Even if you've never learned how to create a budget, navigate the world of credit or save for retirement, these five steps can help put you on the right track.
1. Build financial literacy
Achieving "financial literacy Opens in new window" may sound intimidating, but don't be put off by the term. Financial literacy is simply a basic understanding of banking, saving, budgeting, credit and debt. And the more financially literate you are, the better your financial opportunities will be.
For example, a good credit score typically means you can get better mortgage and auto loan terms. Understanding credit card interest rates can save you thousands of dollars.
Ready to buff up on your financial literacy skills? Meet with a nonprofit credit counselor to set up a monthly budget, or sign up for a homeownership class offered by a nonprofit credit counseling agency. Search online for answers to personal finance questions to expand your knowledge.
2. Track your budget to learn about your spending
Knowing where your money goes each month (and making changes if needed) can make a huge difference in your financial life. You can make budgeting (relatively) fun with tools that track spending while you refine your habits. For example, free apps like Mint and NerdWallet offer customized budgets, spending and bill payment tracking, along with suggested goals.
If you prefer paper, you'll find plenty of printable budget templates online. For guidance on how to create a budget, search for websites that teach budgeting basics. Consider meeting with a nonprofit credit counselor to help you create a budget—and stick to it.
3. Focus on savings
One of the best money habits to cultivate is saving for emergencies and retirement. Ideally, an emergency fund should be large enough to cover five or six months of living expenses, but you can get started with a smaller goal, even as little as $500 or $1,000. Then allocate regular amounts from each paycheck to the savings account. Once you reach each saving milestone, set a higher goal.
If your employer sponsors a 401(k) or similar retirement plan and matches part of your contribution, save at least enough to earn the full match. That's free money that can help you build retirement savings faster. Generally, contributing to a 401(k) or individual retirement account (IRA) brings significantly higher returns than saving in a low-interest savings account.
4. Teach your child good money habits
Want to make your kids' lives easier later? Talk to them about earning, spending and saving now. The Consumer Financial Protection Bureau Opens in new window (CFPB) recommends teaching children as young as four or five years old about money ideas in an approachable way.
For example, let your kids know you're saving up for a purchase—then celebrate together when you meet that goal. When shopping together, point out to your child the difference between things you need and things you want, and how to choose wisely. Brainstorm with your kids on ways to save for a vacation or earn money during the summer. Help your child open a savings account, and teach them to allocate a portion of their weekly allowance to savings. For motivation, you might even offer to "match" the amount when they reach their first saving goal.
Bonus: Talking to your kids about money and budgeting will force you to think about your own spending and consider whether you're setting a good example.
5. Set achievable financial goals
What if you committed to spending $10 or $20 a week less on dining out by taking lunch to work (once you're back at work)? Maybe you could shave $20 from the weekly grocery bill by shopping sales. Tack on $50 or $100 toward the principal on your monthly car or mortgage payment to pay the loan off sooner. You might pay off lower credit card balances to get them out of the way so that you can focus on chipping away at your largest one—after all, a big balance in one place can be easier to manage than many small debts spread around.
For long-term goals like savings, college tuition or retirement, create a timeline and strategy for achieving them. Remember that financial security doesn't happen overnight, so every step in the right direction counts.