If you’re like most people, you don’t wake up in the morning and check your bank statement. You swipe a piece of plastic, knowing there’s enough money in your account to cover the transaction, move on, and forget about it. Most people don’t want to look at how much they spent the day prior, fearing the shame of spending way too much on tacos, drinks, clothes, etc. day in and day out.
The “ignorance is bliss” mentality won’t get you very far, though. In fact, it could end up crippling your bank account and robbing you of that financial freedom you love so much. The rich don’t get rich overnight (okay, sometimes they do—but we’re not talking about Powerball winners and trust fund recipients). The people who start from humble beginnings and amass sizeable wealth do so by carefully managing their finances, day in and day out. No, confronting the shame of frivolous spending isn’t comfortable, but just like any bad habit, it requires recognition in order to change.
If you’re ready to get serious about managing your money, read through these essential tips which can help keep your bank account not only buoyant, but thriving.
Budget is Not a Bad Word
There’s such a stigma surrounding the word “budget”. Following a budget does not mean that you are broke any more than implementing a clean “diet” means that you’re overweight. Budgeting is how you stay financially healthy as dieting is how you maintain physical health; budgeting helps keep your bank account strong, vital and free of concern.
Budgeting is how my wife and I only make $35,000 a year and don’t worry about money.
Forgive the metaphor, but creating a budget truly is the first essential step in managing your finances. Spending less than you earn is imperative for staying out of debt. And the larger the gap between your income and spending, the better. An aversion to math or numbers is no excuse—download a free app like Mint which can track your spending, help you create a personalized budget, stay on top of your bills, and even monitor your credit score.
Taxes are Not Optional
Avoiding your taxes is another surefire way to find yourself in debt. Whether that’s by being lazy and procrastinating your annual filing obligations or deliberately trying to outsmart the IRS, not fulfilling your tax obligations can incur costly late fees, interest and penalties. If these compound enough over time, you could face a lien, levy or wage garnishment. Hopefully, you’ve been dutifully paying your taxes, but if not, be sure to immediately seek help with IRS debt and get yourself out of the red.
Note: Make sure to monitor your withholdings as well, or you can wind up owing money come tax season versus having it returned to you. As you get savvier with finances, look for tax cuts and breaks that can save you some serious money, as well.
The Future is Not that Far
Always, always, always plan for the future. You can’t keep banking on that bi-weekly direct deposit to keep you afloat. What will you do when life throws you a curve ball? And you suddenly need to buy a new car, take care of a family member, or relocate for a job? The list of potential unexpected expenses goes on and on. Have a savings account on standby to protect you in times of hardship.
Better yet, set some goals to guide your future-oriented financial planning. Maybe you’re part of a new generation who doesn’t care about buying a home, but have you ever thought about retirement? Or researched the difference between IRAs and 401(k)s? Because you should. Retirement may seem way too far in the future to start caring about now, but truthfully it’s not. Every dollar sitting in your sock drawer and every quarter lodged within the crevices of your couch could be invested elsewhere, earning dividends on itself and increasing its worth.
Financial Literacy is Not Optional
Not knowing what an “IRA” stands for is no excuse for failing to take advantage of it (it stands for Individual Retirement Account, by the way). There are an endless amount of free resources available to you online, from eBooks on personal finances to investment tools such as Fidelity. Start learning how to be financially literate and begin managing your money if you were never taught how while growing up.
You’ve already taken the first step to managing your finances by reading through these tips. Start implementing what you’ve learned, go out and learn more, and your bank account will thank you.
We can complain all day long about how today’s youth should take a financial literacy course in high school, but guess what? You’re in the read world now and can’t turn back time. The sooner you grab the bull by its horns, the better off you’ll be. Thankfully, there are lots of great blogs and books you can read from to learn the money lessons you were never taught in school.
What tip do you think is most important to better manage your finances?