How to Be Smart with Money

Being smart with money doesn’t have to involve high risk investments or having thousands of dollars in the bank. No matter what your current situation is, you can be more financially savvy in your everyday life.

Start by building a budget to help you stay within your means and prioritize your financial goals. Then, you can work on paying down your debt, building up your savings, and making better spending decisions.

 1. Manage Your Budget 

Set your financial goals. Understanding what you are working toward will help you build a budget to meet your needs. Do you want to pay down debt? Are you saving for a major purchase? Are you just looking to be more financially stable? Make your top priorities clear so that you can build your budget to fit them.

Look at your overall monthly income. A smart budget is one that doesn’t overextend your means. Start by calculating your total monthly income. Include not just the money you get from work, but any cash you get from things like side-hustles, alimony, or child support. If you share expenses with your partner, calculate your combined income to figure out a household budget.

Calculate your necessary expenses. Your first priority in building a better budget should be those things that need to be paid every month. Paying these expenses should be your first priority, as these items are not only necessary for daily function, but could also damage your credit if you fail to pay them in full and on time.

Factor in your non-essential expenses. Budgets work best when they reflect your daily life. Take a look at your regular, non-essential expenses and build them into your budget so that you can anticipate your spending. If you get a coffee every morning on the way to work, for example, throw that in your budget.

Look for places to make cuts. Creating a budget will help you identify things you can cut from your regular expenses and roll into your savings or debt payments. Investing in a good coffee pot and a quality to-go mug, for example, can really help you save long-term on your morning fix.

Track your monthly spending. A budget is a guideline for your overall spending habits. Your actual spending will vary each month depending upon your personal needs. Track your spending by using an expenses journal, a spreadsheet, or even a budgeting app to help you ensure that you are staying within your means each month.

Build some savings into your budget. Exactly how much you save will depend upon your job, your personal expenses, and your individual financial goals. You should aim to save something each month, though, whether that’s $50 or $500. Keep that money in a savings account separate from your primary bank account.

2. Paying Off Debts

Figure out how much you owe. To understand how to best pay down your debt, you first need to understand how much you owe. Add together all your debts, including credit cards, short-term loans, student loans, and any mortgages or auto financing you have in your name. Look at your total debt numbers to help you understand how much you owe, and how long it will truly take to pay it off.

Prioritize high-interest debts. Debts like credit cards tend to have higher interest rates than things like student loans. The longer your carry a balance on high interest debts, the more you ultimately pay. Prioritize paying down your highest interest debts first, making minimum payments on other debts and putting extra money into your top debt priorities.

Go straight from paying off one debt to the next. When you pay off one credit card, don’t roll that payment amount back into your discretionary funds. Instead, roll the amount you were paying into your next debt.

3. Setting Up Savings

Pick a savings goal. Saving tends to be easier when you know what you’re saving for. Try to set a goal, such as building an emergency fund, saving for a down payment, saving for a major household purchase, or building a retirement fund. If your bank will let you, you can even give your account a nickname such as “Vacation Fund” to help remind you of what you’re working toward.

Keep your savings in a separate account. A savings account is generally the easiest place to put your savings if you are just starting out. If you already have a solid emergency fund and have a reasonable amount to invest, such as $1,000, you may consider something like a certificate of deposit (CD). CDs make your money much harder to get to for a fixed period of time, but tend to have a much higher interest rate.

Invest raises and bonuses. If you get a raise, a bonus, a tax return, or another unexpected windfall, put it in your savings. This is an easy way to help boost your account without compromising your current budget.

4. Spending Money Wisely

Prioritize your needs. Start each budget period by paying for your needs. This should include your rent or mortgage, utility bills, insurance, gas, groceries, recurring medical expenses, and any other expenses you may have. Do not put any money toward non-necessary expenses until all of your necessary living costs have been paid.

Shop around. It can be easy to get in the habit of shopping in the same place repeatedly, but taking time shop around can help you find the best deals. Check in stores and online to look for the best prices for your needs. Look for stores that might be running sales, or that specialize in discount or surplus merchandise.

Buy clothes and shoes out-of-season. New styles of clothes, shoes, and accessories generally come out seasonally. Shopping out-of-season can help you find better prices on fashion items. Shopping online is particularly useful for out-of-season clothes, as not all stores will have non-seasonal items.

Use cash instead of cards. For non-necessary expenses such as going out to eat or seeing a movie, set a budget. Withdraw the necessary amount of cash before you go out, and leave your cards at home. This will make it more difficult to overspend or impulse buy while you're out.

Monitor your spending. Ultimately, as long as you're not spending more than you bring in, you're on target. Regularly monitor your spending in whatever way works best for you. You may prefer to check your bank account every day, or you could sign up for a money-monitoring app such as Mint, Dollarbird, or BillGuard to help you track your spending.