Saving money is all well and good in theory.
Its pretty hard to argue against having moremoney in the bank.
But what are you saving for?
Aileen Perilla/The Penny Hoarder
Figuring out where your money should go might seem daunting, but its actually a lot of fun.
You get to analyze your own priorities and decide exactly what to do with your hard-earned cash.
But to make the most of your money, follow a few best practices while setting your goals.
And youre playing the long game… thats why theyre called goals!
Need Some Quick Cash?
If youre looking to boost your income this month, weve got just the thing for you.
Itll help you set goals and create smart priorities for your money.
First Things First: How Much Money Do You Have?
So sit down and take a good, hard look at all of your financial info.
It just takes two steps:
Figure out how much money you have.
It might be in checking or savings accounts, including long-term accounts like IRAs.
Or, it might be wrapped up in investments or physical assets, like your paid-off car.
Assess any debts you have.
Do you keep a revolving credit card balance?
Do you pay a mortgage each month?
Are your student loans still hanging around?
The difference between the two is your net worth.
Thats the total amount of money you have to your name.
If it seems like a lot, cool.
Hang tight and dont let it burn a hole in your pocket.
Were not done yet.
If it seems like… not a lot, well, you could fix that.
It also includes categories like charitable giving, entertainment and travel.
Itll depend on your individual case for instance, I totally have wine as a budget line item.
Its all about priorities.
Start by listing how much you actually spent in each category last month.
Subtract your total expenses from your total income.
The difference should be equal to the amount of money left sitting in your bank account at months end.
Its also the money you could use toward your long-term financial goals.
Want the number to be bigger?
Set the numbers youre willing to spend in each category, and stick to them.
Youre in control of your money.
Now you might figure out exactly what you want to do with it.
Setting Financial Goals
Before you run off to the cool-expensive-stuff store, hold on a second.
Your financial goals should be (mostly) in this order:
Build an emergency fund.
Set short-term and long-term financial goals.
We say mostly because its ultimately up to you to decide in which order you want to accomplish them.
Many experts suggest making sure you have anemergency fundin place before aggressively going after your debt.
Can You Survive 10 Days of Budgeting?
If you gotta wrangle your budget, it may be time to consider a savings challenge.
you might make the process a lot easier byautomating your savings.
Or you could have money from each paycheck automatically sent to a separate account you wont touch.
Good thing your budget is already set up so you know exactly what that number is, right?
But if you lose your job, you still need to be able to eat and make rent.
Pay Down Debt
Now, lets move on to repaying debt.
Whys it so important, anyway?
Because youre wasting money on interest charges you could be applying toward your goals instead.
Trust me, the day when you becomedebt-freewill be well worth the effort.
Plan for Retirement
All right, youre all set in case of an emergency and youre living debt-free.
Were almost done with the hard part, I promise.
But theres one more very important long-term financial goal you most definitely want to keep in mind: retirement.
And you gotta start now, whilecompound interestis still on your side.
Ideally, youll want to find other ways to save for retirement, too.
Future you will thank you.
Set Short-Term and Long-Term Financial Goals (the Fun Part!)
Is everything in order?
Youre in awesome financial shape and youve made it to the fun part of this post.
Now think: What do you want to do with your money?
What experiences or things can your money buy to significantly increase your quality of life and happiness?
(OK, Ill stop projecting.)
No matter your goals, its helpful to categorize them by how long theyll take to save for.
Make a list of the goals you want to achieve with your money and which category they fall into.
Then you could figure out how to prioritize your savings for each objective.
Drowning in Expenses?
Maybe youre scrambling after your car broke down.
Or you got a medical bill you werent expecting.
Or inflation has finally pushed your budget over the edge.
You dont need to go it alone.
When money is tight,these resourcescan help you manage unexpected expenses without stress.
Jamie Cattanach (@jamiecattanach) is a contributor to The Penny Hoarder.
