6 Helpful Money-Saving Habits To Manage Wisely and Save In 2022

helpful habits to manage your money

Did you know that about 80% of all Americans are in debt?  Odds are you are among the 80%.  The reason behind going into debt varies from person to person.  Some have student loan debt.

Others have experienced substantial medical bills or job loss. Regardless of why you find yourself in debt now, the real question becomes, how can you get out of debt?

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We’re going to walk through six money-saving habits to help you manage your money wisely, save more, and get out of debt faster in 2022. It might seem impossible or feel overwhelming.  But you’re not alone.  You’ve come to the right place to arm yourself with knowledge and build a plan to get the results you need.

Here Is A List Of The Six Money-Saving Habits

1. Make a financial plan

The first step in the journey is making a financial plan.  What exactly is a financial plan?  Simply put, it’s a picture of where you are currently with your finances, what financial goals you have, and the specific strategies you plan to reach your goals

Your plan should address your savings, cash flow, debt, insurance, and investments, as well as any other details that impact your finances. Your financial plan should include basic money management processes like budgeting, spending, saving, and investing.

In other words, you need a plan for how you will utilize every dollar you have. How?  By creating and following a budget, setting and honoring goals for saving money, and paying off your debts.

Basic Money Management

Basic money management includes understanding and taking control of your credit and debt.  Study your credit report and be intentional about improving your credit score. 

Learn to be a diligent record keeper, tracking every dollar that you earn and spend. And slow spending for now.  Avoid large purchases, don’t put new charges on your credit cards, and don’t commit to any new monthly payments.

One way to jump-start building healthy financial habits that will get you out of debt and help you begin to save more is to establish an emergency fund.  An emergency fund is money set aside to meet any unexpected financial needs that might arise.

Build An Emergency Fund

If your garbage disposal goes out and replacing it is not in your budget, what would you do?  Instead of putting the expense of replacing it on a credit card, use cash set aside in your emergency fund to pay for it. Then, as quickly as you can, put aside a little money from each paycheck until you’ve paid your emergency fund back.  

Just as using an emergency fund helps halt the accumulation of more debt, getting into the practice of paying yourself first can quickly start the process of increasing your savings.  The strategy of paying yourself first means putting money into your savings and investment accounts before doing anything else.  

Why?  Because if you only save what you have left at the end of each month, your savings will accrue slowly and inconsistently. 

Pay Yourself First

Instead, commit to a specific, modest percentage to pay yourself, or even a flat amount like $50 or $100 each payday that will go into a savings account or retirement account before you pay bills, buy groceries, or make any discretionary purchases.  Paying yourself first is crucial in setting yourself up for financial success.

Plan For Retirement

As you build savings, have a purpose in mind.  Regardless of where you are in your working life, you should be planning for retirement.  Retirement planning means figuring out how much money you will need to save for your retirement and working on a plan to help you reach that goal.

Once you know how much money you’ll need to be able to retire without fear, ask yourself how much money each month you need to put back to get you there.  Then be faithful to deliver that amount every month as an investment in your future.  

2. Setting S.M.A.R.T. Financial Goals

Most everyone has heard of S.M.A.R.T. goals, or specific goals, measurable goals, attainable goals, relevant goals, and timely or time-bound goals.  Why is this especially important in financial planning?  Why not just plan to save more money, spend less money, and pay off debt?  

If your goal is vague, you won’t have a way to measure your success against it.  Contrast a  generic plan like to save more money with a S.M.A.R.T. goal like this one:  Save $50 per pay period and deposit it into a savings account.  

Measurable Goal Setting

The amount, $50 per pay period, is specific.  It’s measurable. You can confirm that exact amount by looking at your account activity, and it’s time-bound because you’ve been clear about when it will happen.  

Set Attainable Goals For Yourself

It’s attainable, reachable, realistic, and relevant. While it would be great to set a goal to save $500 each pay period, setting your sights too high sets you up for frustration and failure if you simply don’t have that much room in your budget right now.  S.M.A.R.T. goals help ensure you’re thinking about both your short-term and long-term financial needs.  

Short-term Financial Goals

Short-term financial goals could range in time from a month to a year.  Depending on where you are starting in this journey to improved financial health, a short-term goal might be as simple as building your budget and establishing your emergency fund.  

You might have a short-term savings goal to save for your summer vacation, put a new roof on your home, purchase a new laptop, or do your holiday shopping.  Just like the money in your emergency fund, this is also the money you save intending to spend it sooner rather than later. 

Long-term Financial Goals

Your long-term financial goals primarily revolve around your retirement and making sure you’re ready when the time comes.  You might have other long-term savings goals that involve funds you don’t plan to access for at least a few years, like saving for a new car, a substantial home renovation, or paying for your kid’s college education.

3. Set savings goals 

Having goals for your savings plan is crucial, but you might be wondering how much money you need to save and how to make it happen.  Many financial experts and planners suggest saving 20% of your income. 

That advice comes from the 50/30/20 rule that we’ll dig into soon, but for now, let’s talk about how to break down that recommended 20%.

Experts agree that you should apply about 10-15% of your income to your retirement.  That leaves a 5%-10% start and replenish your emergency fund, for short-term savings goals like the ones we mentioned previously, and long-term expenses that might be a few years away.  

What Is Pocket Money?

Is pocket money part of paying yourself first?  Pocket money, sometimes called a personal allowance, describes money you keep on hand for small expenses like getting a snack out of the vending machine at work, chipping in for a group gift, or paying for a car wash.  

Pocket money falls under discretionary expenses rather than savings because you plan to spend it, though you don’t usually know in advance precisely what you’ll spend it on.  Discretionary expenses refer to the money left over after you’ve paid your bills for essential things like housing, utilities, and insurance.  

Let’s suppose one of your savings goals is to save $10,000.00 in one year.  There are various ways you could do that, but to make that plan succeed, you need to plan out the steps that will allow you to achieve this goal.

Side Income Gigs

You might decide to find unconventional ways to generate new and unplanned income to work toward that goal, like having a yard sale or picking up a few hours of extra work each week.  You might begin clipping coupons or changing your shopping habits to save money, then apply that money to this savings goal.

But the most common way to approach this kind of goal is to break it down by day, week, pay period, or month.  If you get paid weekly, divide $10,000.00 by 52 weeks, resulting in $192.31 per week to apply to your savings goal.  You could contribute $384.62 bi-weekly or $833.33 monthly.

All of these plans work just fine if you have adequate income to pay yourself this much and still cover all of your monthly budget items.  But what if you have a small salary?  How can you save money when you bring in little?

Minimize Housing Expenses

You can start by building and sticking with a realistic budget.  Cut costs.  You can do this in a big way by reducing housing expenses.  Downsizing to a smaller home that not only costs less in mortgage payments or rent but will also reduce what you spend on monthly utilities could result in several hundred dollars of savings each month.

Smaller adjustments to your budget, like eating out less or spending less on recreation and entertainment, can free up money to apply to your savings goals.  

4. Budget your income

Building helpful habits to manage your money wisely, save more, and get out of debt faster starts with budgeting your income.  That means you make a strategic plan for how you will use every dollar of income you earn. 

Knowing how much money you’ll bring in as income and assigning specific jobs to each dollar will maximize the bang you get for your buck each month.

There are several different models and templates to help you figure out how to budget your income in a way that works well for you, but we refer to one of the most common as the 50/30/20 rule.

50/30/20 Rule

Following the 50/30/20 framework means that you use 50% of your after-tax income to pay for your essential needs like housing, transportation, utilities, insurance, food, and child care.  

That leaves 30% of your bring-home income for non-essentials like travel, entertainment, gifts, dining out, gym membership, or recreational activities like bowling or golf. 

The final 20% is for savings and debt repayment.  Following this model helps align the way you live with the money you make.  It protects you from living in a home or driving a car that you really can’t afford on your salary.

Paycheck Budgeting

As you work on building your budget, choose the way that works best for you.  A monthly budget works well for some, but others prefer paycheck budgeting.  Paycheck budgeting means you base your budget on your paycheck schedule rather than a full month.  

That means if you get paid weekly or bi-weekly, your budget revolves around payment plans that align with when you receive your income.  If your paydays fall every other week, you might assign your mortgage and utilities to be paid from your first check of the month and your car payment and insurance to come from the second.

5. Create multiple streams of income

If you’re serious about managing your money wisely, saving more, and getting out of debt, you might want to consider how and where you might increase your income.  There are different ways to earn money.  Creating multiple income streams can help you reach your financial goals by bringing in income from various sources.

Active Income

Active income is money you earn in exchange for doing work.  We are all familiar with active income, but did you know you can increase your active income to help you achieve your financial goals?   

Stocking shelves at your local grocery store, delivering food or the morning paper, working as a personal shopper, or picking up a few hours per week in a local retailer are just a few ideas for bringing in some extra active income each month.  

Pick Up Side Hustles

Increasing your active income by picking up side hustles is one way you can stop living paycheck to paycheck.  You can also pay attention to your spending compared to your income and make sure you’re living below your means.

You can do other things to stop living paycheck to paycheck, including making and sticking to a budget, so you know where all your money is going.  You can look for expenses to cut from your budget.  

For example, if you are spending money to have regular manicures and pedicures at a salon, you might consider doing them yourself at home.  Rather than stopping on the way to work every day for a fancy, high-dollar coffee, make it at home instead.  Shaving unnecessary expenses from your budget will help break the paycheck-to-paycheck cycle.

Passive Income Streams

Another way to break that cycle is to generate passive income.  Passive income is money you earn from an investment you made or work you’ve done in the past.  Investing in real estate is one example of passive income.  To earn passive income, you must first invest money.

In addition to real estate investments, you can also earn passive income from business transactions in which you aren’t an active participant, like receiving stock dividends or book royalties.

Wealthy people most always have multiple income streams.  Wealthy people have sustainable wealth, meaning their money works for them to earn more money. Wealthy people tend to save and invest most of their money.

Being Wealthy vs. Rich

What’s the difference between being wealthy and being rich?  Rich people have a lot of money, but it’s not necessarily sustainable.  As in the case of some famous athletes or celebrities, fortunes can come and go.  

High incomes result in the quick accumulation of riches, but if people are spending as quickly as they are earning, they won’t be rich forever. People spending a lot of money on fine homes, luxury cars, extravagant vacations, jewelry, and wardrobes are not building sustainable wealth.  

6. Develop a debt-management and payoff strategy

If you have debt, one of the most impactful things you can do to create a better financial future for yourself is to create a strategic plan for getting your debt paid off.  You might look into working with a credit counselor to set up a debt management plan, a simple agreement between you and your creditors to address your outstanding debt.

Debt Management Plan

In many cases, debt management plans will consolidate several credit cards or accounts into one payment at a reduced interest rate and will create a new repayment plan for you.  

Debt payment plans almost always negatively impact your credit score because you’re usually paying less than the minimum repayment amount you originally agreed to when you initially borrowed the money.  

Final Thoughts

If you are ready to develop habits that will help you manage your money wisely, save more, and get out of debt, you now have the tools you need to put your plan into place.  Start by making a financial plan that includes a budget, an emergency fund, and consistent savings contributions.

Ensure your financial goals are specific, measurable, attainable, relevant, and time-bound rather than vague.  Include goals that specifically relate to saving money regardless of how high or low your salary is.

Build a budget, stick with it, and create multiple income streams, including active and passive income.  And if you have more debt than you can manage without assistance, meet with a credit counselor and consider developing a debt management and payoff strategy.

Setting all of these steps in motion will help you manage your money wisely, save more, and get out of debt.  There’s never been a better time for that than right now.

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