By Kaitlyn Ranze
Whoever said money can’t buy happiness simply didn’t know where to go shopping.
Gertrude Stein
Let’s be real. It’s a little easier to be less financially stressed when you have more money to spend. I’m not talking on a trip-to-outer-space like Bezos scale. Or even Carrie-Bradshaw-wardrobe-as-a-portfolio scale. (Fun fact, men are just as likely to be shopaholics.)I’m talking about a day-to-day, how can I get more of what I want out of life? And more importantly, how can I stress less about money?
Managing money better CAN buy you peace of mind
Whether you’re on the side of “Mo’ money, mo’ problems” or “Make the money, don’t let the money make you”, there are few things that are clear: managing money better can reduce your overall stress. Of those who track their spending, 75% found they reduced their anxiety by tracking it.
With the goal of stressing less and saving more, here are 7 basic keys to managing money.
1. Understand where you are today.
First, you need to gather the information.
Determining how much you earned.
Add up your wages along with any stipends (like an internship for example) or supplementary allotments like alimony, child support, disability, etc. If you work in cash, moving forward you’ll have to start tracking the cash flow as well.
Determine how much you spent.
You can do this quickly by looking at your bank statement totals for the entire month.
- How much did you spend in checking last month?
- How much did you charge to your credit card?
- Did you pull anything out of savings?
Looking at these should cover most of your expenses.
(Not into writing it out? Check out nav.it’s automated and customized budgeting, downloadable at the Google Play and Apple Store. )
Subtract expenses from income.
For example, if you make about $500 per week and spend $1300 in rent, groceries, utilities, and entertainment: $2000-$1300 = $700 leftover at the end of the month.
How did you do? Do you have extra, or did you spend more than you earn?
Though this is an estimate because there’s some variability, this first step will let you know if you need to tighten your belt.
Pro tip: Don’t get stuck in the weeds. You’re more likely to follow through with making (and following) a budget if you keep it simple.
Break Down Income and Expenses
We recommend using these categories to break down your income and expenses, but you can always add or remove categories depending on your income streams and personal expenses.
Income
- Wages
- Allotments
- Other income
Expenses
- Housing
- Transportation
- Food
- Insurance
- Loans
- Personal Care
- Children
- Pets
- Entertainment
- Taxes
- Gifts and Charity
If you’re using the Nav.it money tracking app, once you connect your accounts, you can make and manage your budget from Money Tab. Easy peasey. If you prefer spreadsheets, you can find templates in Excel or Google Sheets as well.
Once it’s filled out you can see trends by month, season, and year. If you’re using a spreadsheet, save your bank statements and manually type them in. Once you get the hang of it, spend 10 minutes at the end of every month updating your budget. That’s less than a sweat sesh at the gym and just as important for your health.
2. Start tracking daily
Are your daily spending decisions serving future you’s best interests? Chances are, probably not. But there’s a reason for that.
Present Bias – Present bias is the tendency to rather settle for a smaller present reward than to wait for a larger future reward, in a trade-off situation.
Anjuit Chakraborty, Present Bias
But there are ways to conquering our natural tendency to put our present wants over future goals.
Real talk: Practicing daily, digestible financial habits like checking in make us 10x more likely to achieve our financial goals.
How does this work? Let’s talk the numbers.
55% of Americans can’t say how much they’re spending on automatic charges in a month. Sure, we might remember how much our rent or car payments are, but what about other expenses like streaming services, gym memberships, digital news subscriptions, and subscription boxes?
57% of Americans with established recurring payments feel stressed just thinking about going through and organizing those payments, and we get it. Automatic payments can be a blessing but also a curse. We also have a tendency to underestimate what we actually spend on subscription-based services, by about 66% on average. No one wants to be paying 66% more than what they planned for.
So how do you manage that? Start tracking what you’re spending daily – even the things on automated payments.
But that’s not all. To truly stress less about money, start managing how you feel about what you’re spending.
Managing more than numbers.
Because how you *feel* about money impacts what you do with it.
Yeah, we know. Feelings. But once you have a better sense of the way you feel, you can identify the connection to what you saved and spent.
Swipe left or right. *Fall in Love* with your progress.
Through transaction swiping, you’ll review exactly what you’ve spent money on and how you feel about each purchase by swiping right (positive), left (negative) or up (neutral) on your transactions. Swipe every purchase and reflect, so you can compare the cost of what you pay financially 💸 with what it costs you emotionally💔.
Managing more than the money can help you mitigate financial stress.
3. Set a goal
Do you already have a goal? Congratulations! Skip to the section that says “Setting a S.M.A.R.T goal.” If you don’t have one yet, keep reading. You may need a little more direction, before creating a goal that totally stresses you out.
Find your Inspiration.
Don’t go to social for this. If you do, you’ll wind up with a shopping haul from Target and a new vacation booked. As glamorous as those things may feel, they won’t get you any closer to stressing less about money.
Go back to number one (understanding where you are today) and ask yourself the following:
- Do you have an emergency fund?
- Do you have high interest debt?
- Are you saving for retirement?
Creating an emergency fund.
A global pandemic -or any other health emergency- is exactly why it’s important to prioritize saving. This fund increases your resilience through unexpected events, like furloughs or travel disruptions. It also provides psychological support in times of stress, giving us time to figure out our next financial move without losing access to essentials like:
- Food
- Utilities (water, electric, trash, oil or gas)
- Transportation
- housing
Nikki Dunn, CFP, and founder of She Talks Finance says, “people should think less about the ‘typical’ 3-6 months amount and think more about their unique situation and risk tolerance. Some people run businesses, have inconsistent income, or just feel more comfortable with more than 3 or 6 months – and that’s okay!”
Tackling high interest debt.
Credit cards, personal loans, home equity lines of credit, mortgages? The right plan can help you manage your debts, save you money, and reduce your overall stress.
We’ve done some research into the best methods for paying down debt so you don’t have to.
Find a Payment Strategy
Pay More Than Your Minimum
Your creditor gives you a monthly minimum payment (for credit cards around 2-3 percent of your overall balance). However, these banks benefit from the interest they charge you each period. The longer it takes you to pay, the more money goes into their pocket and out of yours.
Bottom line: PAY MORE THAN THE MINIMUM.
Psst…If you haven’t already tried them, head to your Me.Inc page on the app to explore Nav.it’s Debt Repayment and APR Calculators!
What’s the best strategy for debt repayment?
The surplus of money you have from managing your income and expenses well could mean you could throw it at your debt repayments.
Debt Snowball
With this debt repayment strategy, you pay off the smallest debt, then roll that payment into your next smallest loan. With each debt that’s paid off, your repayment increases in size, like a snowball.
Debt Avalanche
The avalanche method has you pay off the debt with the HIGHEST interest first. It’s cheaper than the Snowball Method as the highest payment also likely means it’s the card with the highest interest. So if you get rid of it first, you’ll be paying down smaller amounts faster.
Automate your payments
Studies show that chronic debt impairs mental functioning and decision-making, contributing to costly mental accounts that consume cognitive bandwidth. Manage your debt and your burdens through automation.
You’ll avoid racking up additional costs in late fees and alleviate the cognitive burden of remembering to make a payment.
Debt Consolidation
Speaking of being spread too thin, did you know you can consolidate your debt payments into one account? This is helpful if you’re paying off debt from more than one account. (Been there, hate that.)
Find a zero percent balance transfer credit card
It sounds crazy to open up another credit card account when you’re working to pay off your debt, but if you find a card with a long zero percent introductory period (15-18 months) and you transfer all of your outstanding credit card debt to that one account, you’ll have one payment each month without interest. (Miracles do happen.)
Find a fixed rate personal loan
Consider a FIXED RATE debt consolidation loan to pay off your debt. Why consider another thing to pay off? Well, personal loans tend to offer lower interest rates than credit cards.
Negotiate
You can refinance your mortgage and student loans for better terms, but adjusting terms for a credit card requires a little negotiation.
Long-term investments
What qualifies long-term investing? Good question, Navigator. Good Financial Cents breaks it down pretty well by explaining: “Long-term investing means accepting a certain amount of risk in the pursuit of higher rewards. This generally means equity-type investments, like stocks and real estate.”
While short-term investing is all about quick preservation of cash (think, creating savings goals for that glorious beach vacay you’re planning), long-term investing is all about growing your wealth over time.
Sound like a solid strategy? Great. Remember this simple suggestion to get started: first, max your retirement, then dive into the market. (That includes crypto.)
Setting S.M.A.R.T Financial Goals
Well, what does “SMART” stand for?
S = Specific
M = Measurable
A = Attainable
R = Relevant
T = Time-bound
Okay, I’m going to break this down for you.
Make your goals Specific
You want your goals to be Specific because if they aren’t, it’s going to be much harder to actually accomplish them. Ask yourself about the five W’s: who, what, why, when, and where?
Example: When I got pregnant, I knew I needed to save three months of salary plus a ton of expenses by the time I was due for maternity leave.
Your goals should be Measurable.
Now what do I mean by that?
Here’s the thing: your goals need to be quantifiable. I know, I know, everyone hates doing unnecessary math! But hear me out…being able to measure your goals will allow you to know how much progress you’ve made.
Your goals should be Attainable.
Alright let’s take a step back now. Break down goals into step-by-step actionable and objectives to keep from becoming overwhelmed. Each objective moves you closer to achieving your goal. Mackenzie Stewart breaks it down really well here.
If you don’t make much money, your starting goal is $100. Yup. Just $100. That is the first milestone. There are so many ways you can save $100. You can save $25 a month over four months. It can be $50 per paycheck. It can even be $10 a month for ten months. What we want to do at this level is just get used to saving. Get comfortable putting money someplace you won’t touch it.
Mackenzie Stewart, How to Start an Emergency Fund
Your goal should be Relevant
Relevance refers focusing on a goal that makes sense with the broader goals. For example, if the goal is to buy your first home, your goal should be something that’s in alignment with the overall objectives of becoming a homeowner. That means saving for a down payment on a house, not buying a new car.
Your goal should be time-bound.
Your goals need to be Time-bound, so you have something to focus on.
Pro-tip: Set multiple deadlines. Research by Dan Ariely and Klaus Wertenbroch showed that a better way to create less stressful and more realistic deadlines is to break large projects into smaller tasks, setting deadlines for each task instead of just one final deadline. The same goals for your financial goals.
Like Mackenzie mentioned above, saving is tough, but when you break it into smaller, more realistic goals, they’re more achievable. “Take a minute and think about the next amount you want to aim for. It can be $200, it could be $500. Shoot for increments of at least $100. That amount is small enough that you can fit it into a budget but big enough that it takes some work.
4. Create a plan
It’s easy to feel overwhelmed by how much you’re spending and on what. Give your money a plan by creating a Budget.
Yeah, I hear you already. Budgeting hasn’t worked for you in the past.
Let’s return to step one. Where are you at today?
Scenario One: You spend more than you earn.
Now that you know what you have, time to change some behaviors to make sure you’re not accruing more debt. You can earn more, spend less, or do a little of both.
Earn more: take on a second job or start a side-hustle from a hobby. You could tutor, become a virtual assistant, or start an online store. Your options are limited only by creativity.
Spend less: Make a list of essential expenses. Housing, transportation, food, and kids all need a chunk of your paycheck. If you’re trying to reduce spending, identify the non-essential items you’re willing to stop funding first. This might be cutting the cable cord, or reducing the frequency that you dine out.
Once you have a goal you can determine where you can save in order to meet that goal. It doesn’t mean you have to live in austerity, but it does mean you need to be mindful of each expense and budget for it.
If your budget can’t accommodate going out to lunch daily with your coworkers, bring your lunch. It’s your money, and it’s your budget. Once you know where it’s going you can choose to cut back, earn more, or allocate differently.
While you’re reducing spending, you can also save some dollars on the essentials. Often groceries are a huge chunk of change, and choosing the store brand can reduce that weekly bill.
Scenario Two: You break even or have a little extra.
You have a good idea how much you earn and don’t go over. That doesn’t mean you can’t do a little better with what you have. That’s why you’re going to categorize your spending.
Mental accounting is the tendency we sometimes have to treat money differently depending on where it came from or what we intend to do with it.
Why budgeting, categorizing spending, and making a plan for your money works
When things are tight, budgeting is how you claw your way out and get back on solid ground. And when you have money, budgeting is how you keep your money.
Don’t believe me? Listen to the pro – Richard Thaler, Nobel Prize winner, and economic genius:
Budgeting simplifies “the often overwhelming process of financial planning by limiting the complexity of choices that households face. [It helps] clarify spending rules and financial goals while also increasing the pain of paying, thus helping people to stay on track.”
Mental Accounting and Consumer Choice
Boom. Science. With Nav.it’s budgeting, you break down and categorize your spending to fit your needs. You’ll quickly set up a personalized budget and track your spending habits. You’ll see when you’re nearing your limits and stay on track to reach your goals.
5. Establish a routine with the right tools for you
We touched on this in number two (Start Tracking Daily) but there are a number of ways that a routine can help you stress less and manage money better.
That’s why it’s important to equip yourself with the tools to better money habits.
How long does it take to form a good habit?
Even smart people have a hard time building habits. Keep in mind that it can take up to months to actually form a habit.
Well, to be more specific, the duration of habit formation depends on a number of factors. It depends on what kind of habit you’re trying to form. And it also depends on your individual tendencies and characteristics.
The truth is: some people can build habits quicker than others.
And, that’s okay! Take your time! You’re trying to improve your lifestyle–so, focus on that bigger picture rather than getting caught up with trying to make quick, easy changes.
Myth: it takes 21 days to form a habit
How can a money tracking app like Nav.it help me form better money habits?
Lucky for you, you don’t have to do this all on your own! You have Nav.it here to help and support you through your habit formation journey!
In fact, Nav.it makes it so easy to form and track your habits that you won’t have to go through a bunch of mental gymnastics to develop healthier financial practices.
Make Saving Part of Your Routine
Have money transferred to your savings account every time you get paid. It doesn’t matter if it is $5 or $750—simply making this routine will ensure you are saving more.
Automation
Evidence from multiple studies suggests you will actually save greater amounts over the long term by automating it. Automation is autopilot for saving, reducing the risk posed by willpower fatigue.
Willpower fatigue – there is a finite store of mental energy for exerting self-control. When people fended off the temptation to scarf down M&M’s or freshly baked chocolate-chip cookies, they were then less able to resist other temptations.
The New York Times
Want to level up your savings game? Automate it.
Pro Tip: Create an Auto-Save inside the Nav.it money tracking app. Your savings is available for withdrawal at any time and you can save for as many goals as you want!
When we pay attention to our habits and behavioral trends, we’re 10x more likely to save.
6. Never stop learning
As humans, we fear the unknown. It is instinctual and is a survival tool that keeps us from mistakenly putting ourselves in harm. When it comes to your money, however, you literally cannot afford to be ignorant. In order to dispel that fear, you simply have to learn how our economy and money in general work.
Kenneth Medford III “Scared Money Don’t Make Money“
Once you get the basics down, there’s an infinite number of ways you can manage money. The important part is to never stop learning so you can maximize your opportunities.
Let’s talk a little bit about your Credit
First, let’s establish what credit is and what good credit looks like.
Personal credit is your ability to borrow money or access goods and services with the understanding that you’ll pay for those things later. Good credit means you’ve demonstrated a consistent history of paying what you owe, when you owe it. It tells the lender what kind of asset you are. Are you a good bet, or a risky one? Your credit score is basically a ranking on that risk scale. If you have a great credit score, it’s more likely the lender will give you credit approval. Beyond access to credit, this can also result in higher limits and better interest rates.
Good credit is generally considered to be a score of 670 or higher and borrowers who achieve this score are more likely to receive credit approval. Anything below 670 will classify the borrowers as having “fair” or “poor” credit. Young people often fall into this category because they have no credit history. Without history the risk is unknown, and lenders aren’t optimistic by default.
7. Surround yourself with supportive people
Jenn Uhen, Founder of The Pledgettes a community for women to talk about money, created the organization because in her words:
The key to enjoying your personal financial journey was to not do it alone!
She explains, “I was talking to a number of women and saw a common theme. Those that were putting their finances off until ‘someday’ felt they had to do it alone. The women that were confident about their goals and financial plans were talking about money with their Financial A-Teams. They had teams of people around them. “
Surround yourself with supportive people who get managing money is important.
That’s why nav.it has built-in Community.
Scroll the Community feed to find answers, compare strategies, and get inspired. There are plenty of fellow navigators out there on their own financial journeys. By learning from each other, we develop and improve our own healthy money habits.
That’s where community comes in.
Community allows you to:
- Discover new ways to manage your spending
- Compare your financial routine with others
- Learn through financial literacy quizzes
- Find out how others are feeling about their finances
Still feeling stressed? Chat with a Money Coach.
Most people don’t have access to a financial advisor. And if they do, those financial advisors may not take into account the human side of managing money – like how spending, saving, and stressing about it actually makes us feel. Cue the Nav.it money coaches.
They’ll help you navigate financial obstacles big and small, answer questions, and point you to resources to help you manage money better.
Bonus tip: Manage your relationship with money
To put it simply, your relationship with money is the way that you think and feel about money. This includes your beliefs, attitudes, and behaviors around money.
Your relationship with money can be positive or negative, healthy or unhealthy. It can be helpful to think of your relationship with money like any other relationship in your life. Just like any other relationship, your relationship with money requires care and attention to thrive.
Related Reads:
How Willpower Fatigue Impacts Financial Decisions
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