spending money

How to Spend Money Wisely & Avoid Financial Stress

Are you ready to learn how to spend your money wisely? 

How you manage your money impacts every aspect of your life. If you don’t manage your money well, it can lead to lack and financial stress. 

Contrarily, having a strong direction on your spending patterns can set you up for a financial future with less stress. 

Let’s take a closer look at how to spend your money wisely.

The importance of spending money wisely

Money can create options in your life. The best part is that you get to decide exactly what you put your money toward.  

With a solid financial foundation, you can take steps toward the future you’ve always dreamed of. But without smart spending habits, it can be challenging to achieve the goals that really matter to you

For example, you may want to pursue a career change that excites you, but without some savings on hand, it can be incredibly scary to take that leap. That’s when wise spending habits can offer a helping hand. 

With the right habits, you can build a strong financial foundation that lasts. 

No matter what excites you in life, wise spending habits can help you make those dreams a reality. 

10 steps to manage money wisely

Spending money wisely may not come naturally to everyone. The good news is that everyone can learn how to build smart money habits. 

With the right money habits and tools in play, you can easily build a brighter financial future. Here are 10 steps to start spending more wisely. 

1. Start with a budget

A budget is the first step to spending money wisely. Although no budget is exactly the same, you can build a budget that suits your goals and lifestyle. 

As you create your budget, consider all of the things you want to make room for. Some of the most obvious include funds for your housing, transportation, and food. But beyond that, you should include things in your budget that you truly value. 

For example, you might decide to create a budget category for your beloved furry friends. Additionally, you should consider including sinking funds for big-ticket purchases on your horizon. 

Need some ideas for your budgeting categories? Here’s a list of over 90.

2. Consider using cash

If you struggle to keep your spending on the right path, then using cash might be the solution. A cash system forces you to see where your money is going in a way that swiping your credit or debit card never can. 

The cash envelope budgeting system involves placing the funds you intend to spend in each budget category in a physical envelope. When the envelope is empty, you’ll have to wait until the next paycheck to refill it. 

The system can take some time to get used to. But it might just be the way you halt overspending in its tracks. 

If you’re not keen on carrying cash, but want to still use this system, you can check out the Qube money app. This app allows you to create digital cash envelopes that function the same way cash envelopes would.

3. Track your spending

Tracking your spending is a key part of ensuring you are spending money where you want to. The action helps you keep an eye on your spending to see where you stand.

You can choose to track your spending manually or use a spreadsheet. Luckily, there is an easier option available in one of the many money apps out there. 

One great choice is Mint. The budgeting app can track your spending in the categories you create. With that easy tool, you can see where your spending stands at any moment. 

4. Take advantage of automation

Automating your finances is another way to ensure that your money goes to the right place without having to think about it. 

You can also automate your bill payments so that they are paid on time. This helps you maintain good account standing, which can impact your credit. It also makes sure that your bills are paid before you spend money on less important things.

Automation can also help you with saving money. It can be all too easy to skip the habit when the temptation to overspend strikes. That’s when automation can come to the rescue. 

Take some time to automate things like your savings goals. For example, you might decide to transfer $50 of each paycheck into a savings account as you save up for a big purchase. With savings on autopilot, you’ll have fewer funds available in your checking account to overspend. 

5. Separate your funds

When your money is unorganized, it’s easy to spend unwisely. That’s when separating your funds can help. By keeping your funds for different expenses separate, you can easily manage your spending.

You can see where all of your funds are at and when it’s time to spend, you have designated accounts to spend from. Simply open different bank accounts for each of your major spending and saving categories.

6. Reduce your biggest expenses

Spending more money than necessary on expenses is unwise. You’re not only leaving money on the table, but it can hinder your financial goals. That’s why taking time to reduce your expenses is a part of spending money wisely.

Of course, it might be easy to cut out impulse buys or things you know aren’t important to you. For example, you might switch up your toiletries brands to save a few dollars. But most room for savings is in your biggest expenses—namely, your food, housing, and transportation costs. 

According to a report from the Bureau of Labor Statistics, the average American spent $20,091 on housing for the year. What if you could find a way to save on housing costs? A few ways to achieve that might include downsizing or renting out extra space in your home. 

In terms of transportation, you might decide to downgrade from a luxury vehicle to a more affordable but reliable choice. Or you may choose to cook at home more to avoid racking up a major food bill for the month. 

Look for savings in your biggest expenses. You might be surprised by how much you could save with an open mind. 

7. Save for short-term goals

If you want to have money to spend wisely in your future, you have to start saving. So after the basics of budgeting are taken care of, start looking at the financial horizon. What money goals should you be saving for?

A huge first step might be building an emergency fund that holds at least a few months of expenses. With this important financial tool, you can handle so many of the unexpected moments that life throws your way.

Other savings goals might be saving up for that vacation you’ve been craving. Or building up a down payment for your first home. Whatever savings goals are in your future, choose to put your funds towards these goals instead of spending money on immediate purchases that you don’t value. 

8. Start investing for long-term goals

Short-term goals are important. But it is easy to overlook long-term goals. 

Since you are reading this, you are probably ready to make investing for long-term goals a priority. One big long-term goal that everyone should be saving for is retirement. If you start saving for this major milestone now, you’ll have a less stressful experience leading up to the big day. 

9. Tread carefully with credit cards

Did you know that the average American household holds $5,315 in credit card debt

High-interest debt can cost you thousands— and your financial security. Whenever possible, avoid overspending on your credit card. That means only buying what you can afford to pay for each month. 

Using your credit card responsibly involves making on-time payments and keeping your balance as low as possible. Responsible users should see their credit score rise, which can lead to affordable financing options for major purchases. 

With that, responsible usage is important. But if you aren’t sure that you are ready to manage credit cards responsibly, then you might want to avoid this double-edged financial tool. 

10. Be kind to yourself

As you begin the journey of spending wisely to set up a bright financial future, don’t forget to be kind to yourself along the way. It can take time to adjust your spending habits to fit into a new budget. Remember that it is okay to make mistakes!

If you make a purchase that you regret, don’t be upset. Instead, learn from the experience and keep it in mind next time you want to stray from your new spending goals. 

The bottom line: Manage money wisely

Knowing how to spend money wisely can open the door to a brighter financial future. Although it may take some time to implement your new habits, smart spending habits can lead to a financial picture with less stress involved.

Sarah Sharkey

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