Do you ever look at your bank statement and wonder what happened to your money? If so, then you are certainly not alone. Around 67% of Americans live paycheck to paycheck, regardless of their current income. While managing one’s finances may seem like an overwhelming task, especially given that many people do not have a finance degree and/or use complex spreadsheet programs, it doesn’t need to be. The truth, however, is that you need to develop a couple of good habits and be willing to make some changes in your spending behaviors.
We will be discussing real strategies to help people address the ongoing challenges of rising costs, unexpected expenses, and the struggle to keep up with bill payments.
Know Where You Are Before You Can Improve
You have to be able to measure how well you’re spending money to determine what is working and what isn’t. Take an entire month to track everything that you spend money on. Include all of your money spent (morning coffee, streaming services, late-night shopping when unable to sleep, etc).
Use whatever tool you like to keep track of this information (a notebook, a spreadsheet, or a budgeting app). It’s less important which tool you choose as long as you consistently record each transaction as soon as you complete it. At the end of the month, categorize your money. Most likely, you will be surprised by some of the items you were spending money on.
Most people find they are spending significantly more on certain items than they thought they would. These often include takeout, subscription services, and impulse buys. Once you identify the areas that you want to improve, you can start making informed choices about how to do so.
Creating a Budget Based on Your Needs and Spending Habits
You have identified how much of your money is being spent on various things. Use this information to develop a spending plan that fits your values and priorities. A great way to begin creating a spending plan is to use the 50/30/20 rule. The 50/30/20 rule states that 50% of your income should be allocated toward basic expenses (needs), 30% toward discretionary spending (wants), and 20% toward saving and paying down debt.
Needs are those things you need to spend money on, including, but not limited to, rent/mortgage, utilities, food/groceries, insurance, and the minimum amount due each month on all of your debts. Wants refer to items such as entertainment, dining out, hobbies, and other non-essential purchases. The savings component of the 50/30/20 rule consists of building an emergency fund, contributing to your employer-sponsored retirement account(s), and making additional payments on your outstanding debts.
Not everyone will fit into this 50/30/20 ratio because of varying costs of living and wages. What is most important is finding a spending ratio that works for you and allows you to set aside money for your long-term financial goals. Even if you can currently put aside only 5%, do so. As your income increases, or as your expenses decrease, you can always increase the percentage of your income you allocate toward saving.
Automate Your Financial Life
The best financial decisions are ones that you don’t have to repeat over and over again. Make transferring funds to your savings account as soon as possible (i.e., automatically) part of your routine after every single paycheck. When you transfer money out of your paycheck before you even see the money in your bank account. That way, you will not miss it.
Do the same thing with your bills. Almost all companies offer customers the option to pay bills electronically. Automatic payments prevent late charges and help protect your credit score. As long as you have sufficient money in your checking account at the time when your bill is due, there shouldn’t be any issues. Some people find it beneficial to maintain a reserve of a few hundred dollars to avoid overdraft charges.
You can also automate investing in your future. Many employers provide retirement plans that withdraw contributions from your payroll regularly. Suppose your employer does not offer a retirement plan, or you would like to contribute additional amounts to your retirement plan. In that case, you should create automatic transfers to either an IRA or a brokerage account.
When it comes to managing digital assets, you’ll find various platforms available, including non KYC crypto exchanges that let you start with minimal setup. The point is to remove friction from the saving process. The easier you make it to save, the more likely you’ll actually do it. Many crypto platforms now offer features of automated trading bots that buy and sell crypto for you based on preset conditions. This eliminates the need for constant market monitoring, allowing you to capitalize on price movements without manually executing trades. By setting it up once, you can ensure that your investment strategy is followed consistently, even when you’re not actively engaged.
Address Your Debt Strategically
Debt can be daunting. However, when you develop a strategy, you can overcome it. Develop a list of your debts, including the interest rate and the required minimum monthly payment for each.
You have two general strategies for addressing your debt:
1) The Avalanche Method
This method involves paying the highest-interest debt first (while making the minimum payments on the other obligations). This is the best way to save you money in the long run.
2) The Snow Ball Method
This method has you focus on the debt with the lowest balance first (regardless of the interest rate), then apply the payment amount to the next debt until all debts are paid off. The snowball provides you with early, small victories that can motivate you to keep going.
Choose the method that works best with your personality type. If you like seeing progress to stay committed, try the snowball method. If you want to eliminate as much of your interest expense as possible, then try the avalanche method. Either way is better than paying only the minimum on all your debts for an extended period.
Credit Card Debt
Credit card debt deserves additional attention, as the average interest rate on credit cards in 2025 is over 20%. Credit card debt grows rapidly with interest rates this high. If you have credit card debt, you should prioritize paying it off. Consider using a credit card with a 0% introductory rate for transferring your existing credit card balance. However, only consider doing so if you can discipline yourself enough to avoid adding new debt.
Make Smart Choices With Big Purchases
Major purchases require additional thought. Major purchases are large sums of money you may spend on items such as cars, travel, or appliances.
If you are looking to purchase a vehicle, consider a used automobile rather than a new one. A two or three-year-old vehicle is less expensive than a brand-new vehicle and will likely have just as many years of use left in it. In the past 5 years, the average new car cost around $40,000, while an average used car cost just above $25,000. Have the car inspected before you make the final decision to buy. If you can afford it, run the numbers for paying cash versus financing the vehicle.
A 24- to 48-hour cooling-off period before any major purchase will give you time to think it through. This serves to reduce chances of impulsive purchases driven by emotional responses and/or salesman pressure. Global statistics show that 84% of shoppers admit to making impulsive purchases. If you still want the item after a day or two, and it fits within your budget, proceed with the purchase.
Common Pitfalls to Watch Out For
Here are some mistakes that can derail your financial progress:
- Lifestyle inflation happens when your spending rises to match every pay increase, leaving you no better off than before despite earning more.
- Keeping up with friends or neighbors who might be drowning in debt themselves or earning significantly more than you.
- Ignoring small expenses that add up to hundreds or thousands of dollars each year..
- Treating credit cards like free money instead of borrowed money that must be repaid with interest.
- Skipping insurance to save money in the short term can lead to financial disaster if something goes wrong.
- Making financial decisions based on emotion rather than logic and planning.
Wrapping It Up
Four simple things will help you do better with your finances: spend less than you make, save for emergencies, pay off your debts, and invest in your future. These four basic principles won’t change, no matter how different your situation is, but the methods you may choose to implement them will.
Take it easy and start small. Take one or two of the suggestions in this article and take care of those before you move on to anything else. Once those become a habit, then consider adding something new. You can’t overhaul your finances all at once. Gradual, continuous, incremental changes lead to long-term success. The best time to get started was last week, but the second-best time is today.