While money can’t buy happiness, according to Northwestern Mutual’s 2019 Study, 92% of U.S. age 18 and older agree that nothing makes them happier in life than when their finances are in order. Financial security is a key component of living the life you want to live. For your money to work hard, it’s essential that you have a plan with financial goals in place and monitor your progress along the way.
Now that we know what this blog post is going to be about let us begin! There are many different ways in which you can analyze your spending. Some methods are easier than others, but most will require a lot of information on what was spent throughout the year to have an accurate representation.
With that in mind, here is a list of some questions to ask yourself when reviewing the past year’s spending:
- What was my income?
- What were my expenses?
- How much did I spend on entertainment like eating out or traveling?
- How many times did I go shopping for “nonessentials”?
- How much did I spend on groceries?
- What expenses were unexpected, and how can you plan for them in 2022?
Many of these questions can be answered by analyzing your bank or credit card statements for the last year to see exactly where and what you are spending. Understanding your spending habits first and foremost is the first step to mapping out your financial future.
Dividing Your Spending By Category
Categorizing your spending into categories may be painful, but it is essential to understanding your spending habits. For example, you should separate the money spent at hotels from what was spent on groceries or gas, etc. Most credit cards do this in your annual statement, so don’t forget to utilize the tools your bank already offers.
Upon analyzing your purchases, you will be able to discern what categories you are over-spending in and which to cut down on. For example, if you are spending a lot on entertainment such as going out to eat and drinking at bars, it’s time to cut back and perhaps save going out for special occasions only. You’d be surprised how much money is spent on going out, and by exercising some discipline and self-restraint how much we can save!
After analyzing your past year’s expenses by category, what did you determine? What were the top three things that stood out about where and how much was spent during that time? These answers will provide insight into the spending habits necessary for you to make the changes you need.
Lastly, there are many amazing personal finance apps that can help you categorize and monitor your spending, which I’ll dive into later in this article- so stay tuned!
Saving Money Where You Can
Saving money is essential to a secure financial future and can be done in many creative ways. Utilizing public transportation instead of driving, clipping coupons for groceries, hitting up thrift stores, or hosting pot lucks instead of going out are all quick and easy ways to save.
If you need to use a credit card for larger necessary purchases, start making money off your creditors rather than the other way around and use a rewards credit card. Just be sure to buy exactly what you need without going over budget and make a plan to pay off the debt immediately or as soon as possible. This way, you can reap the benefits from the rewards yet still keep your credit in good standing.
As you begin to see your savings grow, you will be in a much better place financially, bringing you closer to your greater goals such as buying a house, upgrading your car, paying off debt, being prepared for a financial emergency, etc. You can never save too much!
It’s Never Too Early to Plan For Retirement:
One of the best ways for younger people to save money and put themselves on track towards retirement is utilizing their company’s 401(k) plan. The earlier you begin contributing money into your retirement fund, the more interest it will generate over time. If done consistently, you can take advantage of companies who match your contribution and find yourself in a much more comfortable place financially later in life.
In addition, there are other ways in which you can begin saving for your future when you have a job, regardless of whether or not your company offers a 401(k) plan. For example, opening an IRA (Individual Retirement Account) is one way people invest money for their retirement in a tax-deferred manner.
By preparing earlier on, there can be a better understanding of how much should be saved and the amount that will need to grow over time for you to retire comfortably. It is crucial that people start planning early because it allows for more accurate projections when it comes time for retirement which means fewer obstacles along the way.
This is key because it means that people will be able to retire comfortably without worrying about running out of money which can happen if you haven’t planned accordingly for retirement early on in life. The earlier you start planning, the easier this process becomes, so consider starting now instead of later when it comes time for you to retire.
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But Don’t Forget To Have Fun!
Being budget-conscious does not have to cramp your lifestyle. As long as you are responsible and aware of your limitations, there is no reason you should not be able to enjoy your hard-earned money today!
Many great tools are available that can help you monitor your expenses to better understand your spending habits. Below are some apps that are here to help you get to where you want to be financially. Bonus: they’re free! Looks like you’re saving money already 😉
- PocketGuard automatically connects your checking, savings, and credit accounts then shows how much funds you have available after subtracting re-occurring bills like rent and insurance, etc. If you are a spreadsheet fanatic, PocketGuard can even export your transactions onto spreadsheets so you can play with your data and learn even more!
- Mint watches your spending and alerts you when you are over-budget in a particular category or if there are any suspicious or large transactions. The app also tracks your bills and notifies you when upcoming payments are around the corner so that you are always prepared for what’s coming.
- HoneyDue is a great app to use when budgeting with your partner. You will both have access to shared accounts, loans, and investments (however, there is also a setting where you can choose what your partner can see). Additionally, you can set up custom categories with monthly limitations and be alerted when you or your partner are nearing the tipping point. You can also chat and send emojis to your partner, which is always a fun little addition!
- Personal Capital is simple to use and has many helpful tools in categories such as retirement, paying off debt, and saving for emergency funds. A convenient desktop version also gives the user a multi-platform option to view their whole financial picture.
- GoodBudget follows the envelope system, which is one of the oldest methods of saving money. Originally known as “Kakeibo,” (which translates to “household account book,”) one would divide their expenses on individually labeled envelopes such as car payments, groceries, entertainment, etc., and has been proven to be a great method for saving for large purchases. Goodbudget now provides you with digital envelopes instead to monitor your spending! Additionally, the app boasts valuable educational resources such as podcasts and webinars to further your financial growth.
In the end, financial stability is a means to feel comfortable in life so that you can experience life’s pleasures, whatever that may mean to you. So spend wisely so that you can enjoy the life you’ve worked so hard for!
INTERESTED IN LEARNING MORE BOUT PLANNING FOR RETIREMENT?
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- You don’t like the topic and tend to zone out when you should be paying attention.
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