Personal Insights

How to Manage Your Money

If you just finished school or found a new job, it may seem daunting to get all your finances in order and prepare for the years ahead. Here are a few tips for getting started.

If you’re just starting to manage your own finances, you may have noticed there’s a lot of advice out there. While having a wealth of resources at your fingertips can be extremely helpful, it can also leave you feeling overwhelmed. If you’re hoping to get your finances in order but aren’t sure where to begin, here are three key areas to focus on.

1. Build a Budget and Work on Savings

When it comes to financial planning, having a detailed budget will be key to your success. Your budget should help you control your spending and track your expenses. It should also help you track your progress towards long-term goals like home ownership and retirement.

One budget-planning strategy is the 50-20-30 Rule. This method splits your expenses into three categories and offers guidelines for how you should be spending your monthly paycheck:

• 50 percent of your take-home pay should go toward fixed, monthly costs like housing, transportation, and utilities.
• 20 percent should go toward your financial goals, like savings, retirement, and an emergency fund.
• 30 percent should be for discretionary spending, like dining out, vacations, or new clothes.

Remember: Strategies like these aren’t set in stone, they should be viewed more like guidelines that have to be adapted to your circumstances. For instance, if you live in an area with high home and rental prices, you may need to spend more on housing and less on discretionary spending. Likewise, putting 20 percent of your income toward retirement might not be possible when you’re just starting out.

Alicia Somers, Financial Wellness Relationship Manager at Regions Bank, has this advice to boost your saving. “Be honest about your budget. Go back and look at your last 30 to 60 days of spending and look where you can cut back from to reach that 20 percent, because you need to start saving now.”

If your savings are lagging behind, make it easier for yourself to put money away. “Set up automatic transfers from your checking account to your savings account. Even if it’s just $5 or $10 a month, make it so you don’t have to think about it,” Somers says. Given time, just a little bit each month can grow and give you a base to work with.

2. Start Tackling Your Debt

Getting out of debt is a critical step toward long-term financial success. Common sources of debt include credit card balances, auto or student loans, and mortgages.

Write down every debt you have and add up the monthly payments. Once you are tracking all of your debt, you can start implementing a debt payoff strategy. “Make all your required monthly payments then begin to pay down your highest interest debt first and if you are in debt, don’t create more debt,” recommends Somers.

Use your budget to determine how much you can allocate to paying down debt after your fixed expenses are covered. If your debt is significant, identify where you can cut your spending and move those funds toward your repayment.

Remember: The faster you can pay off debt, the less interest you may end up paying in the long run. However, getting out of debt shouldn’t completely eat up your money. Make sure some of your money is allocated toward an emergency fund or some small treats for yourself.

Somers also says, “there are free resources and help for overcoming debt. Look for free credit counseling or money management services. Try talking to your local bank, they may have some ideas for you as well.”

3. Live Below Your Means

When you achieve certain financial milestones like getting a raise or paying down a large chunk of debt, it may be tempting to reallocate that extra cash toward discretionary spending. This is often called “lifestyle creep ,” and it can be a bad habit for your finances.

“If you receive a raise every year, you should bump up your savings before you increase your discretionary spending,” says Somers. Generally, living frugally and saving or investing your extra money will set you up to achieve long-term goals, like retirement or home ownership, sooner.

Remember: The earlier you start saving, the more your money can grow with compounding interest. You don’t have to swear off all nonessential purchases but keep your long-term goals in mind and consider giving yourself limits in your budget to stay on track.

“You never get back the gift of time in building a budget and saving,” reminds Somers. “Things have to adjust sometimes, but start somewhere, and start now.” When it comes to building your financial base from the ground up, look at your circumstances and adjust your strategies to what makes sense for you while budgeting, paying down debt, and saving.

Try use our budgeting calculator to gauge the health of your financial situation and create a budget.