8 Expert Tips To Help You Make Better Money Decisions

Want to save more this year? Follow these budgeting tips 

If you're feeling a bit lost with your money lately, the start of a new year is the perfect time to update your budget, according to financial counselor Rita Soledad Fernández Paulino. Take a moment to sit down, go through your bank and credit card statements, and decide if you're comfortable with how you've been spending your money. Financial experts offer practical tips to help you save more, cut costs, and tackle debt. It's a chance to reassess your financial strategy and make adjustments to get back on track. Whether it's reevaluating your spending habits or finding new ways to save, these actions can make a positive impact on your financial well-being. So, take the right steps towards a more secure financial future in 2024 with these expert tips.

1. The 50-30-20 rule

Financial advisors suggest adopting the 50-30-20 method for effective budgeting. Essentially, it means dividing your take-home income into three categories. Half, or 50%, should cover crucial living expenses like housing and groceries. Another 30% is designated for discretionary spending on non-essential items like entertainment and clothing. The remaining 20% is earmarked for securing your financial future—divided between savings and paying down debt. This method serves as a practical guide, ensuring a balanced and sustainable approach to managing your finances by prioritizing essentials, allowing for enjoyment, and securing your finances.

2. Reduce fixed expenses 

If your spending balance is off, especially if you're putting too much towards essential living costs, consider trimming fixed expenses. These are consistent monthly costs like rent, mortgage, car insurance, phone bills, and utilities. According to Fernández Paulino, cutting these can make a significant impact as they often make up a big part of your budget. Kristin Wong highlights that while these decisions might be tough, they give you more value for your money. To save on housing, think about getting a roommate or moving to a more affordable place. Also, explore options to negotiate or shop around for expenses like car insurance or cellphone service.

3. Reduce your variable spending

Next, pinpoint your variable expenses, advises Fernández Paulino. These are essentials like food, gas, and electricity that fluctuate each month. Establish a spending goal for these necessities and proactively work to stick to it. For cutting down on food costs, reduce dining out, explore coupons and discounts at your grocery store, and consider meal prepping for cost-effective bulk purchases. When it comes to clothing expenses, opt for secondhand purchases or mend your current wardrobe to save money. Taking targeted actions on these variable expenses contributes to better financial control and resourceful spending.

4. Curb impulsive buying

Analyze your spending on non-essential items like streaming services or vacations and create a budget for these discretionary expenses. To cut entertainment costs, consider borrowing books, video games, or movies from your local library. To curb impulse buying, you could make a "buy list." Add desired items and, after a set time, if it fits your budget, make the purchase. Simplify decisions by categorizing priorities, as suggested by Tiffany Aliche. Before buying, ask if you "need it, love it, like it, or want it." Ensure purchases align with genuine needs or bring lasting joy.

5. Pay off debt 

Include a portion in your monthly budget for minimum debt payments, covering credit cards, student loans, and car payments, suggests Fernández Paulino. If there's extra in your checking account, consider using it to pay off credit card balances or other debts—this might involve more than just minimum payments, so plan accordingly. Experts recommend two methods for debt repayment: 1. Avalanche Method: Start with debts carrying the highest interest rates, maintaining minimum payments on others. This reduces the overall debt over time. 2. Snowball Method: List debts from smallest to largest. Focus on paying off the smallest one first for a quick win, building momentum like a snowball rolling down a mountainside.

6. Save for a rainy day 

Build a safety net in your savings for unexpected expenses, such as car troubles or family emergencies. Adhere to the advice of saving a minimum of three months' worth of your total monthly expenses. If your monthly costs, including fixed and variable expenses and debt payments, amount to $2,000, aim to have $6,000 in savings. Don't forget to allocate funds for planned expenses like birthdays and travel. Consistent monthly savings can help you be financially prepared for these expected costs, ensuring stability.

7. Check your investments 

Annually, check your investment accounts like 401(k)s, Roth IRAs, and brokerages. Focus on: 1. Monthly Contribution: Review what you're contributing, considering adjustments if your income has increased. 2. Expense Ratio: Choose funds with lower expense ratios to minimize fees; look for this under "expense ratio." 3. Rate of Return: Check how much you're earning on investments, comparing it to the S&P 500 for benchmarking. If your investments align with or outperform the S&P 500, you're likely in good shape. Otherwise, consider rebalancing your portfolio for better performance.

8. Change outlook

If building an emergency fund feels challenging, think about "increasing your income to have more available funds," suggests Fernández Paulino. This may involve seeking a higher-paying job or starting a side hustle like tutoring, babysitting, teaching music, or crafting. Monetize your skills for extra cash flow and ensure fair compensation, considering the impact on taxes. Place these additional funds in a high-yield savings account with interest rates ranging from 4% to 5%. These higher rates facilitate faster growth through compound interest. If your current bank is not aiding your savings grow, explore alternative options.