List every single expense for a month Over the course of a month, make an excel spreadsheet, or even use a notebook, to track every single purchase. If you use a debit card and have an online bank account, it gets easy to see where your money is going. The alternative which might be better incentive to spend less is to use cold hard cash for all purchases. In this first step, continue to pay your regular bills and document every single cent you make and you spend. This way you will get the groundwork laid in place to help you determine where change needs to be made.
Cut out unnecessary expenses Are you living within your means? If you find after a month that your uncomfortably low on funds, determine where your money is going. How much did you use on food? How much was on gas for travel? How much on subscriptions such at Netflix? How much was on debt such as credit cards and interest? How much was on housing? What things can you cut out that are not necessary? What things can you reduce? Are you a daily coffee and donut at your local coffee house kind of guy or gal? Save yourself money by brewing your own. Get down to the nitty gritty and start clipping out all unnecessary expenses. Once you do this, ideally you will have a surplus each month with which you can allow yourself a slush fund to splurge on purchases that aren’t necessary but if you find you are short money still and can’t cut anything else out, you are going to have to find other ways to make more money. We’ll get into that more later.
Budget every dime After you have figured out exactly how much you need for all your recurring bills, set aside the amount needed for each. You can use envelopes and label them for each bill and pay in cash if you desire. I use excel spreadsheets and do all my banking online. I prefer that. Keep in mind there will be unexpected expenses each month. That is where the next step comes into place.
Keep a spare $500 – $1000 After each paycheck, I keep a balance of $1000 in my checking. I use that thousand to pay my bills for the week. Whatever is left at the end of the week sits there and counts towards the next week’s $1000. If I spend the entire amount then I try again the next week. Sometimes life throws curveballs like when you need new brakes on your car, or worse yet, need a new car. If you have a thousand set aside it helps for some of life’s unexpected bills. If you can’t do a full $1000, try starting with $500. If you have to build it up a little at a time, do so, but work up to that $500-$1000 in your bank account.
Pay off little bills first When you get a surplus over that $1000, here is where the real success comes in. Make your minimum payments with the $1000 in your account, but when you have extra money, instead of spending it on splurges and wants, spend it paying off your bills. Start with any small bills you can pay off quickly in a few payments. It’ll be rewarding to pay them off quickly. You could pay off high interest bills first, but let’s say you have a credit card debt of $2000 and a mortgage at 200,000, pay off the $2000 first. Make minimum payments on everything else, rolling every extra cent into the smaller debts first to pay them off quickly. And DON’T take out anymore money if in any way you can avoid doing so!
Pay off high interest next As you pay off the little debts, you’ll find some charge astronomical prices in interest. Pay those off as quickly as possible. Credit cards are notorious for charging crazy interest. I highly recommend not using credit cards until you get a real handle on your spending. I use one credit card that doesn’t charge me interest if paid off within a month. I pay off my balance every single week as I’m able, though sometimes when I have large, unexpected bills I may end up paying it over two weeks. I use the credit card as a tool to build credit, but I do not use it as a means to spend outside of what I am able to quickly pay off. This has worked well for me and at the time of this writing, my credit score is 800. If you are in debt, I wouldn’t worry about trying to build your credit score. This will happen as you pay off your bills naturally. Focus on crawling out from the high interest bills that are eating you alive by using any surplus to pay off those bills.
Pay extra each week As I stated, pay extra as much as possible. Interest will destroy your budget. Make payments more often and make sure your payments go toward the actual bill and not just the interest. If you pay your mortgage weekly or bi-weekly instead of monthly, you will pay much less in interest over time. Also, if you can pay the full amount every six month or every year for things like car insurance, instead of paying monthly, often you can get a discount.
Don’t forget retirement When you have paid off all your debt, start making your money work for you. Many employers offer retirement plans, or you can find one online. I suggest highly you get a Roth retirement plan and invest in accounts that pay at least 10% – 12% interest over time. Many employers will match your contributions up to a certain dollar amount. Make the most of that! For instance, my employer will match 100% of my contributions up to 4% of my check each week. I save 15% of my check each week into my retirement account. I get taxed for every dime I put in but as it grows, when I retire, I’ll be able to take that money out tax free. With my current savings plan, and with my employer matching, I should be able to walk away with over 1.5 million dollars after 30 years, and that is with an hourly wage of $22.30. It doesn’t hurt to talk to a professional about your options, especially if you are closer to retirement than I am.
Invest in HYSA’s and CD’s My current strategy is to save 15% of every check, including overtime, into my Roth retirement account. In addition, after I’ve paid off my bills, and after I have my $1000 buffer in my checking, I take the rest of my money and put it in high yield savings accounts and CD’s. CD’s are longer term investments. I go for the one that pays the best interest over time. Currently the ones I have are 14 months and pay 4% interest that compounds daily and pays out monthly. My high yield savings account is money I can access more readily but it pays a lower 3.25% interest that fluctuates over time. Both types of accounts fluctuate with the political climes and current economy, but both are good options to grow your funds.
The Frugal Dime 