over unforeseen expenses. Financial experts recommend allocating the equivalent of three months’ salary in your rainy-day or emergency fund.
5. Put Your Credit Card on Ice
Unless you are great at regularly paying off your credit card bill and you have incredible benefits for simply swiping your plastic, you should put your MasterCard, Visa, or American Express on ice. If you are routinely carrying a balance, it is best to rely on cash for your transactions, whether buying a coffee or paying for your weekly grocery trip. Credit card interest charges can add up quickly, and this toxic debt will soon impact your ability to save more.
6. Contribute to Your Savings Regularly
Yes, interest rates are the lowest they have ever been. While this is great news for borrowers, it can be frustrating for those working hard at building savings when you’re earning a pittance on your deposits. Although there are ways to work around this common problem, the ultimate objective is to save, save, save. By saving, you can amass a nice pile of dollars and cents.
It starts with putting away as little as $25 a week or month. Small contributions on a regular basis can make a big impact in the long term.
7. Upgrade Your Accounts
Is it time to upgrade your accounts? If you have relied on the same account since your teen years and have received very little in return except for high fees, it might be time to consider your options in the financial marketplace.
Thanks to advancements in the world of fintech, there are many great financial products at your disposal, whether it is an all-in-one checking and investment account or a high-interest savings account. These alternative online and App-powered options help you avoid high account fees while giving you options for getting your money to work harder for you. Don’t let your money lie dormant anymore when you have superior alternatives available to you at the click of a mouse.
8. Invest or Not to Invest – That is the Question
The investment world can appear a vast, complicated, and intimidating colosseum for the average American consumer. But if you forget about hanging with the power players and hedge funds, there are lots of accessible options for the novice investor. If you are conservative with your investments, such as opting for an index fund, a dividend-paying stock, or even a low-cost mutual fund, you can watch your money grow with little risk involved.
Of course, with thousands of investment products to choose from, what should you do? Common diversified portfolios include a mix of:
- 35%: U.S. stocks
- 28%: Intermediate bonds
- 14%: High-yield bonds
- 12%: International (developed and emerging-market) stocks
- 11%: Money market
Are you doing an excellent job with your money? Perhaps. But there is always room for improvement. Your path to healthy money management may require a few adjustments or a complete overhaul. Whatever the case may be, managing your money should be a top priority in life, especially when so many Americans think retirement is a dream that will never be fully realized. Smart money management habits aren’t only a great strategy for the long term; some changes can generate immediate returns, even if only a few bucks at the end of the week.