A financial grow-up is essentially a money overhaul: taking an in-depth look at your finances and taking action to reach your money goals. “Grow-up” may be a buzzword, but knowing your financial situation is a time-honored habit — and it may be especially useful now amid the recent stock market turmoil and job market downturn.
Here are the five simple steps I took to achieve financial abundance, what I learned, and tips for anyone looking to get started.
1. I reviewed my recent spending
First, I looked at my debit and credit card statements from the past three months. I took the time to figure out my recent spending habits and how much money I was spending in different categories each month.
Speaking of categories, my bank automatically assigns a category to each transaction, which helps me tally up how much I spend on groceries, gas, etc. And I can download these transactions into a spreadsheet, which makes it super easy to tally up my expenses by category.
One thing I learned
You need to cut down on your spending at coffee shops. I spend about $40 a month at coffee shops, and considering that brewing my coffee at home costs just cents, I could really save money by quitting this expensive habit. While simply saving money would be a good start, I’m ambitious. At least for now, I plan to stop going to coffee altogether and put that money to good use elsewhere.
My Action Plan
Use that money towards your travel fund. I know I’ll thank myself for this in the future and I’m excited to make this simple change that will help me put more money into my savings account. This account has customizable categories, called savings buckets, so I created a travel bucket and put money in there from every paycheck.
How to improve your spending habits
Review your recent spending and find ways to save money. example:
- Cancel unused memberships and subscriptions.
- Prepare more meals at home.
- Shop around for cheaper rates on auto, home, and renters insurance.
- If you’re an avid reader, check out more books from the library (this also solves the problem of what to do with the books you’re done reading).
- Organize your clothing closet so you know what’s in it and avoid buying extra items you don’t really need.
- Be aware of impulse buying and take steps to reduce it.
2. We reviewed our budget
For years, I’ve used spreadsheets or pencil and paper to budget. It’s always worked, but like any habit, it can get tiring over time. I thought that by rethinking budgeting, I’d be able to save more money and, dare I say it, maybe even have a little fun.
So I looked at Bankrate’s list of the best budgeting apps and decided to take the 34-day free trial of You Need a Budget (YNAB). First, I entered my monthly spending categories and income. It then helped me assign a task to each dollar, which is similar to cash stuffing in a way. This spending plan helps me ensure that I have the necessary amount set aside for my upcoming bills and expenses.
One thing I learned
I want to get better control over non-essential expenses, like buying books. After reviewing your spending history and allocating your expenses in YNAB in step 1, you want to get better control over your spending in a few categories. In particular, you’ve decided to cut back on your monthly book purchases (so that your reading habits aren’t negatively impacted).
My Action Plan
Take advantage of free (or nearly free) books. Now that I’ve set a book purchase limit in the YNAB app, I plan to visit the library (and its e-book app) more often to better discipline myself. I also pay a small fee for a Kindle Unlimited subscription so I can take advantage of more of the books available there. If you’re already an Amazon Prime member, you also get access to free e-books, audiobooks, and magazines.
Other non-essentials I’m finding ways to cut back on include eating out, streaming TV subscriptions, and those aforementioned coffee shop visits.
How to refresh (or start) a budget
Find the budgeting method that works best for you. Even if a certain method has worked for you in the past, try something completely new like me. You might find new and creative ways to manage your money. Some budgeting options include:
- Pencil and paper: This specific, old-fashioned method works well for many people, and I’ve relied on it for years: Have a calculator handy. You’ll probably be making some change first, so a pencil is more convenient than a pen.
- Spreadsheet: The beauty of spreadsheets is that you can set up formulas to do the calculations for you, and it’s easy to adjust amounts as needed.
- Budget management apps: If you haven’t tried it yet, you might like it more than you expected – I did too – and it’s refreshing to see calculations being done automatically, as well as receiving useful money management alerts.
3. Check your high-yield savings account balance
Recently, interest rates on many savings accounts have been gradually decreasing as banks anticipate a possible September rate cut by the Federal Reserve, so I wanted to make sure my savings account was still earning a competitive Annual Percentage Yield (APY) and compare other perks this account offers to those offered by other online banks.
To do this, I logged into my banks and looked at the APY and features of my accounts. I opened Bankrate’s list of the best high-yield savings accounts to see the interest rates, and also visited each bank’s website to see what services they offer.
What I learned
My APY isn’t the best, but it is competitive. First, my savings are earning 4.20 percent annual interest, which is slightly lower than the highest-yielding savings accounts. Is that enough to make me switch banks? Well, it depends on what other benefits my account offers and my overall satisfaction with the bank.
I appreciate the money management tools that banks offer. As we mentioned, this account allows you to separate some of your savings into categories, which allows you to save for emergencies, travel, gifts, and other purposes without having to use multiple accounts.
Some banks pay higher APYs but lack other important services. While researching the most profitable savings accounts at other banks, I noticed that some of them have very high minimum deposits to open. Other accounts don’t offer the robust money management tools that my bank offers with its savings and checking accounts.
My Action Plan
I plan to stick with my current bank and take more advantage of their tools to grow my savings. While my high-yield savings account doesn’t earn the highest APY, it does offer some valuable money management tools, so I’ll keep my savings account and take advantage of some additional services I haven’t tried yet, one of which is rounding up debit card purchases to the nearest dollar and transferring that money into my savings account.
How to Value a Savings Account
When comparing your savings account to others, some important factors to consider include:
- Annual interest rate: Many savings accounts now offer yields that outpace inflation, so choosing a high-yield savings account means not wasting interest by settling for a lower rate.
- Money Management Tools: If you’re looking to boost your savings, look for accounts with features like savings buckets and easy transfers from checking to savings.
- ATM Access: If you want easy access to cash, consider a savings account that offers an ATM card (not all accounts offer this) and frequent ATM access.
- No monthly maintenance fees: Don’t let these fees eat into your balance: It’s easy to find online savings accounts with no fees.
4. I increased my Roth IRA contributions.
For me, the great thing about a Roth IRA account is that I can withdraw the money tax-free at some point since I’ve already paid the taxes, so I decided to increase the amount I make regular contributions to this investment.
What I learned
It was easy to find ways to give more each month. In steps 1 and 2 above, you took a closer look at your expenses and allocated all of your monthly income to various purposes. By changing your spending habits and saving money, you can increase your monthly Roth IRA contributions by 50%.
My Action Plan
I used Bankrate’s handy Roth IRA calculator to work out how much of an impact increasing my contributions would have: I liked the results, so I decided to increase the amount I put into my account by 50 percent each month.
How to boost your retirement savings
- Find areas in your budget where you can allocate more funds to a Roth IRA. Cutting back on discretionary spending could free up some funds for this.
- If you put money into a 401(k), take advantage of employer matches. For example, let’s say your employer contributes 50 percent of your contributions up to the first 6 percent of your salary. If you don’t contribute enough, you’ll lose out on what experts call “free money.”
5. I found a way to improve financial literacy.
Everyone wants access to helpful, trustworthy advice on how to manage their money better. A few months ago, I wrote an article about how to boost your money IQ. I recently re-read that article in depth, looking for ways to ensure I’m staying up to date with the latest financial news and insights.
What I learned
I get a lot of my financial news online through websites, blogs, newsletters, etc. But despite being an avid reader, I realized I wasn’t reading enough books about money management.
We live in a world of short phrases, but no one wants to miss out on the understanding of complex subjects (like investing) that a good book can provide.
My Action Plan
I will start by reading “The Little Book of Common Sense Investing” by John C. Bogle. This book aims to provide simple strategies for building long-term wealth. Depending on what I learn, I may share it in a book review.
How to improve financial literacy
- Podcasts: Listening to money podcasts is a great way to learn a lot, and it can easily be integrated into your daily routines, like cooking or driving. Examples include: The Wall Street Journal.
- Newsletter: With daily newsletters delivered to your inbox, you won’t have a hard time keeping up with the news. One example is Morning Brew.
- Social Media: YouTube and Instagram are great places to get timely financial news and insights. For example, money coach Chloé Daniels posts videos about money management and investing on her Quick Money Tips Instagram page.
- Books: Taking the time to read a good book on personal finance can help you get better at managing your money. For example, in “The Psychology of Money” by Morgan Housel, the author details what the key to a money-saving mindset is and how personal beliefs can get in the way of financial success.
Conclusion
Now, my financial situation is better and I feel like the time and effort was worth it. The insights I gained have helped me save more for goals like travel and retirement. Plus, my new budgeting method has me feeling better and excited about finding more ways to save.
Overall, the benefits of making this kind of remodel include peace of mind knowing you’re on top of your finances, living within your means, and saving towards your goals.
