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How to Be Smart with Money
An important part of winning at life is learning how to be smart with money because money touches nearly everything that we do in our modern society.
If you learn how to be smart with your money and manage it well, you will be able to accomplish some amazing things in life such as building wealth so that you can have security and do the things you enjoy doing, retiring in comfort, helping those in need, supporting worthy causes, and more.
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9 Must-Know Tips for How to Be Smart with Money
In this article I am going to discuss 9 things you must do related to how to be smart with money.
1. Determine your why and set financial goals.
The very first thing I believe you should do when you want to be smart with your money is to figure out your financial why. Why do you want your financial situation to change? Why do you feel you need to pay off debt or start saving more money or investing for retirement? What are your ultimate financial goals and dreams?
Your why is crucial because it will give you the motivation to set crucial financial goals that will change the trajectory of your life. With simple and realistic but amazing and far-reaching financial goals, you will be able to accomplish incredible things with your money that most people never will. That is sad, but it’s true.
Many people go through life half awake, never having the ambition or the discipline or dedication to really accomplish awesome things. But you are not that person! Or if you were, you are not anymore! 🙂
You are going to accomplish incredible things in your life by setting and steadily working toward simple but incredible financial goals like building up savings for emergencies and large expenses, getting out of debt (including paying off that mortgage!), investing for retirement. helping to pay for your children’s college educations so that they will not be saddled with debt, and building wealth so that you can achieve ultimate financial freedom.
2. Make a spending plan.
Once you have determined your financial why, get after it by creating a plan to accomplish your financial goals—a financial plan, otherwise known as a budget. 🙂 But just call it a spending or smart money plan or whatever you want if you don’t love the b word.
When you create your budget, make it a zero-based budget. In other words, allocate your monthly income down to nothing on paper. You may think that this seems odd; that it would be better to leave a little money as a buffer. And that is great, if you designate that money to be put into a particular savings account or something, like your emergency fund. But don’t just leave the money unaccounted for. The reason? It’s almost certain to get spent.
No budget? No problem! Sign up below to receive a free spending tracker and starter budget forms!
Figure out your monthly income.
Ready to start creating your budget? Great!
Your first priority as you create your spending plan is to figure out your total monthly income. If you (and your spouse, if he or she works outside of the home) have a steady, fixed income from an employer, this is really easy. Just look at your pay statements or your bank account where you deposit the money, and record how much you make on your budget.
If your income fluctuates because you work for yourself or work on commission or in sales, then look at your pay statement or bank deposits for the last two or three months, and make your best estimate of your monthly income.
Track your spending to determine your expenses.
Next, begin to track your spending or else review debit or credit card transactions and receipts to estimate your monthly spending.
If you buy and pay for most everything with your debit card or credit card, this is really simple. If you don’t, then carry a little notebook with you or jot down your purchases in a note-keeping app on your phone.
Either way, track your expenses for at least a week, but preferably a month so that you get a more complete picture of your spending. If you have not been following a budget or paying much attention to your spending before now, this will likely be very eye opening, and you will likely see some big leaks in your wallet that you will want to plug.
But the good news about that is that once you fill those holes, you will feel like you got a raise! You really will! (Yeah, I might just be speaking from experience. :))
Adjust your budget as needed.
As you are creating your budget and then as you are working to fine tune and follow your budget, be flexible and cut yourself some slack. You are going to find things that you need to adjust, and it will probably take about three months for your budgeting to really start to work. But once it does, the results can be amazing as your money starts to work for you and move you toward your awesome financial goals!
Learn more about how to create a budget (or how to tweak it to make it successful) with this post on the complete beginner’s guide to budgeting.
Tip: I recommend that you start budgeting on paper if you can so that you really have to write down and see where all of the money is going. But after that, you can sign up for an online budgeting app such as YNAB, Mint, EveryDollar, or Personal Capital if you like to make things easier. But the most important thing is that you do it, so if that means being digital from the beginning, then do it!
3. Differentiate needs versus wants to ensure you are being smart with your money.
As you create your budget, begin to differentiate needs versus wants, and make adjustments to your budget as you go along. Sometimes we do a pretty good job of justifying wants by calling them needs. But to truly differentiate needs versus wants, remember this: you need housing (unless you can live under a palm tree or something), but you don’t actually need a fancy or new or even nice home.
Similarly, you need food, but you don’t need restaurant food or gourmet food or to always eat name-brand food. You need transportation, but you may be able to get around with one car for a while (or even possibly no car, if you can use bikes or your feet or public transportation). And you definitely don’t need a brand-new or ultra-safe or super fancy car.
The better you can differentiate needs versus wants and base your budget on your needs first and then the wants that you can truly afford while still saving and investing adequately to meet long-term, crucial financial goals, the better off financially you will be later in life.
As you create your monthly spending plan or budget, allocate money for your needs first. That means designate money first for reasonable food, clothing, shelter, transportation, utilities, and other true necessities.
Then designate money to build up an adequate (three- to six-month; I recommend six months) emergency fund, to create sinking funds to cover future larger expenses and larger purchases (such as app and so on), and to save adequately for retirement (save at least 10 but preferably 15 percent of your income for retirement as soon as you are financially able to).
Learn more about differentiating between needs and wants here.
4. See where you can reduce your spending to be smarter with your money.
To be smarter with your money and reach your financial goals, you are probably going to need to reduce your spending. Fortunately, you should be able to cut your spending in the categories below pretty easily by following the tips given for each budget category.
Save money on entertainment.
There are many, many ways that you can save money on your monthly or yearly entertainment and related costs. Here are some of the biggest ones:
- Ditch your dish (satellite) or cable service.
- Save money on your cell phones or smartphones.
- Save money on your internet service.
- Go to the movies less.
- Buy fewer books and movies (go to the library instead :)).
- Go to fewer and less expensive music concerts.
- Go to fewer and less expensive sports games.
- Spend less on video and computer games.
- Spend less on electronic devices.
- Cancel your subscriptions to magazines and paid TV services (Netflix, Sling, and so on—again, videos from the library are free!).
- Consider canceling your memberships to the gym, rec center, museums, aquariums, zoos, and the like.
- Spend less money on recreational activities like skiing, bowling, miniature golf, playing arcades, and so on.
- Spend less on Christmas shopping.
- Spend less on family vacations.
- Reduce the amount allocated to your personal monthly spending money (your fun money or blow money).
Save money eating out.
The average family in America spends about $3,000 a year eating out. That means there is a lot of money that can be saved here! I know it probably sounds crazy, but we spend less than $300 a year eating out. And I don’t feel deprived! Want to know why? The reason is that that frugality has allowed us to be able to reach other financial goals that we have—and to do it on one average income.
The best thing you can do to save money eating out is to simply do less of it. 🙂 But there are lots of other ways that you can save money eating out, as well! Read this article to learn how to save money eating out.
Save money on groceries.
There are so many—so many!—things that you can do to reduce your grocery spending. I discuss more than 70 ways that you can save money on groceries in this article.
But here are some of the things you can do to save the most money:
- Use a meal plan.
- Create a grocery list, and follow it.
- Use a grocery price comparison cheat sheet.
- Shop at discount and salvage grocery stores.
- Save money on meat.
- Save money on produce.
- Spend less money on soda, juice, sweets, snacks, alcohol, and so on.
- Buy grocery items when they are on sale and in season.
Check out these related articles:
31 Budget-Friendly Easy and Cheap Dinner Recipes for under $5
42 Cheap and Easy Budget-Friendly Meals for under $5
13 Ways to Save Big When Eating Out!
73 Easy Ways to Save Money on Groceries without Coupons!
59 Must-Know Tips to Slash Your Grocery Bill in Half!
151 Easy Ways to Save Money: Your Ultimate Guide to Saving Money!
Save money on transportation.
Another way that you really need to be smart with your money is with your spending on transportation. The average car payment in America is close to $500 a month! Is is any wonder that nearly 80 percent of Americans are living paycheck to paycheck? Our savings accounts and emergency funds and retirement funds are sitting in our garages!
So here is what you can do to turn things around and save money on transportation costs:
- Get rid of your car payments and start to buy your cars with cash! (This one thing alone could help you become a millionaire! Woo hoo!)
- Become a one-car family.
- Drive less.
- Save money on gas with apps like GasBuddy.
- Save money on car maintenance and repairs.
- Shop around to get the best deal on your auto insurance.
- Drive the speed limit.
- Wash your car yourself.
Find more than 30 tips for how to save money on transportation costs here.
Save money on housing.
For many families, housing is their single largest expense. But there are also many things that you can do to save money on housing. Here are some of my best tips for saving money on your housing:
- Shop around to see if you can lower your homeowners insurance premiums.
- Look into refinancing your home if interest rates have dropped. (But don’t lengthen the term of your loan! If anything, shorten it!)
- If you are renting, find a cheaper place.
- If you bought too much house, look at downsizing.
- If you really want to save money on housing, consider renting out a spare bedroom (or bedrooms) either long term or on sites like Airbnb and Booking.com.
- Save money on alarm monitoring with inexpensive services like SimpliSafe. (I love SimpliSafe!)
Check out this article for more than 30 ways to save money on housing.
Save money on utilities.
You can pretty drastically reduce your utility bill if you want to. Years ago I heard about a professor of economics who just couldn’t bear to see the money spent on utility costs go down the drain because he knew what that money could grow to if it were invested, and so he kept his AC up and his furnace down, and his family wore sweaters and bundled up during the winter and found ways to stay cool during the summer.
We haven’t gotten that extreme in my family (not yet, anyway :)), but it’s a little tempting! Because I hate spending money on things that have no lasting value, too! Sigh. In any case, here are some free and easy ways that you can save money on your utility bill:
- Turn down (to 62 degrees or lower, if you can) and turn up your AC (to 78 degrees or higher, if you can).
- Wash all of your clothes in cold water. Washing machines are so powerful these days they will still get your clothes clean even with cold water.
- Hang your clothes out to dry.
- Use your dishwasher less. Wait till it is full to run it, and consider using your dish drain and washing the dishes by hand.
- Turn off lights, TVs, computers, radios, nightlights, and so on when they are not in use.
- Unplug appliances and electronics when they are not in use.
- Open your curtains during the day to let in the sun to warm up your house during the winter or keep them closed to keep out the sun to help keep it from heating up too much during the summer.
Save money on clothing and shoes.
Some people just love to buy designer clothes and shoes. And they look really nice! But so does a paid-for beach house in retirement. 🙂 So we buy most of our clothes, for us and the kids, either on sale or from thrift stores or the classifieds. For now our kiddos are young, so they don’t know the difference (and I hope that even when they are older, they won’t care—and I hope they never do :)).
My sisters and I also swap clothes back and forth for our kiddos that are the same ages, which is awesome! I love to see the clothes that my kiddos wore on my nieces and nephews; it brings back such fun memories! If you have family or friends with kiddos the same age as yours, see if you can set up a kids clothing co-op!
Read this article to learn easy ways to save money on clothes.
5. Comparison shop.
Another super smart thing that you can do to be good with your money is to comparison shop—on virtually everything. When I have done this, particularly with larger expenses like fairly major home and auto repairs, the difference in prices I have been quoted has sometimes been surprising! Get the most bang for your buck by calling several (I usually call at least five) places or checking several stores before making a purchase or spending money on a service like a car, plumbing, or home repair.
6. Put money where it needs to go to be smart with your money and build wealth.
To put your family on solid financial footing and to ultimately build wealth, make sure to do the following things.
Build an emergency fund.
As I mention briefly above, it’s important for your family’s well-being that you have a substantial emergency fund. I recommend at least three but preferably six months’ worth of expenses saved in your emergency fund.
If you haven’t already, make your emergency fund its own separate savings account. You may even want to open an account at a different bank so that the money is not too easy to access, if you think you might be tempted to use it for other things besides true emergencies.
Check out these other related articles:
- What Is an Emergency Fund, and How Can I Set One Up?
- What Is a Starter Emergency Fund, and How Much Should I Put in It?
- How Much Should I Save in My Emergency Fund?
Get out of nonmortgage debt.
Once you have at least a starter emergency fund of at least $1,000, another very smart thing to do with your money is to pay off all nonmortgage debt as quickly as possible.
To get out of debt, first figure out how much you owe on your various debts such as credit cards, student loans, car loans, department store loans, and so on.
Then, decide which method you would like to use to get out of debt. Depending on your disposition and what motivates you, I recommend you use either the snowball debt payoff method or the avalanche debt payoff method. Briefly, with the debt snowball method, you pay off your smallest debts first to gain momentum and keep up motivation. With the debt avalanche method, you pay off the debts with the highest interest rates first, and knocking out those higher interest rates could be what keeps you most motivated.
Personally, I recommend the debt snowball method because I think it is a better way to gain momentum, and that is the debt payoff method that we personally used.
Once you are out of nonmortgage debt and are adequately saving for larger expenses and purchases (more on that below) so that you can stop taking on new debt, work to pay off your mortgage early! Being mortgage debt free is amazing, and it is one step closer to ultimate financial freedom!
Save for larger purchases and expenses.
After you have paid off your nonmortgage debt, start saving toward large purchases and expenses so that you can pay for them with cash and avoid going back into debt. Debt freedom = financial freedom = peace and joy 🙂
To save for these large expenses, I recommend that you set up several separate savings accounts (also known as sinking funds). We personally have more than 20 different savings accounts for our various financial goals. You certainly do not have to be that detailed, but I would recommend that every family set up these nine savings accounts:
- Emergency fund
- Vehicle maintenance and repairs
- Vehicle purchase
- Home down payment
- Home repairs
- Furnishings and appliances
- Christmas and gift giving
- Miscellaneous/other short-term savings
By having these nine savings accounts and consistently working on funding them, you will have the cash you need to take care of all of the expenses that that occur.
Start investing for retirement.
Once your nonmortgage debt is paid off and you are saving toward the necessary expenses above, start investing for retirement. I recommend that once you are out of nonmortgage debt you start to save 15 percent of your income for retirement as soon as you can, but at least save 10 percent.
Remember the incredible power of compound interest and start saving as much for retirement as you can as soon as you possibly can.
Check out these related articles:
- Traditional or Roth IRA: Which Is Better?
- 11 Surefire Steps to Retire Early!
- 401(k) or IRA: Which Is Better?
Start saving for kids’ college (if applicable).
If you have children, also start saving for their college educations as soon as possible to take advantage of the power of compound interest and to help ensure that they are not burdened with student loans later in life.
7. Consider doing overtime, getting a second job, starting a side hustle, and finding other ways to earn more money.
I believe that there are more ways to make money today than there have ever been before. And many of these you can do from the comfort of your own home after you get back from work! Some of my favorite ways to make more money are those listed below.
Working overtime is one of the simplest ways to make extra money. If your employer offers overtime, then consider taking advantage of it. Especially if you are in a situation where you are working to pay off debt, save up your emergency fund, or save for a large and necessary purchase, working overtime is an excellent option to help you reach those goals more quickly.
Ask for a raise or promotion.
One of the benefits of asking for a raise or promotion is that you receive additional income for (potentially) doing the same amount of work!
If it’s been a few years since you received a significant raise and especially if you’ve been an exceptional employee at work, make a list of your contributions and your accomplishments, and schedule a meeting with your supervisor to request a raise or a promotion. Focus on ways that you’ve earned the company money or saved them money.
If you learn during the meeting that a raise or promotion isn’t going to happen right away, ask what specific steps you can take in the next year or two to make it a reality. Read this article for more information on how to seek a raise or promotion.
Do freelance work.
If you work in a field that lends itself to doing freelance work, consider taking advantage of that opportunity to earn extra income. I have been doing freelance writing, editing, and proofreading since before I graduated from college with my English degree and editing minor, and doing freelance work has not only helped me gain experience in other areas besides what I do for my full-time job but has also at times (when I wanted to give the time to it) brought in significant additional income.
If you similarly enjoy and have a knack for writing, look into freelance writing jobs. You can find ideas for close to 30 freelance writing jobs here.
Freelance proofreading is another great option if you love to read and have a good eye for detail. If freelance proofreading might be a good opportunity for you, then check out this awesome general proofreading course by my friend Caitlyn at Proofread Anywhere!
Look at indeed.com, monster.com, or your favorite job search site for opportunities.
Do consulting or coaching.
Similarly, if you have job experience or a skill that lends itself to it, consider putting that skill to use to do consulting or coaching work. Popular areas for consulting include human resource (HR) consultant, public relations (PR) consultant, marketing consultant, business management consultant, and accounting consultant.
Popular areas for coaching include financial coaching, job coaching, personal fitness coaching, and leadership coaching.
Look for consulting and coaching opportunities on indeed.com or your favorite job website.
Start a side hustle.
If you would rather earn money without working another regular job, there are a lot of things you can do to earn a little extra income with a side hustle. Some ideas include starting your own small business where you turn a hobby into a money-maker, being a virtual assistant, or driving for Uber or Lyft. Learn how to start a side hustle and find out about many side hustles that you can explore.
Start a money-making blog.
The potential for significant income is one of the reasons that I started this blog. If you love helping people and enjoy writing, being a blogger might be a great fit for you. In addition to great income potential (check out these amazing income reports of bloggers who make $10,000 to $100,000 or more per month!), there are many other benefits of being a blogger, such as being able to be your own boss and work on your own schedule. Learn how to start a blog for less than $5 a month.
Make money with affiliate marketing.
Affiliate marketing is where you recommend a product or service to others, and in return for your sending business their way, a company pays you a percentage of the sale that they made because of your recommendation. Affiliate marketing can be an excellent way to make extra income; those who do it well can make thousands of dollars a month (or much more).
For an excellent course on affiliate marketing, check out Making Sense of Affiliate Marketing by Michelle Schroeder, who makes more than $50,000 a month with affiliate marketing! When I decided to start blogging, Michelle’s course is the first one that I bought.
Interested in finding out more about this truly amazing money-making opportunity? Learn more about affiliate marketing here.
Get a (second) job.
If you are in a situation where money is tight or where you have a lot of debt or where you simply want a bigger hammer to pound out your financial goals, then look into the possibility of one of you getting a job or a second job.
If one spouse is not working outside of the home, for example, then consider whether it would be worthwhile for that spouse to start earning an income (perhaps with a job that could be done exclusively from home).
Similarly, if one of you works only part-time, you might want to consider going full-time at least temporarily in order to reach your financial goals more quickly.
Or consider if one spouse is available to get a second job in the evenings or on Saturday, for example, and earn more money that way.
Earn passive income.
Some options for earning passive income are to create a product you can sell, write a book, create a money-making podcast or vlog, or develop an online course. Read this article to learn more ideas for earning passive income.
Use rebate apps like Ibotta and Ebates.
With rebate services such as Ebates and Ibotta, you can earn money by shopping for things and at places where you would shop anyway. With Ebates, you generally buy items through their website to save up to 40 percent on purchases. It is primarily an online service. Ibotta, on the other hand, is an app you use primarily after you make purchases at brick-and-mortar stores. Because of this, you can actually sign up for and use both apps to save on purchases.
Sell stuff on eBay, Amazon, or your local classifieds.
Sell your clothes to consignment shops.
If you’re like most people, you probably have more clothes than you need. So use them to bring in some extra cash!
Have a garage sale (or regular garage sales).
Declutter your home and earn money, all at the same time!
Check out this article to learn more about and find more ideas for increasing your income!
Would you like to start making more money? Sign up below to participate in the free 10-day Earn More Money, Change Your Life challenge and learn actionable steps you can start taking today to really increase your income!
8. Automate your finances.
Another smart thing that you can do with your money that will really help you to be successful with your finances is to automate your finances as much as you can. By automating your finances, you’re not left so susceptible to temptation. And you are able to effortlessly work toward reaching your financial goals and can do so without having to make the conscious decision to save or invest or pay off debt every time you get paid.
Right after you get paid, transfer money directly to pay extra toward debt, into your emergency fund and other savings accounts, and into your 401(k) or Roth IRA. Take care of your financial goals effortlessly by funding them automatically! And then live on what is left.
You should automate your finances in order to get paid (through direct deposit); save for emergencies, large purchases and expenses, and so forth; pay off your debt (as long as you are not in an adversarial relationship with anyone you owe money to); pay bills; invest for retirement; save for kids’ college; and more.
Read this article to learn more about automating your finances.
9. Stay out of debt to be smart with your money.
The best way to be able to build wealth, and one of the best ways to be smart with your money, is to first get out of debt and then stay out of debt. That is because when you get out of debt—as one of my favorite personal finance gurus, Dave Ramsey, says—you free up your biggest wealth-building tool: your income.
By paying off all of your debt—including eventually paying off your mortgage—and then staying out of debt you will have all of your income to use to meet your needs and build your wealth, instead of the bank’s. And ultimately, you will be able to achieve financial freedom.
Learn how to get and stay out of debt.
As you follow these steps for how to be smart with your money, you will be able to move yourself and your family steadily toward financial freedom. First you will be able to achieve freedom from overspending, then freedom from living paycheck to paycheck, then freedom from the stress of having no financial cushion (savings), then freedom from being in debt, and then ultimate financial freedom—from having to work.
With ultimate financial freedom, you will get to the point where you can choose when and how you want to work, or if you want to work. Your time will be your own to accomplish the amazing things that you want and maybe even were meant to do in your life.
So be smart with your money and go after your amazing financial goals!
What do you think are the most important steps related to how to be smart with your money? Did one of the steps above inspire you to try something new? Where are you on the journey to financial freedom? Let me know your thoughts in the comments below! I would love to hear your best ideas for how to be smart with your money!
Invitation to Share
Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!
Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.