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How to Get Smart About Money

By: Ellie Burgueno

An important part of winning in life is learning how to be smart with money because money touches nearly everything that we do in our daily lives.

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.

The very first thing you need to do is to determine your why and set your financial goals.

You need 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 a fact.

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 any more!

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 your mortgage), investing for retirement, helping to pay for your children’s college education so that they will not be saddled with debt, and building wealth so that you can achieve ultimate financial freedom.

The second thing you need to do is 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.

When you make a draft for 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, like your emergency fund. But don’t just leave the money unaccounted for. The reason? It’s almost certain to get spent.

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.

The third thing you need to do is 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.

It’s important to 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) emergency fund, to create sinking funds to cover future larger expenses and larger purchases, and to save adequately (save at least 10 but preferably 15 percent of your income for retirement as soon as you are financially able to).

Note: 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.

Put money where it needs to go to be smart with your money and build wealth.

Your priority, once you start taking control of your finances, is to get out of debt as soon as possible, 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.

Start taking the basic steps to get smart about money in order to create the future you would like to have.

For more advice and tips on personal finance, money management, budgeting, planning a business, and saving, please stay tuned and soon, get a copy of my soon published book on personal finance: “Hey Girls! You can also become badass money makers”, it is a practical manual that will certainly help you take control of your financial life and future.

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