- Knowing your spending, what’s most important to you, your credit score, what benefits your company offers and your personal net worth can give you clarity and confidence.
- Make sure you save specifically for emergencies. This savings account should be able to cover three to six months of your expenses. Store this in a savings account earning 0.4% interest or higher.
- Don’t wait to invest until you’re debt-free!
Go on a 100-mile hike through a thick forest, without a map? That’s crazy! But that’s exactly how it can feel with our personal finances. Sadly, school didn’t teach us how to be successful with our money. It’s no surprise that almost 50% of millennials say they often feel like “finances control their lives.”
It doesn’t have to be like that. In fact, it shouldn’t be like that. Life is meant to be so much more than the number in your bank account. You can get on track with your money and transform confusion into empowerment—all it takes is a map to get there.
Regardless of where you are on your financial journey, here are seven strategies that can help you feel more confident about your money.
Inside this article
1. Have a spending plan (aka a budget)
For the most part, people know how much money comes in every month. However, few know how much goes out—much less where it’s going. Becoming aware of your spending habits is an easy way to move the financial needle in your life. It doesn’t matter whether you use a budgeting app, a Google sheet, or a pen and paper. Just start tracking how much you make and how much you spend monthly.
From there, set up your recurring spending plan in whatever way makes most sense to you. It can be as detailed or as simple as you like. You get to decide the parameters for each expense. Whether you want to adjust spending habits you don’t like, ask for a raise to increase your income or use extra money to fund your goals, you’re the one in control. The only rules are knowing how much you’re spending and making sure your income is greater than or equal to your expenses.
2. Be clear on your financial “why”
Think of the three most important things to you. Now, imagine I look at your most recent three purchases. Would those purchases tell me what the three most important things to you are? I’ve done this exercise many times and rarely is the answer yes.
So let’s imagine the life you want to create. Is it a life with more travel? More giving back? More time with family? Whatever it is, find your “why.” Then plan to spend your money to reflect that.
If traveling is important to you, set up a specific travel savings account. If you want to give back, set up a recurring contribution to a charity you believe in. The possibilities are endless, but as you prioritize your “why,” you’ll sort through outside noise—creating the life of your dreams, not someone else’s.
3. Have emergency savings and keep them in a high-yield savings account
Being financially prepared for an emergency helps make sure you don’t go into credit card debt or declare bankruptcy if someone in your family gets sick, your car breaks down or you lose your job.
To figure out how much you need to save for emergencies, you’ll need to use the total monthly expense number from your spending plan, so make sure you know your household’s total monthly expenses first. If you’re a one-income family, you should have six months of expenses saved for emergencies. If you’re a dual-income household, three months of expenses might be enough since it’s unlikely both of you will be out of work at the same time. But these amounts are just a baseline. If you feel more comfortable having more, you can save more.
Once you know your emergency savings amount, make sure you store this money in a high-yield savings account (an account that earns more interest). Since the money will be sitting until an emergency happens, you’ll want to earn more than a regular savings account (on average, they earn only 0.06%). My personal favorite high-yield savings account is at Ally Bank, which is currently paying o.5% interest on their online savings accounts—more than eight times the average.
4. Know and build your credit score
Your credit score affects a lot—like your ability to get an apartment, the interest rate you receive on a car or home, and even whether you’re hired for certain jobs. It’s important to know your credit score and work to improve it.
You can check your score for free at two of the three credit bureaus: Experian and Equifax (FYI, you probably don’t need all the other credit products they advertise). The scoring is slightly different with each, but both scores will give you a good idea where your credit sits. Aim to have your score at least in the 700s. The best way to make your credit score higher is by paying all your minimum debt payments on time. Setting up auto-pay is a great way to do this.
5. Track your financial progress
Self improvement feels so good. One of the ways to watch your financial situation improve is through tracking your net worth. Here’s how:
Make a list of all the things you own (checking accounts, house, retirement accounts, etc) and how much they’re each worth.
Then, make a list of all the things you owe (mortgage, student loans, credit card debt, etc.) and the balance due on each.
To get your net worth, you just do some simple math:
(Total of what you own) - (Total of what you owe) = Your net worth
Try calculating your net worth at least two times per year and keep a record of how it grows. This will help you stay motivated and feel assured you’re on track with your money goals.
6. Understand and maximize your company benefits
Company benefits packages can be long and daunting to read. But if you ignore them and elect whatever the system automatically recommends, you could miss out on money and tax savings!
Here are a few key benefits to look out for:
Make sure you contribute the amount necessary to your 401(k) to get your maximum company match. Let’s say the match is 6%, but you only elect 4%, you’d be missing out on 2% your company could be paying you!
Health Savings Account (HSA)
If you’re healthy and don’t go to the doctor often, a high-deductible health insurance plan with an HSA might be the best bang for your buck. There is a triple tax advantage with HSAs and oftentimes, employers will match contributions to these, too. More free money!
Dependent care FSA
You can contribute up to $5,000 of pre-tax money to this account to help pay for various childcare expenses, potentially saving you more than a thousand dollars on taxes.
Your company may offer a lot more benefits like gym memberships, discounted attorney services, pet insurance, fertility assistance, etc. It pays to read and get educated about your benefits!
7. Invest early! Don’t wait to be debt-free
There is a common misconception among millennials that before we can start investing, we have to be debt-free. This couldn’t be further from the truth! You can pay off debt and invest at the same time. All your extra cash doesn’t have to go toward debt repayment. Here’s why:
The earlier you start investing, the longer your money can compound—meaning more money for you in the end. If the stock market makes 10% on average, your money will do more for you being invested than it will as an extra debt payment toward a loan with a 6% interest rate. Even if you can only afford to invest $5/month, it’s worth it to get started now!