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Mastering Money Management: 9 Essential Steps to Financial Success

Wondering where all your money goes? Learning to manage your money can help you control spending, better handle unexpected expenses, and save for retirement. Get a grip on your finances by embracing a few simple money habits. Here are nine steps to manage your money and achieve your financial goals.

1. Create a Budget

To create a budget:

• List your monthly income and expenses.
• Categorize expenses into essentials, such as food, rent, and utilities, as well as debt payments, such as student loans, car loans, and credit card bills. Be sure to also include discretionary spending, such as streaming subscriptions or dinners out.
• Allocate a certain amount to each category, including savings. U.S. consumers save 4.3% of their income on average, but you can save more if you’re able.
• Choose a budgeting method you can stick with. The 50/30/20 method is a simple option for budgeting beginners. The envelope system can rein in overspending. If you’re detail-oriented, explore zero-based budgeting, which accounts for every dollar.

There are many budgeting methods to choose from, and it’s important to find one that works for you so you can stick to your budget once you create it.

2. Set Financial Goals

With a clear picture of income and expenses, set some financial goals. For instance, if a huge chunk of your income goes to paying debts, develop a plan to pay them down so you can put more money in your pocket. Got extra money in the budget every month? Put more into your 401(k) plan or savings account.

3. Track Your Spending and Progress

Budgets aren’t “set it and forget it.” Monitor your spending to make sure your budget is realistic. Your bank’s mobile app may have tools for budgeting, tracking spending, and measuring progress toward financial goals. You can also use a budgeting app such as Goodbudget or PocketGuard. Review your spending regularly (at least monthly) and adjust your budget as needed.

4. Reduce Unnecessary Spending

Cutting back on discretionary spending frees up funds for bigger goals (like a dream vacation, a new car, or a down payment on a home) and investing for retirement. Discretionary spending such as impulse buys, eating out, entertainment, streaming services, monthly memberships, and subscriptions are usually easy to slash, but you can cut essential expenses too. Shop around for lower rates on car insurance, home insurance, and internet, cable, and cellphone bills. You may even be able to negotiate energy bills.

5. Start Saving

Save for emergencies, short- and long-term goals, and retirement. Armed with an emergency fund, you won’t have to use credit cards for car repairs or a big medical bill. Aim to save three to six months’ worth of basic living expenses—enough to survive several months of unemployment should you lose your job.

Consider opening a separate savings account for a sinking fund. This is where you’ll save for financial goals such as a down payment on a home or car, a honeymoon, or a vacation.

Choose the right savings accounts to maximize interest earnings. A traditional savings account isn’t the only option; high-yield savings accounts typically offer much higher interest rates. You can currently find high-yield savings accounts with annual percentage yields (APYs) of 4% and up, compared to an average of 0.42% for traditional savings accounts.

It’s never too early to start saving for retirement. Try to contribute at least 10% to 15% of your pretax income to your employer’s 401(k) plan. If that’s not doable right now, put in enough to max out any employer match. You can also open an individual retirement account (IRA) on your own.

6. Pay Down Debt

Keeping up with debt payments—especially high-interest debt, like credit cards—can stymie your efforts to save and invest. If debt is devouring too much of your income, take charge.

• List all your current debt, including total outstanding balances, interest rates, and monthly payments. Then make a plan to pay it off. Here are some options:
• The debt snowball method focuses on paying off the smallest debt first, creating momentum that motivates you to pay off more debts.
• The debt avalanche method targets your highest-interest debt first, which can ultimately save you money.
• Use a debt consolidation loan to pay off multiple high-interest debts. Debt consolidation loans are personal loans, which typically have lower interest rates than credit cards. You can use one to pay off your cards, then pay it back in fixed monthly payments. As of July 2023, the average APR on a 24-month personal loan is 11.48%, compared with an average 22.16% APR for credit cards.
• A balance transfer credit card with a low or 0% introductory APR could be an option if you have good credit. Transfer your high-interest debt to the new card, where it will incur no interest during the promotional period. As long as you can pay off the balance before the introductory period ends, you won’t pay any new interest.
• If none of these options fit your situation, consider visiting a credit counselor. A reputable, certified credit counseling agency can help you learn money management skills and develop a plan to reduce or pay down your debt.

7. Build and Protect Your Credit

Having good credit can give you access to lower interest rates on loans and credit cards for significant savings over time. A good credit score can make it easier to rent an apartment and reduce your insurance premiums too. To build or improve your credit:

• Pay bills on time. Payment history is the most important factor in your credit score. Set up automatic bill payments to avoid missing a due date.
• Keep credit utilization low. Using more than 30% of your available credit can easily hurt your credit score. On a card with a $10,000 limit, for example, keep balances under $3,000 to avoid damaging your credit. Trying to boost your score? Those with the highest credit scores tend to keep their credit utilization under 10%.
• Review your credit report. Do so regularly to confirm it’s up to date and look for signs of fraud, such as unfamiliar accounts. You can get a free credit report from each of the three consumer credit bureaus—Experian, TransUnion, and Equifax—at AnnualCreditReport.com. You can also get your Experian credit report for free anytime.
• Know your credit score. Check your credit score to see where you stand, especially before applying for a loan or credit card. You may want to take measures to improve it so you get the best rates and terms possible when taking out credit.

8. Start Investing

Once you’re sticking to your budget, have an emergency fund, and have debt under control, investing in stocks, bonds, mutual funds, and other securities outside your retirement plan can help you build wealth. You can start investing with as little as $100. Depending on your comfort level and budget, you can manage your investments yourself, use a robo-advisor, or hire a financial advisor.

9. Get Professional Advice

Financial advisors such as certified financial planners can help you design a financial plan encompassing everything from budgeting and retirement to investing and estate planning. If your employer offers financial education benefits such as financial advisory or coaching services, think about taking advantage of them.

Take Control of Your Finances

Managing your money effectively helps secure your financial future. Does money management sound intimidating? Ease in by implementing the steps above one at a time; eventually, all elements of your financial life will operate harmoniously.

Take one money management task off your plate by signing up for Experian’s free credit monitoring service. You’ll get updated credit reports, credit score tracking, and real-time alerts of activity that could signal fraud.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we understand that managing your finances can be challenging, especially when it comes to securing a mortgage. Our team of experts is here to help you navigate the complexities of mortgage services and find the best solutions tailored to your needs. Call us today at 213-732-3074 for any mortgage service needs. Let us help you achieve your financial goals and secure your dream home.

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