How to take control of your finances: 13 ways to get ahead

    Financial Literacy

    How to take control of your finances: 13 ways to get ahead

    Make the most of your money and take control of your finances.

    How to take control of your finances: 13 ways to get ahead

    If you want to make the most of your money, you’ll need to take a proactive approach to money management. This article covers some specific things that you can do to take control of your finances, starting today.

    Set Financial Goals

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    Have you ever sat down and written out specific financial goals? A set of clearly-defined goals can help to provide you with direction and purpose that will impact all areas of your financial life.

    Ideally, you should have short-term and long-term goals. Your short-term goals may involve things like paying off specific debts or building up savings. Long-term goals may involve your retirement plans or net worth milestones.

    Your goals should be SMART—specific, measurable, and time-sensitive. Each goal should have a deadline or end date and you should be able to clearly determine if the goal was achieved or missed. For example, you could set a goal to pay off all of your student loan debt by a particular date.

    Be sure that your goals reflect the things that are most important to you. Read the goals regularly to keep them on your mind and you’ll find that they stay at the forefront when you’re making decisions that will impact your finances.

    Action Step: Take some time to create your own short-term and long-term financial goals. Write them down and keep them in a place where you’ll see them every day.

    Check Your Credit Report

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    Your credit score will impact things like:

    • Your ability to qualify for a mortgage or loan
    • Credit card applications
    • The interest rate that you’ll pay on your debt
    • Rental applications
    • Job applications

    With those types of implications, it’s easy to see that you’ll want to pay attention to your credit score.

    You may be able to get your credit score for free through the online dashboard of your credit card, as some issuers are providing credit scores as a perk to cardholders. Another way to see your credit score for free is through a service like Credit Karma that offer basic credit monitoring and credit scores at no cost.

    Although your credit score is important, it’s equally important to check your credit report, because the details of the report will determine your score. It’s a good habit to check your credit report periodically to make sure that there are no errors or inaccuracies that could be dragging down your score.

    Check for things like payment history that isn’t correct, closed accounts that are still showing as open, or accounts that aren’t yours (as could be the case with identity theft). If you see anything that isn’t correct, you can file a dispute with the credit bureau that is reporting the inaccuracy. Taking a proactive approach will help you to identify problems quickly and get them resolved.

    By law, you’re entitled to a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) every twelve months. You can go to AnnualCreditReport.com to get the free reports in a matter of a few minutes. You’ll have the choice of getting the reports from all three bureaus at once, or get one at a time and spread them out. If you do it one at a time, you can get one every four months, which is helpful for continually staying on top of your credit.

    Action Step: Go to AnnualCreditReport.com and get a copy of your credit report. Review it for accuracy and if you notice any errors, file a dispute with the credit bureau.

    Create a Budget

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    A monthly budget will help to give you control over the way you’re using your money. Budgeting invokes negative feelings for a lot of people, but it doesn’t have to be a painful process.

    Instead of looking at your budget as restrictive, view it as a tool that will help you to use your money for what matters most to you. Budgeting isn’t only about cutting back on spending. Your budget gives you control to use your money in the best way that you see fit. You get to determine your priorities and allocate your money in a way that ensures that you’ll have enough for your priorities.

    Your goal with budgeting should be to cut back or minimize expenses in the areas that don’t matter as much to you so that you’ll have more for those things that do matter.

    For example, your budgeting process may involve cutting back on things like food and clothes so you’ll have more money for travel.

    Action Step: Take some time and create a monthly budget. You can use an app like Personal Capital, or simply create a budget with a spreadsheet.

    Track Your Spending

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    Creating a budget is a great step, but how do you know that you’re actually sticking to your budget? The only way to know for sure is to track and categorize your expenses. Without tracking your spending, you’ll have no way of knowing how you’re actually spending your money.

    Tracking expenses may sound like a tedious task, but it doesn’t have to be that difficult. Budgeting apps  can even help to automate part of the process. If you don’t want to use an app, simply create your own spreadsheet and take a few minutes at the end of each day to record all of the money that you spent that day.

    Compare your budget to your actual spending to be sure that you’re sticking to the budget. Make adjustments to the budget if needed.

    Action Step: Decide on a method for tracking your expenses (use an app or a spreadsheet). Get in the habit of checking at the end of each day and recording any and all expenses.

    Pay Down Debt

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    If you want to gain control of your finances, paying off debt should be one of your priorities. When you’re in debt, you lack control over your money because you’re forced into making payments on that debt each month.

    Once the debt is eliminated, you’re free to use that money in any way that you choose. After your debt is paid off, you’ll be able to save and invest more or use the money for other things that are important to you.

    Attacking consumer debt like credit card balances, student loans, car loans, and other personal loans should be a big part of your financial plan. When you’re creating your budget, you can minimize expenses and allocate as much as possible to paying down your debts.

    Action Step: Create a list of all of your current debts. Compare the two most common debt payoff approaches, the debt avalanche and the debt snowball, to see which one would be the best fit for you.

    Reduce Your Bills

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    Finding ways to save money on necessities will allow you to have more discretionary income you can use in any way that you please. Fortunately, there are a number of ways that you can reduce your monthly expenses in many budget categories with just a small amount of effort.

    Here are a few examples:

    • Cancel cable TV or go with a cheaper cable alternative
    • Switch to a discount wireless phone provider
    • Shop around for lower insurance premiums (Policygenius makes it easy to check rates)
    • Lower utility expenses by switching providers (depending on where you live)
    • Shop at discount grocery stores or buy generic products to spend less on food

    You’ll notice a big impact whenever you’re able to reduce your ongoing expenses because you’ll be saving money each and every month. My wife and I were able to reduce our cell phone bill by switching to a discount provider several years ago. We saved $70 per month, which adds up to $840 over the course of a year! That’s big savings for one small change.

    Action Step: Go through each budget category one at a time and look for ways to lower your monthly spending. With a little bit of effort, you can find relatively simple ways to cut back in most categories.

    Cancel Unnecessary Subscriptions

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    Aside from the necessities that were covered in the previous point, subscriptions and memberships are other recurring expenses that can have a big impact on your budget.

    Take a look at all of your monthly recurring expenses to see what subscriptions and memberships you’re paying on a regular basis. This can include things like magazine subscriptions, membership websites, gym memberships, subscription boxes, and more.

    The subscriptions and memberships may not seem like a significant amount of money, but think of it on an annual basis instead of monthly. Make sure that all of your subscriptions are justified and you’re getting enough value to keep them. If not, cancel it or downgrade to a lower plan.

    Action Step: Make a list of your current subscriptions and evaluate each one to determine if it’s a justified expense. If not, cancel it or downgrade.

    Start an Emergency Fund

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    Building an emergency fund is one of the first pieces of financial advice that you’ll get from most experts. It’s generally recommended that you have enough money in an emergency fund to cover at least 3-6 months of living expenses.

    Hopefully, you won’t need to touch the money in your emergency fund, but unexpected events like the loss of a job, health emergencies, and family emergencies are an unfortunate reality of life, and it’s best to be prepared.

    Having an emergency fund helps to give you control over your finances because you’ll be ready when something unexpected happens, and it won’t derail your financial plans. Without an emergency fund, you’ll be in a reactionary mode whenever something unexpected comes up, and it will impact your budget and your ability to control the way you use your money.

    Action Step: If you don’t already have an emergency fund, set one up right away. Most people use a savings account, but there are other options you could choose, as long as you can access the money quickly. Adjust your budget to include adding to your emergency fund until it’s at a sufficient level.

    Make Savings Automatic

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    Automating your finances is one of the best things you can do because it removes or minimizes the chance that you’ll forget to save (plus it saves time).

    There are a few different ways that you can automate your finances. First, you can set automatic contributions to a savings account or investment account. For example, you could set up an automatic transfer so $300 is taken from your checking account after every paycheck and deposited into a savings account.

    Many of your investment accounts will also allow you to set up automatic contributions that will be taken from your checking account. You could use M1 Finance or a robo advisor like Betterment to easily manage your investments and then set up an automatic contribution for each month.

    Action Step: Determine how much you’re able to save each month and set up an automatic transfer to a savings or investment account.

    Minimize or Eliminate Fees

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    You may be charged fees for your banking or investment accounts, annual fees from credit cards, or fees that are paid to a financial advisor. Evaluate any fees that you’re paying to be sure that they’re justified.

    You don’t necessarily need to avoid all fees, but you want to be careful to only pay fees that provide you with great value. For example, you may be willing to pay a $95 annual fee for a credit card that gives you significant perks that are worth well over $95.

    Investment fees can significantly eat into the long-term returns of your investments. There are a number of good low-fee investment options like ETFs and mutual funds from companies like Vanguard and Fidelity.

    Action Step: Take a look at your financial accounts and check the fees that you’re paying. Evaluate each account that has a fee to decide if the fee is worth paying, or if you should look for an alternative with lower fees.

    Turn Your Existing Skills Into Extra Income

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    While reducing your expenses is a big part of improving your financial situation and taking control of your money, another option is to increase your income.

    Starting a side hustle is a very realistic way to make extra money, and you probably already have some existing skills and experience that can be put to good use with a side hustle. While there are endless different side hustle possibilities, using your existing skills will give you the potential to start making money quickly and will put those skills to good use.

    The specifics of your situation will depend on your skills, but here are a few examples:

    • Start a photography business if you’re good with a camera
    • Use your typing skills to work as a transcriptionist
    • Create handmade goods that you can sell on Etsy
    • Put your writing skills to use as a freelance writer or write ebooks to sell on Amazon
    • Offer music lessons locally or online

    The money that you make through a side hustle can be used towards your financial goals.

    Action Step: Think about your own skills and experiences and decide on a way to make extra money in your spare time.

    Invest for the Future

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    Take control over your future by investing. Of course, there are plenty of different ways to invest but here are a few specific options:

    Investing can be an intimidating subject if you’re just getting started, but it doesn’t have to be complicated. Investing in index funds is a simple approach that anyone can do. Another simple option is to use a three-fund portfolio.

    If you’re looking for some direction, you could hire a financial advisor or use a robo advisor that will create a plan for you based on your own situation and your goals.

    Action Step: If you have a 401(k) available through your employer, set up automated contributions to be taken out of your paycheck. You should also decide on an overall investment plan, which includes both retirement and non-retirement accounts.

    Draft a Will

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    Creating a will is not the most exciting thing, but it certainly does help to give you control over what will happen in certain circumstances. Drafting a will is especially important if you have a family.

    Your will can dictate things like what happens to your assets and who will be responsible for your kids if you were to die. You can also set up a power of attorney to give someone else (like your spouse) certain capabilities in specific situations.

    Without a will, you’re leaving a lot of important details up to chance or in the hands of the courts. It doesn’t take a lot of time, effort, or money to gain control over these details by creating a will.

    Action Step: Hire a local attorney or use an online DIY service like LegalZoom to create a will and power of attorney.

    How do you handle your finances? Do you have control over your money, or are you simply reacting and managing things on the fly?

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