I’m going to let you in on a little secret.
Did you know that there are proven ways on how to be smart with money?
Now, I’m not going to tell you how to be successful in life (because that would just be silly).
However, I am going to share some tips that will make it easier for you to know How To Be Smart With Money.
Table of Contents
1. Track your spending
It’s hard to know whether you’re really spending your money wisely if you don’t know what you’re spending it on.
Tracking your expenses can help get a clear picture of where your money is going, and where you can cut back.
A lot of banks and credit card companies will let you connect your account to an app that tracks your spending in real-time, so you can see how much you’re spending at a glance.
But even if your bank or credit card company doesn’t offer that feature, there are plenty of free apps out there that will do the same thing.
Many people tend to underestimate how much they spend on small purchases like coffee or lunches out.
As well as tracking everything you spend, look out for regular payments that come straight off your credit or debit card — these may not be considered essential by everyone.
It’s not always easy to see where your money is going.
That’s why keeping track of your spending is a must for anyone who wants to be smart with money.
Whether you want to start saving for retirement, need help paying off debt, or just want to live within your means, tracking your spending can help you get there.
There are a few ways to do this:
Set up an Excel spreadsheet or a Google Sheet and log how much you’re spending on things like food, utilities, and entertainment
Create a budgeting app like Mint that logs your transactions automatically and categorizes them for you.
Use pen and paper to record all of your purchases in a notebook if that works for you.
You could also try the cash envelope method and keep all of your spending cash in envelopes labelled with categories like groceries, eating out, gas, entertainment and so on.
When the money in the envelope runs out, that means you don’t spend any more in that category until the next time period.
It’s helpful for people who have trouble controlling their spending because they can see exactly how much money they have left.
Use the “50-30-20” Rule.
The “50-30-20” rule helps you divide your after-tax income into three parts:
Up to 50 per cent of your take-home pay can go toward needs, like rent and utilities, as well as savings and debt payments.
Up to 30 per cent of your take-home pay can go toward wants, like dining out, entertainment or an extra vacation.
You may have to adjust these numbers during certain times in your life, such as when you have a newborn or a big project at work.
But try to adhere to this rule for the most part, as it will help you build up savings and avoid debt down the road.
At least 20 per cent should be set aside for savings and investments.
This amount should be in addition to automatic retirement account contributions and any emergency fund contributions you make.
2. Create a budget
Once you’ve done the above, it’s time to come up with a budget.
Budgeting is simply matching your expenses to your income.
If you consistently spend more than you earn, you’ll always be in debt — sometimes seriously so — and that can be a big financial mistake with serious consequences.
But if you consistently spend less than you earn, you’ll build up wealth over time.
The best way to budget your money is to start tracking where you spend your money and what you spend on.
Then, look at how much you have coming in, and make sure that you’re spending less than you’re bringing in.
This is the best way to make sure that you’re not spending too much.
You can make a budget on paper, in an Excel spreadsheet, in an app or even on a dry erase board. The point is to record how much money you’re making and how much you’re spending each month.
At first, this might feel like overkill — after all, how much can you really spend in one day?
But once you see all your expenses laid out in front of you, you might realize that they add up quickly!
3. Create a savings account
Let’s get started by creating a savings account.
A savings account is a great tool to save, earn interest on your money, and protect it from theft.
Why do I need a savings account?
Having a savings account allows you to keep your money in a safe place while it earns interest.
The interest is the amount of money that the bank pays you for keeping your money with them.
Let’s say you start with one hundred dollars, and you put it in a savings account at a bank that offers 3% interest per year.
At the end of the first year, you will have 103 dollars—that’s 3 dollars of interest earned on top of the 100 dollars you saved!
4. Automate your savings account
If you’re unable to save any money, the first thing you need to do is have money automatically transferred into a savings account.
If you don’t see it in your account, you can’t spend it.
To fully automate your savings account, have a portion of your paycheck directly deposited into your savings account.
A good place to start is 10 per cent of every paycheck.
You can also choose to automate your savings by transferring funds from one account to another weekly or monthly.
For example, if you get paid on the 15th and 30th of every month, set up an automatic transfer for the 7th and 22nd of every month from your checking account to your savings account.
The reason why this works is that when you automate your savings, it becomes a non-negotiable part of your budget.
You’ll learn how to live without that extra cash in your checking account and before long, you’ll barely notice the difference.
Automating your savings will accomplish two things for you:
1 – You’ll save more because you’re not just saving whatever money is left over at the end of the month (which often doesn’t happen).
2 – You won’t miss the money you are saving, because it automatically transfers each month before you even see it.
5. Put money down on the things you want to buy
Being someone who is smart with money means that you have to be thrifty.
The best way to become smart with your money is to make sure you’re paying off credit cards, not spending money on things you don’t need, and saving up when you can.
The goal is to make sure that you’re living within your means so that when it comes time to buy something, you won’t be burdened by debt.
Throwing your money around on things you don’t really need and can’t afford isn’t going to help you achieve your goals in the long run.
If there’s something you really want and can’t afford, don’t put it on a credit card. Instead, put some money down on it and start saving up.
If you’re buying a car, for example, pay for at least part of it in cash instead of borrowing the whole thing.
A twenty per cent down payment on a $30,000 car is only $6,000 — less than the average amount Americans have in their savings accounts.
In fact, putting money down on big purchases is a great way to save money by helping you avoid interest charges: if you put 20% down on a $5,000 computer and save 5% on the interest charges by avoiding credit cards, that’s more than $200 in savings right there.
That way, when it comes time to pay off the car, it won’t be such a burden.
6. Invest in yourself
I’m sure you’ve heard the phrase, “Life is a marathon, not a sprint.”
Well, that applies to personal finance as well.
Just because you don’t have enough money now to invest in a retirement account, doesn’t mean you shouldn’t start investing for your future.
You can start small by investing in yourself first.
Maybe it means taking on some extra hours at work so you can increase your income.
Maybe it means taking on classes or training so you can increase your earning potential over the next few years.
Or maybe it means starting your own business on the side so you can build up a new stream of income that will allow you to become more financially independent.
Whatever it is, if there’s something you can do now to make more money down the road, then go do it.
Here are my top 9 ways to invest in yourself:
- Save money by investing in a side hustle.
- Invest in your skills.
- Take a class, get training, or work toward a degree or certification.
- Invest in experiences and adventures instead of material goods.
- Live more frugally and invest the difference.
- Develop a growth mindset and invest in personal development opportunities.
- Invest in relationships that matter most to you.
- Invest money in hobbies and things you enjoy doing most (within reason).
- Take care of yourself mentally and physically, so you can enjoy the fruits of your investment long-term.
7. Get cheap or free entertainment.
In a world full of rising prices, here’s one you can take to the bank: Free is always better than paying for anything.
That’s probably why free entertainment is so popular.
It’s a way to save money on something that’s usually considered an expense.
But even when paying for entertainment is unavoidable, there are ways to keep costs down.
Here are some ideas for free and cheap fun:
- Go to free events in your local area.
Many cities and towns offer free concerts, free festivals and free movie nights during the summer months, so check your city’s website or local newspaper for details.
- Get into museums for free.
Many museums offer at least one day a week when they don’t charge admission.
Find out if your local museum offers this type of deal, and plan your visit accordingly.
- Hang out at home.
Host friends and family members for potlucks or game nights at your house instead of spending money to go out on the town.
If you do want to head out, look for restaurants that offer kids-eat-for-free deals or specials just for seniors.
- Watch movies online instead of going to the theatre or paying monthly fees to watch movies on cable TV.
Netflix is probably the most popular option, but there are many other services available as well (some of them even offer “free” trials).
If you have an HDTV with an HDMI hookup, you can purchase a Roku device for about $50 and stream good content.
- Library books, CDs, DVDs and games.
Most libraries now offer movies and music in addition to books.
Plus, an increasing number of libraries offer free access to digital magazines and other resources.
- Local parks and recreation centres.
You’ll find all sorts of things going on at these, from exercise classes and sports leagues to clubs for kids and adults, book readings and more.
Some have nominal fees if you want to join in a sport or a class, but many activities are free or of minimal cost
So many communities still let people skateboard or use scooters on the sidewalks (and even streets).
That’s a ton of fun for kids without spending anything
- Parks and hiking trails.
If you’re into rock climbing, hiking or biking, head out with your bike or hiking gear for some fresh air and exercise.
8. Cook your own food.
People are amazed at how much money I’ve saved by cooking my own food.
People who don’t cook their own food underestimate the cost of eating out and underestimate the amount of time necessary to prepare a meal.
The first thing you need to do is make a shopping list that’s a few weeks long.
It doesn’t matter if you’re not sure what you’ll be in the mood for, just make a list with what you think you’ll need.
If you don’t have time to browse through the store, take the extra time to write down everything.
The extra time it takes to make the list will give you more time later in the week to spend with friends, family or doing whatever else you do.
The second thing is to buy things in bulk when they’re on sale.
You can save money this way because non-perishables are cheaper when purchased in bulk (and purchased at just the right moment when they’re on sale).
Non-perishables include items like rice, beans, pasta, sauces and oils.
The third thing is to buy meat when it’s on sale or buy meat in bulk from a butcher or grocery store that sells meat at wholesale prices.
One of the easiest ways to save money is to cook at home instead of going out.
If you’re already doing this, congratulations, you are saving a lot of money!
But if you’re not, consider making a change by cooking your own food.
Not only is it more affordable to cook your own food, but it is also healthier and better tasting than a lot of restaurant options.
It can also be fun and relaxing, as well as an opportunity to experiment with new recipes and explore new tastes.
The initial cost of buying groceries may seem high if you are used to eating out or getting takeout all the time, but if you’re smart about what you buy, it can be cheaper in the long run.
9. Sell out your old stuff
It’s time to declutter and get rid of your old stuff.
You probably have a lot of things that you don’t need but are still in good condition.
If you want to be smart with money, sell out the things that you no longer need.
Clear out your garage, attic or basement and get rid of the clutter. You can sell your old books, clothes, shoes, electronics, furniture and even cars for quick cash!
You can hold a garage sale or sell your items online at eBay or Craigslist.
This will help you save money on storage and will also put some extra cash into your pocket.
You have a ton of clothes you no longer wear and a lot of electronics you never use.
You have enough stuff lying around that you can make an entire side income selling it on the internet.
But you’ve probably heard this before and are wondering how to do it.
Well, if you have a smartphone and a decent camera, then all you need is the app Decluttr.
Decluttr will buy your old CDs, DVDs, Blu-Rays, video games, books, LEGO, and smartphones — even iPhones!
Once you’ve downloaded the app and scanned the barcode on your media to get a price, Decluttr will let you know instantly how much they’ll pay.
Next up is shipping everything to them in small boxes with a prepaid shipping label.
Once they receive your items, they’ll pay out the next day via PayPal or direct deposit for your chosen payout method.
10. Use the 48-hour rule when making purchase decisions
This is a simple rule that can help you avoid impulse purchases.
If you see something you want to buy, wait 48 hours before purchasing it.
If you still want it after the 48-hour period, then you can purchase the product.
However, if you don’t want the item anymore, then don’t buy it.
The reason this works is that your mind will often try to convince you to buy something that you really don’t want, especially if it’s advertised as being on sale or only available for a limited time.
When we’re in this situation, if we respond immediately by buying the product, we end up regretting our decision later on because we didn’t give our minds enough time to think it through.
The 48-hour rule gives our minds more time to think things through and thus encourages us to make more rational decisions.
11. Take public transportation when possible
Taking public transportation can save you hundreds of dollars a month.
This is especially true if you live in an urban area where buses and trains are readily available.
If public transit isn’t an option for you, consider sharing the cost of gas with your co-workers or roommates instead of driving alone.
Your car is the second most expensive thing you will ever buy.
Why not use it less?
Not only are you saving money by not buying gas, but you’re also helping the environment by reducing your carbon footprint.
If you take public transportation to and from work, you can also save time by using that time to catch up on emails for work or reading a book.
Many people even choose to use their commute to do some writing or painting.
Whatever floats your boat.
12. Use coupons or other deals when shopping.
A great way to save money is to use coupons and/or other deals when you’re shopping.
For example, if you’re going to the grocery store, check online to see if there are any coupons available for items that you need.
If you’re going to a clothing store, see if there are any sales or coupon codes available.
Similarly, look at the circulars that come in the mail each week.
These circulars often have coupons and other deals listed in them.
Another good way to save money is to purchase generic products instead of brand name products.
This can save a significant amount of money over time.
You can also buy products in bulk at wholesale stores like Costco or Sam’s Club, which can save you money over buying these same items at a regular grocery store.
Also See: 7 Ways To Improve Your Life
13. Get involved with investing as soon as you’re able to learn about it
It’s easy to be intimidated by money and investing, but the more you know about it all, the easier it will become.
Take advantage of any opportunity to learn more about personal finance, saving and investing.
Getting involved with investing as soon as you’re able to learn about it can be a great way to get on track for the future.
If you’re in school, find out if there are any investment clubs or if your school offers courses that focus on investing.
If you’re not in school, look for online classes or books that can teach you about financial topics and investing.
You don’t have to wait until you’re a millionaire to start investing, and you don’t have to be an expert to get involved.
Even if you just put $25 in an account, that’s enough to start learning about investing.
“If you’re not sure where to start with investing, check out the websites of companies like Vanguard and Fidelity,” says Dayana Yochim, personal finance expert at NerdWallet.
“They have whole sections on their websites dedicated to getting started with investing.”
You can also sign up for a Robo-advisor service like Betterment or Wealthfront.
These services take care of all the investments for you and make it easy for new investors.
It’s never too early to start learning about how to handle and invest your money wisely.
I’d also like to read from you in the comments if you relate to this post.