How to Manage Your Money Effectively on Any Budget

Managing your money is something that’s important at every income level. Anybody can get into financial trouble through carelessness and overspending.

At Addition Financial, we work with our members to create budgets that fit their income, lifestyle and savings goals. Here are some things to help you learn how to manage your money effectively on any budget.

Create a Household Budget

The first step to managing your money effectively is to know how much you spend on necessary expenses every month. You can do that by creating a household budget that includes:

  1. Fixed expenses (mortgage or rent, insurance premiums, property taxes, etc.)
  2. Variable expenses (utilities, clothing, groceries and entertainment)
  3. Discretionary spending (impulse purchases and extras)

You should divide quarterly or annual expenses to figure out how much they cost monthly. Your goal should be to have your necessary expenses be less than your income every month, so you can save money for the future.

Figure Out Your Spending Triggers

We all have spending triggers – circumstances or items that trigger us to spend money even when we don’t want to. One of the best things you can do if you want to learn how to manage your money effectively is to get a handle on your triggers.

We recommend keeping a spending diary in a small notebook or in a note-taking app on your phone. Keep track of every time you spend money, including where you spent it, what you bought, the time of day and anything else that might have impacted your decision.

Keep track for at least a week, but it’s best to do it for a month to make it easy to spot trends and patterns. Once you know that you’re more vulnerable to overspending when you’re hungry or out with friends, you can plan accordingly to minimize the temptation.

Buy with Cash Whenever Possible

There’s something about buying items with a credit or debit card, whether you do it online or in person, that makes spending feel less risky than it does when you pay with cash. For that reason, you may want to consider withdrawing cash and using it to pay for as many of your expenses as possible.

We’re not talking about sending cash to utility companies, but you may want to pay for groceries and other purchases with cash. It can be particularly helpful to give yourself a spending limit. Take cash out when you get paid and resolve that you’ll only spend what you have.

Become a Comparison Shopper

If you’re earning a comfortable income and money isn’t an issue for you, it’s possible to fall into the habit of spending more than you need to simply because you can afford it. But, responsible money management means being mindful of every expenditure.

Instead of automatically buying a brand name or expensive item, get in the habit of doing a quick cost comparison when you’re in the store. Read online reviews and find out which products other consumers love.

This might not seem like a big change, but it can make a significant difference in your spending over time. You may find that there’s a store brand product that you like just as much as a brand name one, or that a computer with fewer bells and whistles than the top seller will suit your needs. Either way, you’ll have more money in your pocket.

Set Savings Goals

We could all benefit from having a financial emergency fund or nest egg. No matter what your income level is, you can look for ways to set a little bit aside from each paycheck to help you reach your financial goals.

Even a small savings of just 5% of your paycheck will add up over time. If you invest your savings (or part of them), you can build up money to pay for unanticipated expenses or help you save for retirement. As your income increases, you can increase your savings to ensure that you have what you need.

Pay Off Debts Early

The average American has between $5,638 and $9,096 in credit card debt. When you consider how much we end up paying in interest, it’s easy to understand how paying down your debt can help you manage your money effectively.

Instead of paying the monthly minimum on your credit card balances, try paying just a little extra every time you make a payment. In some cases, you may also be able to increase your mortgage payment to pay down the principal of your loan. Just make sure to check with your lender before you do it to avoid penalties.

Learning how to manage your money effectively is important regardless of your income or savings goal. The things we’ve included here can help you get your spending under control and save for the future at the same time.

To learn more about Addition Financial’s checking accounts and how they can help you manage your money, please click here now.

The content provided here is not legal, tax, accounting, financial or investment advice. Please consult with legal, tax, accounting, financial or investment professionals based on your specific needs or questions you may have. We do not make any guarantees as to accuracy or completeness of this information, do not support any third-party companies, products, or services described here, and take no liability or legal obligations for your use of this information.