Debt reduction was a top priority for people in Northwestern Mutual's 2018 Planning & Progress Study. It also found that the average personal debt in 2018 over $38,000.
But how do people go about reducing debt? It sounds like a daunting task, but with some proper planning and better habits you can change your financial life.
By being resourceful, you can use your money better and get more out it.
Our list has simple tips for getting better with money and can help you get your finances back on track.
Have a Budget
This is probably the most important tip of all. Creating a budget is like making a business plan for your life.
Figure out exactly how much income you have after taxes each month.
Then identify all your regular bills and unavoidable expenses like rent, your cell phone bill, etc. Call this your essentials.
It should take up about 50% of your total income.
Finally, make targets for how your disposable income (everything other than your essentials and financial goals, like paying off debt and/or savings) will be spent each month.
This disposable amount should equal to about 30% of your monthly income.
Finally, take the remaining 20% and put it towards paying off your debt, your emergency fund, or savings accounts.
It sounds overwhelming but really isn't. If you want another resource, check out tips for stress-free budgeting.
Stick to the Budget
Making a budget is important, but it's useless if you don't follow it.
Make your spending decisions based on the budget.
Live a little! Set a limit for unbudgeted spending, and have fun with that set amount.
Track Your Spending
There are lots of smartphone apps for tracking expenses.
Check the apps each month for everything you spend on, so you can compare it to your budget.
You might be surprised where you overspend and discover ways to keep it in check.
Shop Around for the Best Prices
If you're making a purchase, look it up online and compare prices.
There could be discounts or coupons available.
You might find it's sold secondhand on Craigslist or that it's being sold through Amazon or eBay at a better price than where you saw it.
Save for Big Purchases
Instead of buying an expensive item on credit, save until you can purchase it outright. This accomplishes two things. First, you have more time to shop around and find a great price.
Second, you have time to consider whether you actually really need to buy it or not.
Don't Use Credit Cards for Stuff You Can't Afford
Follow the 30-day rule, where you wait 30 days before you buy a big ticket item.
Going into debt for stuff you don't need is not worth it.
Save Money Regularly
Set up a savings account. Transfer a set amount of money over from your checking account monthly and don't touch it.
20% of your income is a good savings target, but really, ANY amount is better than going into debt.
Have a Savings Goal
It's easier to get motivated to save if there is a milestone to reach. Having three months' salary put aside—as an emergency fund—is a great first savings goal.
Invest Your Savings
As the savings account grows, start making regular contributions to an IRA (Individual Retirement Account).
You won't be taxed on income you contribute to an IRA until you retire and cash it in.
Get better with money starting today
Start slow.
Pick one tip and apply it today. The following week, try another.
Measure your success.
Try to keep track of savings you've made by applying the tips.
Reward yourself.
Give yourself a treat when you reach a savings milestone or make a money-saving decision.
It takes discipline to make these changes and you should be proud of yourself.
How do you handle money?
Do you have any tips that are worth sharing?
Let everyone know in the comments below!
