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Four Ways to Be Smarter with Money

We all know that making smart money decisions is important, but where and how do you get started? The good news is the first steps don’t need to be that difficult – you just need to take them. Here are four tips to help you get started today.   

1. The simplest rule of all: spend less than you earn 

It sounds obvious, but this rule is so fundamental that many people overlook it altogether. It’s the foundation of smart money management, whether you earn a little or a lot.  

We’ve all heard tales of millionaires who still manage to go broke, but there’s a brighter side to the story. Many of the most financially secure people don’t earn enormous salaries – they have just established the habit of leaving a gap between what they take in each month and what they spend.  

Of course, this is much easier to do when you can actually see what’s coming in and going out, which brings us to the second tip.  

2. Have a plan!  

You can’t consistently spend less than you earn unless you know where your money goes. And you can’t control it without a plan.  

Have you ever heard of the 50/30/20 rule? This rule, recommended by the website Forbes Advisor, goes like this: 

  • Divide your after-tax income (i.e., your take-home pay) into three primary buckets – needs, wants, and savings: 
  • Plan to spend half (50%) on your needs
  • Set aside 20% for savings 
  • The remaining 30% is your budget for wants 

What falls into each category? Great question! You can find detailed examples and a printable budget worksheet here.  

There are lots of different formulas out there. If you search 50/30/20, you’ll probably also see results for the 75/15/10 rule, 80/10/10 rule, and so on. You may find that one formula is more realistic for you than another, but the basic point is this: Have a plan. Use it, follow it, and adapt it as needed. If you get into the routine of actually measuring what comes in and anticipating where it will go, you’re much more likely to stay on track.   

3. Find ways to save 

It’s easy to put off saving until “someday,” but the right time to start is now. If you follow one of the plans suggested above, you will automatically have a dollar target for how much to set aside each month. Even if you don’t hit your target on the first try, you’ll get a feel for the level of commitment you’ll need to stay on track.  

Next, build an emergency fund. This is not savings for a future purchase – it is “rainy day” money to use when an unexpected expense like car repairs or medical bills upsets your monthly budget. Two – six months’ income is a common recommendation for a fully funded emergency fund. Don’t let that frighten you! The point now is to take your first step. Even setting aside $1,000 can be very helpful. When something unexpected happens – and it will – you’ll have a cushion to keep you from going off-budget or into debt.  

This brings up an important point: You need to pay down debt at the same time you start saving. Once you have a basic emergency fund in place, shift your focus to debt. Start with the debt that has the fewest remaining number of payments, so you can experience your first “win” faster. And be sure not to continue using credit cards while paying down your balance.  

When you are making good progress on building up your emergency fund and paying down your debt, then you can get to work on permanent savings. This will enable your major decisions later on, such as making a down payment on a home.  

4. Pass it on 

Soon the new school year will be here, and a new class of students will be going off to college. If you’re a parent, remember that the things you’ve learned can help your kids just as much as they help you. Take time to instill the fundamental idea of always spending less than you earn – this is a healthy life lesson no matter what career they pursue. Share ideas from your own budget plan (it’s OK to conceal the dollar amounts) and prepare them for the reality that they, not you, will need to be prepared for emergencies.  

Done the right way, this is an excellent opportunity to show your kids that you have confidence in their abilities, and to instill the sense of pride that comes from becoming more independent. It also reminds them that you’ve learned a few things over the years, and you will be there to offer guidance and advice as they face new challenges. Not everyone will be able to leave an inheritance for their children, but we can all give them the gift of being smart about money. 

If you’d like to talk more about these ideas or have other questions, just call 800-695-2045 and talk to one of our experts. After all, keeping you smart is what we’re about!