Personal Insights
How to be smart with money: 5 helpful strategies

Article

Consider thinking about your money as a financial journey.

Everyone has questions about money. Even the most seasoned financial expert may have a few blind spots in their financial confidence.

So what does it mean when we talk about being “good” or “smart” with money? If we all have different levels of financial literacy, is there a way to pin down a single method or expertise that would make someone “smart” with money?

“One good definition focuses on financial journeys,” says Matthew Hutton, CFP^® and Regions branch manager. “We might say being smart with money means an individual or family has a strong command of their monthly cash flow. They have their assets efficiently structured to meet their key goals. And, most importantly, they’ve identified their goals and mapped out an ideal financial journey.”

Use the following five strategies to start charting your own financial journey.

Set goals to help with planning

While we can all get caught up in planning for short-term goals, consider spending more time thinking about long-term ones, such as saving for retirement. That doesn’t mean you can’t spend time working on short-term goals, like planning for a weeklong family vacation. Just keep the goals that are decades away in mind.

“The one thing I tell all my customers,” Hutton says, “is if you don’t know where you’re headed, how can you reasonably expect to end up where you want to be?”

Once you can identify your financial goals, consider how long it will take you to reach them based on your current income and spending.

Consider a goal to build a $10,000 emergency fund. If you budget to set aside $500 a month, you could reach your goal in 20 months. (And, with interest rates on savings accounts at the highest they have been in years, it could be even quicker.) Regardless of the size of the goal, it’s important to be as consistent as possible with your saving every month.
Build a budget that works for you

One key to success in your finances is finding balance. Start with the basics—tracking monthly spending, identifying those short- and long-term goals, accounting for everyday expenses and the unexpected—then create a budget to address them.

Budgeting begins by thinking about your needs and wants. Needs are essential—rent, groceries, gas—while wants are nonessential—vacations, dining out, that extra streaming service. Cover your needs first and only then start budgeting for wants.

Sometimes it helps to separate your money into wants and needs. For wants, for example, you might set up a separate savings or money market account where you deposit extra cash each month. Or use the so-called envelope method—withdraw the amount budgeted and put it in an envelope. When it’s empty, you’re done. Remember to budget for a few fun activities or purchases each month to help you avoid budget burnout.

Adding an automated budget tracker to your financial toolkit can help you stay on course every month.
Find your financial comfort zone

If you are starting to invest money as part of your budget, you’ll need to understand how much risk you’re comfortable with. Understanding your unique risk tolerance is essential to money management and working toward goals. Some investments, like stocks, potentially allow your money to grow rapidly, but they are also far riskier because your money can just as easily lose value. Bonds are slightly less risky. Cash has little risk beyond losing value to inflation.

Risk tolerance is a personal thing, but age and life stage are important to think about. You may be risk averse but if retirement is 20-plus years away, for example, you may feel more comfortable with a few investments that are risky.

Alternatively, you may welcome risk but your time frame to achieve your goals is shorter. Would you want to potentially lose value in stocks on money you need in five years?
Be intentional with your money

Maybe your disposable income exceeds your monthly expenses, and you have a little cushion each month in your budget. Maybe you’re living paycheck to paycheck and trying to manage debt. Whatever your current financial state, consider how you can be intentional with every dollar that comes in.

Think about every dollar before it’s spent. Review all your spending from the last three months and see where you could have avoided paying money. What subscriptions could you cut? What fees could you avoid? What ongoing costs could you trim? Maybe purchase the energy drinks you like in bulk at lower prices rather than picking one up at the local convenience store. Maybe shop around for a lower-cost phone plan.

If you are living paycheck to paycheck, one of your first goals could be creating a surplus at the end of each month, whether it’s $5 or $50. Good financial habits can have a multiplier effect, and even small goals can help you build a stronger financial foundation.
Make your journey personal

Think about your journey to financial confidence as if it were a road trip.
- Goals. The ideal destination and itinerary are based on your own preferences and goals. You should know where you are headed before you put the car in drive.
- Budget. Your monthly budget is your fuel gauge. It tells you how much you have in the tank and how far you can get before you need to fill up (or make changes or additions to your efforts).
- Risk tolerance. Your risk tolerance is your speed. How fast or slow can you drive based on the current road conditions and your comfort level?