Creating a good relationship with money starts with a healthy mindset and ends with making some simple, smart decisions. Luckily, it’s not rocket science! In this blog we will explore the basics and show you that no matter where you are starting from, it’s never too late to move forward with good choices.

Change Your Mindset

The first step towards having a good relationship with money is to change your mindset. Oftentimes, people will have a negative inner dialogue, such as “I’m terrible with money” or “I’m such a shop-a-holic!” Seemingly innocent statements like these can actually impact your subconscious and create self-fulfilling prophecies. 

Reframe how you think about yourself and money to establish a mindset of abundance. Your new inner dialogue could be something like “I’m such a good saver” or “I’m great at building wealth!” Consider creating a vision board that illustrates some of your money-related goals to further instill your new mindset. For example, add a photo of a house that you want to save up for or a piggy pank to remind you of your savings goals.

Audit Your Income & Expenses

This next step is important. Make a list of all of the income and expenses you have on a monthly basis. Income can include things like salary, wages, tips, and extra gigs. Expenses can include things like rent, bills, utilities, subscription services, loan payments, entertainment, groceries, eating out, and spending money.

Make sure you honestly account for all miscellaneous things that you frequently spend money on, even if they are seemingly small.

Find Savings Opportunities

“Watch the pennies and the dollars will take care of themselves.” - Benjamin Franklin

Now that you have a clear picture of your incoming and outgoing money, isolate a few areas where you can comfortably cut back a little. As Benjamin Franklin conveys in the above quote, small savings add up to make big differences. 

For example, I realized I was ordering food about 3-4 times per week, but if I were to reduce this to 1-2 times, then I could save up to $200 per month! Another common way people can save is to reduce shopping for “extras,” such as trendy or seasonal items. 

Once you find savings opportunities, it can be quite rewarding and addicting. Cutting back can feel like an act of self care as you work your way towards bigger financial goals.

Address Any Debt

Many of us millennials and Gen Zers have accumulated some sort of debt, whether it be from student loans, credit cards, or even things like medical bills. Make a list of all of your debt accounts, including when payments are due, the interest rate (if applicable), and the minimum required payment.

Keep in mind that some countries are currently offering forbearance (pausing payment requirements) on student loan debt due to COVID-19, so check with your loan provider to see if you apply.

If you have debt with exceedingly high interest rates, say above 7% APR, you may want to consider refinancing. Refinancing loans can not only consolidate multiple loans into one place for easy management, but also reduce the interest rate and minimize monthly payments.

Note that if you have a government loan, you might want to think twice before refinancing since they sometimes offer perks that private vendors do not, such as forbearance or eventual forgiveness plans. Speak with a professional to learn more. 

And finally, if you have a medical bill or another type of outstanding bill, you can often call the billing center to negotiate a payment plan that works best for you. They would likely rather work with you to make payments, rather than you not being able to make any payments at all.

Create a Budget

Now that you know your state of affairs, you should create a realistic budget that you can stick to long term. There are many budgeting apps to help you with this, but many prefer a good old fashioned Excel sheet that can be easily updated every month. For your own budget, try to get as specific as possible without being unnecessarily granular.

With your budget in place, you’ll be able to see and decide how much money you can comfortably set aside for savings every month. We’ll discuss more about savings later. 

Work Towards a Good Credit Score

Credit scores range from 300-850 and are an important indicator of your financial health and creditworthiness. A higher score shows that you are less of a risk, while a lower score can sometimes stop you from receiving lower interest rates on loans, credit cards, or even prevent you from renting certain apartments. Needless to say, increasing your score is a worthy cause because it can open doors for you in the future.

First, you should uncover your current credit standing by using a free website that doesn’t make hard inquiries (which negatively impacts your score), such as Credit Karma (US only). These websites often tell you why your score is what it is, meaning it shows any factors that are negatively or positively impacting your score. 

Now that you know your starting point, make a plan on how to improve your circumstances. For example, if you have a low score caused by missed card payments, then perhaps you need to set up recurring payments or negotiate a lower payment.

If your credit score is low simply because you have no credit history, consider opening a credit card to use for a low budgeted amount every month. For example, you could have a designated “groceries card,” which you only use for groceries and immediately pay back. Frequent on-time payments will gradually increase your score. 

To Save or To Pay off Debt? 

This question is often debated in the personal finance world. It’s usually best to first create a pocket of savings in case of emergency. Afterwards, you should look at the interest rates on the debt and make a choice: is the interest rate low enough that you are comfortable paying it off over time to save for other financial goals instead, or is it high enough that you should immediately work to pay it off to reduce the interest that will accrue? To make this decision, it could be helpful to use a loan interest calculator that shows you how much interest you will pay over the life of the loan. Every situation is different, so do your own research and decide what is best for you. 

Savings Step 1 - Create an Emergency Fund

As mentioned, an emergency fund is the first thing you should consider saving for. Use your previously determined budget to come up with an amount that covers three months worth of your expenses with no income. This will give you a safety net if anything should unexpectedly happen.

Savings Step 2 - Invest in Your Future

After your emergency fund has been established, the exciting part begins. You can now start saving for other goals! Consider using a high-interest or high-yield savings account (an account that gives better-than-average interest rates) to save money for big purchases, such as a down payment on a house, etc.

Other things you may want to invest in include retirement accounts, such as 401(k)s or IRAs. These types of accounts can offer tax benefits to people making long term investments for retirement.

Increase Your Earnings

If you are keen on saving more, but are doing the best you can with what income you have, your only option is to make more money. This could mean asking your boss for a raise or promotion, searching for a higher paying job, or finding a lucrative side hustle. Leveraging your personal interests and talents can open the door to a vast amount of ways to earn extra money. 

Get Inspired

Finally, get inspired by researching and consuming content about personal finances. Some excellent books you can read include Rich Dad Poor Dad, You Are a Badass at Making Money, and Think and Grow Rich. 

No matter where you are starting from, it is never too late to create an amazing relationship with money - a relationship where you are in control of your financial future. We hope this has inspired you to take a look at how you can use money to empower yourself and level up.

Disclaimer: This information is for educational and informational purposes only and should not be substituted for financial advice. Please consult a professional, such as an accountant or financial advisor, for financial advice.