There are a lot of things that can stress you out in your daily life, but the top of the list usually involves some aspect of your finances. The issue is that we all need money to live, but a lot of us have no idea how to manage the money we have. In fact, a recent report shows that “almost three-quarters of Americans are experiencing financial stress at least some of the time, and nearly a quarter of us are experiencing extreme financial stress, according to a study released today by the American Psychological Association.” That’s a lot of people experiencing a lot of anxiety about their money. And while we can’t exactly solve all your fiscal problems in the next five minutes, we can certainly offer some advice.
Turns out that when you break it down, managing your finances is actually kind of simple. Of course some situations are more complicated than others, and there’s rarely one solution or plan that works for everyone. But there are also some golden rules that usually apply, and if you get educated on these strategies and tips, you’ll not only be less stressed, but you’ll also be more financially secure. Here are 10 golden rules to apply to your finances—we’re not calling you dumb, but think of it as finance for dummies. You’re welcome.
1. It’s Never to Late to Start
According to Allan Small, senior investment adviser with DWM Securities, “a lot of people when they first get started, they feel it’s overwhelming, but it’s not as overwhelming as it may seem.” Remember that it’s never too late to start saving, investing and managing your money, and that the sooner you get a handle on your finances the better. If you feel like you’re late to the game and you don’t know where to begin, ask for help.
2. Know What You Have
The first thing you must do if you want to maximize your money is you need to know what you have. Take a look at your bank accounts, collect your pay stubs, and review your investments so you can get an accurate snapshot of what you are currently worth. Financial expert Suze Orman urges clients “to open every single financial statement—bank, credit card, mortgage, 401(k), brokerage account—and take a look. Only when you have everything in front of you can you set priorities about what to do next.”
3. Make Your Money Work for You
You work hard to earn your money, so shouldn’t you make that hard-earned money work for you? If your cash just sits in a jar it’s not earning any interest, and you’re not maximizing what you have. As per Business Insider, Sean Gould, a wealth strategist with Waddell and Associates and a certified financial planner, explains, “a typical savings account offers an interest rate around 0.01%, and a typical checking account is the digital equivalent of putting your money under the mattress. However, high-yield checking and saving offer interest rates that exceed 1% — 100 times what you’d get otherwise.” Put your money somewhere safe, but where it also has the potential to grow over time.
4. Save Now, or be Sorry Later
It can be tempting to keep all the money you work hard to earn in a place where you can not only see it, but also access it today. That said, if you don’t set aside some money to save for the future you will be sorry down the road. Finding a way to save starts with the way you approach your spending. In Today.com, financial exert Jean Chatzky suggests “trading the phrase “I can’t” for “I don’t” when it comes to discipline in spending because “I don’t” is more definitive and not as wishy-washy as “I can’t.”” Once you decide to save and you commit to it, there are simple ways to cut back on spending and set aside money each month. Even if it is only $50 or $100 a month that you save instead of spend, that money will add up over time.
5. Cut Back on Everyday Expenses
So where does this hidden money come from that you can save? From your everyday expenses, which could be reduced if you focused on your spending. Could you cut back your utility bills? Could you cook more and eat out less? What would happen if you took public transportation or did a ride-share instead of blowing money on gas each month? Look at your daily expenses; write down what you spend and where you could cut back. That extra money that you don’t use should go right into a savings account.
6. Don’t Waste Money on Banking Fees
An easy and far-too-common way we all lose money is banking fees. When you take out cash and the ATM charges you $2.95, that’s money you could use, or better yet, you could save. In addition, monthly checking account fees and credit card fees all take away money from you that you could be using.
7. Eliminate Credit Card Debt
Aside from the fact that debt represents risk to a lot of financial experts and banks, when you owe money to your credit card company, and you pay the minimum monthly payment, you’re paying a lot of interest and over time you’ll end up handing over a LOT of money to credit card companies. Look at your monthly expenses and come up with a realistic plan to eliminate your debt. That usually means you need to do two things: 1) spend less on your credit card so that you don’t increase your debt and 2) pay more than the minimum payment (or even better, pay the amount due in full, and on time).
8. Savings vs. Investments
It seems like all the money you don’t plan to spend right now falls into the same category of money you save. But there’s a big difference between your savings and your investments. As Oprah magazine reports, to keep it simple, Suze Orman explains “money you know you need or want to spend in the next few years is savings. Money you keep handy for an emergency belongs in savings. Money you hope to use soon for a down payment on a house belongs in savings.” On the flip side, “money you won’t need to use for at least seven years is money for investing. The goal here is to have your account grow over time to help you finance a distant goal, such as building a retirement fund.” Know the difference, write down your short-term and long-term goals, and then allocate your money accordingly.
9. Improve Your Credit Score
You need to know your credit score and if it is below where you want to be you need to find ways to improve it. A bad credit score could affect your ability to apply for a loan, because it represents your ability to repay debt. Credit scores are affected by whether or not you pay your bills on time, how high your debt is and how many accounts you have open. If you want to set yourself up for financial success you need to ensure you have a healthy score.
10. Diversify Your Portfolio
Last but not least, you don’t want to put all of your financial eggs in one basket. To keep your money save and protect your fiscal future you need to spread your investments around to different types of assets. According to Fidelity, “diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time.”