3 Easy Steps to Improve your Financial Situation
Discussing one’s finances is often a scary subject. Some spouses don’t even talk to each other about finances because it causes too much stress in the relationship. Until recently, my wife, Lindsey, and I were oblivious to our financial situation. We figured we were okay financially as long as we could pay the bills. When we were consistently left with no extra income each month, we decided to make some changes. Below are the same three steps we followed to become more financially fit.
Step 1: Find your net income
Monthly Income - Monthly Expenses = Net Monthly Income. In other words, net income is the amount you have left over from your monthly paycheck after rent, utilities, cable — are you really still paying for cable? — and all other bills have been paid. This is a fairly easy figure to find: simply record your income each month for one or two months, record your expenses during the same period, and the amount left over is your net income. There are several online tools to help you track this information. Lindsey and I use Mint to keep track of our monthly financial activity. It allows you to synchronize your financial accounts, such as your checking account, credit card accounts, and student loan accounts, so you can manage your finances in one location.
Step 2. Create a budget
Once you figure out your monthly spending habits, you should create a budget to help manage your finances. After analyzing our spending habits, Lindsey and I found that we were spending $350 each month dining out. Combined with the $450 we were spending on groceries, we were spending a total of $800 monthly on food. Now food will always be an important expense, but $9,600 a year seemed a bit excessive for a family of two. Like us, you should analyze your spending habits to determine which categories can be improved, such as dining out or shopping. We also use Mint to create and manage a monthly budget.
Step 3. Save
Hopefully improving your spending habits will leave you with a little extra net income each month. Now you’re left with a tough decision on what to spend the extra cash on. Everyone could use a bigger TV or more clothes, right? Wrong. Instead of wasting your hard-earned money on doodads, put that money into savings, or better yet, invest it. At a minimum put your extra net income into a savings account, preferably one with a bank separate from your checking account. Lindsey and I have a checking account with US Bank, but our savings account is with Aspiration. This prevents us from the temptation of dipping into our savings, because of the hassle that comes with transferring money. Put your net income to good use and save or invest for your future.
And there you have it. Three easy steps to help manage your finances. I recommend Mint if you have zero experience with budgeting. It allows you to connect to all your accounts, track your spending, and create a monthly budget. You’ll thank me after you deposit your extra net income into your new savings account.