Understanding your current financial situation is an important first step in developing your relationship with money. I know for many of us who grew up in black and brown households, money management wasn’t really a topic of discussion unless it involved our parents telling us how much we were cutting into their pockets.
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We have to make sure that we take active steps towards improving and maintaining our financial situations. Developing good practices of money management is a necessity for the world we live in today. This can look a few different ways for each of us. The key is to make it a practice. Check out some ways that you can regularly keep in touch with your financial situation so that you remain confident and in control of your financial future.
Do an Account Inventory
Where do you keep your money? Do you have multiple accounts or keep cash on you? Make a list of every stream of revenue you have. If you make money from it, write it down. Next, categorize the accounts into checking, savings, or investment and then write your current available balance out.
Track Your Spending Habits
Think about your day from start to finish It’s important to be conscious about how you spend each cent. Write down everything you spend your money on. It’s easier to see how much you spend in what areas when it’s visible. Your bank statement is a good place to get a comprehensive list. You’ll just have to remember to write down the items you spend cash on. Once you figure out what you’re spending your money on, categorize it. Examples might include: bills, eating out, steaming sites like Netflix, etc.
Do a Debt Inventory
Owing someone else money is not cute. As quickly as you can get what you have borrowed back, you should aim to do so because you gain more flexibility and freedom in your budget. Gather up all of your debt accounts. Who do you owe money to? Do you have student loans, credit card debt, car loans, or personal loans? List them out and come up with a method to repay them. You can either do this by putting your debts in order from largest to smallest interest rate or from smallest to largest outstanding balance. Read more about the methods and benefits here.
Create a Budget
There are several ways to budget your money, it’s all a matter of preference. Some like the 50/30/20 approach where you designate 50% of your take-home pay for needs, like bills and rent. 30% would go to fun and food. And then you have that 20% left to go to your savings. The number one approach is a bit more fluid by simply requiring you to keep one number in mind as your limit to what you will spend in which categories.
Create an Emergency Fund
It seems like the past 12 months have been an ongoing emergency at the state our nation is in. If it has shown us anything, it’s that we have to be prepared for everything. Having the money to deal with an unexpected emergency takes some of the stress out of an already stressful situation. A good rule of thumb is to save anywhere from three to six months worth of expenses. For many of us, it can take quite a bit of time to save up three to six months worth of our expenses. Aim for $500-$1000. That amount can typically cover most short term emergencies.