How to Manage Your Money

Man with glasses reviewing financial document

It’s easy to treat family money like a utility: Bring in as much as you can, take out what you need, and just hope you don’t run out. But you wouldn’t run a business that way, so why would you do the same for your family? It can seem daunting, but it’s really not that hard to turn your family finances into a successful long-term enterprise.

Define your financial goals

Make sure you’re aware of everything that makes up your financial situation: assets, debts, insurance coverage and investments. Use software programs or work with your financial professional, if you have one. Then think about what you want to do with your money broken out in one, five and ten-year increments is the first step to taking control. Whether you’re saving for your kids’ college funds or simply looking to upgrade your family’s vacation budget, write it down. Lists can help you prioritize goals and start to form a plan.

Create your own financial statement

Start by determining your net worth using assets and liabilities. Assets include bank accounts, stocks and property values. Liabilities include loans, leases, mortgages and credit card debt. Listing all of these will give you a clear view of what you owe and own.

Then, track all of the income that came into your household over the last year. Create an expense column that shows where all of that money went. Compare these past numbers to your current balance sheet to project future expenditures and identify where you may be able to better apply your income toward expenses that further your goals. For example, you might find that you shopped for clothes or electronics more than you realized last year—and in the coming year, you might plan to put a similar amount of money toward paying off your credit card debt.

Examine your current budget

Set up two or three hours of uninterrupted time with your paychecks, your bills and a calculator to see where you are today. You need to determine what percentage of your take home pay goes into these three categories:

  1. Fixed costs: mortgage, rent, insurance, utilities
  2. Financial goals: savings, paying off debts
  3. Flexible costs: food, travel and entertainment

A quick online search will reveal plenty of free online budget calculators that can make this task easier.

The “50-20-30” Rule. For a well-balanced budget,use the “50-20-30” rule of thumb: Spend no more than 50% of your take-home pay on fixed costs, at least 20% on financial goals, and no more than 30% on flexible costs. The lower you can get your fixed and flexible costs, the more you can put toward your financial goals.

Remove unnecessary expenses

While some fixed costs— most notably mortgage or rent—are set in stone, others aren’t. If any costs strike you as conspicuously high, it’s time to shop around. There may be better deals to be had on phone service, cable, Internet service, auto insurance and health insurance. When your life changes, so should your insurance protection. Review your auto and life insurance policies annually to see if they still meet your needs.

Take a hard look at eliminating some costs all together. For example, the rise of online news and television and movie streaming services has many people questioning whether or not they need once commonplace luxuries like cable TV. Take an equally critical look at flexible costs—calculating the amount you spend on eating out or entertainment will probably increase your urge to cook more at home. You’ll likely find there are plenty of small ways you can save that will add up in the long run.

Personal finance expert Mellody Hobson, president of Ariel Investments, offers these ways to save once you have your budget, goals and balances in alignment:

  • Ensure bank account fees haven’t increased. You may need to maintain a minimum balance, use direct deposit or conduct your transactions online to avoid penalties
  • Apply “extra” money you bring in to pay off credit card debt—or if you’re out of debt, toward an account reserved for emergencies
  • Consider putting your tax refund into your 401(k) or IRA
  • Plan your major purchases for the year to capture savings. For example, buy seasonal items such as patio furniture off-season. And buy jewelry long before or after Mother’s Day or Valentine’s Day
  • Know the details of your health plan and avoid out-of-pocket expenses if at all possible

How to Master Your Home Finances_in-article

Pay off bad debt first

Concentrate on paying off “bad debts” like credit cards or personal loans before “good debts” like student loans, mortgages, or business loans. And prioritize each group by interest rates of your debts. Tackle the debts with higher rates first, paying off more than just the minimum balance every month. Even if the debts are large; in the long run, you’ll be saving by paying off less accumulated interest. If credit card debt is your particular demon, sit down and make a realistic credit card pay-off plan.

A student loan is a classic example of “good debt”; not only was it an investment in your future, the interest rates on the loan are often lower, and the interest is often tax-deductible. Making your monthly student loan payments in full and on time can help boost your credit score.

Save up for education

A 529 savings plan is a great way to prepare for ballooning college tuition rates. While the money you put into the 529 plan is subject to income tax, any earnings made through investment aren’t subject to federal tax (and, usually, not state tax) when you take them out to pay for tuition or other educational expenses.

There are two main types of 529 plans:

  • Prepaid tuition plans –  pay for all or part of a year’s tuition ahead of time, locking in today’s rates no matter what the school costs 10 or 20 years from now.
  • Savings plans – which you to set up through a state or through educational institutions, allow you to contribute to an individual investment account much like a 401(k)

Start your research on college savings plans today.

Find a finance management app

Once you define a new budget, consider using an app or website to help you stick to spending limits that will make it work. There are many budgeting apps that will notify you if you’re nearing your monthly spending limit in a certain category, as well as remind you when bills are due and track the growth of your savings.

You Need a Budget helps users track spending and set short-term savings targets, such as putting a little away every month for a payment you know you’ll have to make in a few months.

Save on utilities

Enroll in your utility company’s budget plan. You’ll have a more predictable bill every month instead of guessing about seasonal ups and downs.

Get an energy audit. Many utility companies will assess your home for free, or at a discount, to find problem areas and suggest solutions, like installing a programmable thermostat.

Add weather stripping. Closing gaps around windows and doors can help save about 30 percent on cooling or heating costs.

Consider appliance upgrades. Energy Star-certified dishwashers, refrigerators, washing machines, dryers and air conditioners might cost more to buy, but you can save big on utility bills. Some states even offer energy-saver rebates.

Look at insurance costs

Bundle your policies to save money. If you carry insurance policies for your home and car—and even life insurance —bundle them together with Nationwide to save up to 25 percent overall.

Check for discounts. Nationwide offers a wide range of car insurance discounts. They benefit students with good grades, drivers who are accident-free, longtime policyholders and drivers who have completed a defensive driving course, just to name a few.

Look into raising your deductible. You’ll reduce your premium, but if you have an accident you’ll pay more out of pocket. Then again, the Nationwide Vanishing Deductible lowers your deductible $100 for each year of safe driving.

Be a savvy shopper

Clip coupons and join the loyalty club. You can save money just by carrying a store’s card and a handful of coupons.

Look at unit prices. Store brands are usually less expensive than name brands. But if they’re on sale, name brands might just be cheaper.

Stick to fresh produce in season. Strawberries aren’t as sweet in March, and they’re much more expensive.

Seek out discounts on entertainment & clothing

Be on the lookout for discount or free-admission days. Do you visit favorite places frequently? Becoming a member can save you money on admission in the long run. Or gather a group of 20 to 25 friends to score a group discount.

Join the club. Restaurants often have a birthday club that entitles members to coupons, free appetizers, free desserts or free kids’ meals. Other restaurant loyalty clubs may offer savings all year long.

Check clothing retailers online. Sign up to receive email notices about upcoming discounts—and be ready to shop them as early as possible. For routine discounts, visit sites like 6pm.com and Overstock.com. They offer a wide selection at deep daily discounts.

Dine on a dime

Who doesn’t like dining out? It’s social, you can try new things and, best of all, you don’t have to cook. The downside? The bill. In 2018, the average American household spent $3,459 eating at restaurants. While dining out can quickly become expensive, there are ways to save. Here are some of them:

  • Introduce yourself to sites that sell discounted gift certificates to various restaurants.• If eating out is a family affair, look for restaurants that have kids specials. Some offer free kids meals with the purchase of an adult menu item; others have kids-eat-free nights with no purchase necessary.
  • Many restaurants offer reduced drink AND food prices during happy hour. If dining before the traditional – and busiest – restaurant dinner time isn’t your taste, try ordering your meal right before the end of happy hour.
  • Free dining apps to help you save are plentiful. Find deals at restaurants, bars and cafes.
  • Dine out often? Consider signing up for restaurant rewards programs. Once you accumulate a certain number of points, you may redeem them for future meals.
  • Have a favorite dining spot? Many restaurants offer their own loyalty rewards programs. Just ask.
  • Many restaurants serve very generous portions. If you’re dining with a group, consider ordering a few different meals to share, rather than one per person.
  • From big-name chains to mom-and-pops, restaurants of all sizes are becoming more social media active. Becoming a friend or fan on their Facebook and Twitter sites can often lead you to deals.

Talk to a financial professional

Consider talking with a financial professional about your goals. Many agree that working with an experienced person to create a plan can only help you get where you want to go.

No matter what you decide to do first, make sure you decide to take action. The worst thing anyone can do while planning for the future is nothing at all. If you’re ready to start investing, contact a Nationwide financial advisor today to learn about investing options and set up a financial review.

Figuring out how to get your fixed and flexible costs under control goes hand in hand with tending and growing that 20-plus percent savings you’re putting toward financial goals. A little forethought could get you started on the path to financial security for the rest of your life.