There are many components of personal finance, and the specific areas of financial planning that matter to you depend on your unique circumstances. Whether you want to focus on five, seven, or ten elements of a financial plan for 2024, taking a look at your entire financial picture can give you the knowledge and resources you need to tackle your priorities. Read on for a comprehensive financial planning checklist to organize and streamline your approach to a prosperous 2024.

Elements of your financial planning checklist:

1. A financial check-up
2. Emergency fund
3. Debt
4. Insurance
5. Investments
6. Credit score
7. Tax preparation
8. Retirement plans
9. Family and estate planning
10. Financial goals
11. Your 2024 budget

1. Take stock of your personal finances

Start the new year off on the right foot with a thorough assessment of your current financial status. Think of it as a financial health check-up to get a clear picture of where you stand. Review the components of your financial planning, including your income, expenses, assets, and liabilities to understand your financial strengths and potential areas for improvement. This baseline assessment will help you set realistic and achievable financial goals for the year ahead.

Last year’s expenses

How did you spend your money over the last year? Examine your bank statements and credit card bills, group your expenses into categories, and note areas where you spent more than planned. Identify any unexpected costs and consider how you could plan for similar situations in the future. This detailed assessment will provide you with clarity about how much money you actually need to sustain your lifestyle and help you make more informed spending decisions in 2024.

Last year’s budget

Evaluate the effectiveness of last year’s budget. Did you regularly overspend in certain categories? Were there areas where you consistently spent less than planned? Understanding these patterns will help you adjust your budget for the new year and align it with your actual spending habits and financial goals. And if you didn’t use a budget last year, don’t worry: completing this financial planning checklist will set you up to make one for 2024. 

Current assets and liabilities

List all your assets, including cash in bank accounts, investments, retirement savings, and any real estate equity. Then, detail your liabilities, such as credit card debt, a mortgage, student loans, and any other debt like auto or personal loans. Calculate your net worth by subtracting liabilities from assets to get a snapshot of your overall financial health.

Anticipated income

Estimate your expected income for the coming year. Start with your earnings from the previous year and adjust for any known changes, such as salary changes, bonuses, or changes in tax bracket. If you’re planning to pick up a side hustle, try to project how much it will bring in, being sure to account for additional taxes you’ll have to pay. This projection will be the foundation for your budgeting and financial plan for 2024.

Financial plan

Revisit your existing financial plan, if you have one, to see if it still reflects your current financial situation, lifestyle, and aspirations. Make adjustments as needed, considering both the coming year and your long-term financial goals. If you don’t have a financial plan, you’ll have everything you need to create one using the insights you develop as you move through your financial checklist. 

2. Check in on your emergency fund

An emergency fund is a dedicated savings account to cover unexpected expenses or financial emergencies, such as sudden medical bills or job loss. Regularly evaluating your emergency fund is important for ensuring you’ve saved enough to provide financial security in times of need and sustain you through unforeseen events without going into debt. 

Target savings

Make sure the target goal you’ve set for your emergency fund target still makes sense for your lifestyle. Have your income or expenses changed over the last year? If so, adjust your savings goal to reflect your current circumstances. While the whole point of an emergency fund is to cover unexpected costs, you can anticipate potential sources of emergencies and tuck money away from them. For instance, did you adopt a new pet, have a child, purchase a house, or buy a used car? Those are all potential sources of large expenses you can’t predict, so you might want to pad your emergency savings goal accordingly.

Current balance

How much money is in your emergency fund now? Is it enough to cover at least six months of living expenses if you were to lose your income? Did you spend money out of your emergency savings in 2023? Determine how much you’ll need to put aside each month in 2024 to build your fund up to your target goal. 

Account type

Where you store your savings can make a big impact on its growth. Take a look at the type of account where your emergency fund is kept. Is it in a regular savings account, a high-yield savings account, or a money market account? Review the interest rate you’re earning and explore options for better returns in 2024 so your emergency fund continues to grow effectively.

3. Assess your debt situation

Effectively managing your debt is a key step in your financial checklist. Paying off debt as soon as possible, and specifically prioritizing your high-interest debt first, can significantly reduce the total interest paid over time and free up financial resources for other goals. Focusing on debts with the highest interest rates not only lessens your overall financial burden but can also positively impact your credit score and overall financial wellness.

Credit card debt

List all your credit card balances, along with the interest rates and minimum monthly payments for each. This will help you understand the total debt and prioritize which balances to pay off first. If you have multiple cards with high-interest rates, you might research options for consolidating it all onto a card with a lower interest rate. However, be aware that there’s usually a fee to transfer balances, and you might not qualify for the lowest rates if your credit score isn’t excellent. And even if you can get a very low-interest rate, there are pitfalls: those introductory offers usually expire after a certain amount of time, and if you’re late on even one payment, you’ll likely lose the great rate.  

Auto and personal loans

Detail your auto and personal loans, including their interest rates and terms, and calculate the total interest you’ll pay over the life of these loans. Consider whether you could afford to pay more than the minimum each month to reduce your overall interest expense and help you become debt-free sooner. 

Student loan debt

Document all your student loans, noting their interest rates and repayment timelines. Look into any potential student loan relief programs or refinancing options that could help you pay them off faster. If your loans have been in forbearance or deferment during 2023, make sure you know when those relief plans end and your payments will resume.  

Mortgage

If you have a mortgage, review your current loan balance, equity, and interest rate. You might want to shop around for current refinancing interest rates to see if you could get a lower rate than what you’re paying now, but be aware that refinancing comes with costs that can add to your debt. You could also consider if there’s room in your budget to make extra principal payments in 2024. One simple way to do so is to pay your mortgage biweekly instead of monthly. With this approach, you pay half your mortgage payment every two weeks; because there are 52 weeks in a year, you wind up making the equivalent of one extra full monthly payment per year. 

Other debt

List out all your other debts, such as buy-now, pay-later plans or things you’re paying for in installments, like if the cost of your most recent cell phone is wrapped into your monthly bill. If you owe money to friends or family, make a note of it too. These debts, while they might be smaller, can add up and should be part of your overall debt management plan.

Debt payoff plans

Create a strategy for paying off high-interest debt. Consider methods like the debt avalanche or snowball approach. Focus on balances with high or variable interest rates first, like credit cards and personal loans. While it may be enticing to tackle larger debts like student loans and mortgages, they usually have lower rates than things like credit cards. Plus, remember that your mortgage interest can be a tax deduction. Paying off high-interest debts first can be more effective in reducing how much money you spend on interest overall. 

4. Inspect your insurance

Yes, insurance belongs on your financial planning checklist. Take time to examine your various insurance policies to see if they still align with your current and anticipated future needs. This ensures that you’re adequately protected while also identifying areas where you might be able to optimize coverage or reduce costs. 

Flexible spending account (FSA)

A flexible spending account (FSA) is a tax-advantaged account offered by some employers, which you can use to pay for specific healthcare expenses. It’s funded with pre-tax money, thereby reducing your taxable income. Typically, you have to use the funds in your FSA within the plan year, often by December 31, but some employers offer a grace period extending this deadline. If you have the option to contribute to an FSA through your employer, plan your 2024 contributions based on anticipated medical expenses so you can make sure to use this benefit effectively.

Health savings account (HSA)

A health savings account (HSA) is another tax-advantaged account offered by employers designed to help you save on medical expenses. Unlike an FSA, funds in an HSA roll over from year to year, so there’s no pressure to spend the balance within a specific timeframe. If you have any outstanding medical expenses from 2023, now is the time to submit them to your HSA for reimbursement. Looking ahead, consider your expected healthcare costs for 2024 to determine how much to contribute to your HSA and maximize its benefits.

Health insurance deductible

Be aware that health insurance deductibles typically reset at the beginning of the year. Know your deductible amount and budget for medical expenses you’ll need to cover until the deductible is met. Now’s also a good time to look over your health insurance plan so you know which costs are and aren’t subject to the deductible; for example, many plans don’t count preventative care or visits to your primary provider toward the deductible, so you just have to cover the copay.  

Disability and life insurance

Take a moment to review your disability and life insurance policies. Be sure you know the coverage details, who your beneficiary is, and the cost of premiums and deductibles. You might want to adjust your coverage based on how your life has changed since you took out the policy, such as the addition of a new family member or a change in income. Even if you’re not directly paying for a plan, your employer might provide one as part of your benefits package, and you’ll want to be aware of what it entails. 

Homeowners/renters insurance

Evaluate your homeowners or renters insurance coverage and verify that it’s sufficient to cover your current living situation and possessions. If you’ve made home improvements or purchased expensive items in the last year, you might need more coverage; conversely, if you’ve downsized you may want a less expensive plan. As 2024 approaches, it might be time to shop around for better rates or inquire about loyalty discounts and bundling options with your current provider.

Car insurance

Similarly, review your car insurance coverage and compare it to your current needs. For instance, if you were carrying full coverage because you’d financed your car and have now paid it off, you have the freedom to consider a lower tier of coverage if you want to save money. Look for opportunities to reduce rates or secure discounts; many insurance companies offer multi-policy discounts if you also buy your homeowners, renters, and/or life insurance policies from them.

5. Review your investment portfolio

Regularly examining your investment portfolio is an essential part of your annual financial planning checklist. This allows you to monitor the performance of your investments, ensuring they align with your financial goals and risk tolerance. Periodic check-ins also provide an opportunity to adjust your strategy in response to market changes or personal life events, so you can maintain a balanced investment strategy that supports your long-term financial plan.

Investment performance

Evaluate the performance of your various investments over the past year, comparing them against historical trends to identify any assets that are either underperforming or exceeding expectations. Remember to take the long view on your investment strategy. Avoid making hasty decisions based on short-term market dips; instead, consider the benefits of a buy-and-hold approach, which often yields better results over time. 

Asset allocation

Asset allocation refers to the way your investments are distributed across different asset classes, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Assess whether your portfolio’s allocation aligns with your goals, risk tolerance, and investment timeline. Different risk profiles require different balances of stocks, bonds, and other assets. For instance, a more aggressive profile might have a higher proportion of stocks for potential growth, while a conservative profile might lean more toward bonds for stability. As you get closer to retirement, it’s common to shift toward a more conservative approach. Regularly reviewing and adjusting your asset allocation helps keep your investment strategy on track with your evolving financial plan.

Rebalancing

If your portfolio’s asset allocation has shifted away from your target, it may be time to rebalance. This process involves moving funds among different investments to maintain the right mix for your strategy across various asset types, sectors, and industries. Rebalancing your portfolio can also help make sure your portfolio remains diversified to reduce risk.  

6. Check your credit score

Your credit score is vital to your financial health because it influences the interest rates you receive on mortgages, car loans, and credit cards. Even if taking out loans or lines of credit isn’t in your 2024 financial plan, checking your score still belongs on your financial checklist; your credit score can affect your insurance rates, ability to rent an apartment, and how much of a deposit is required when you sign up for utilities. In some cases, it may even be considered by employers when you apply for a job. Regularly checking your credit reports is essential to ensure accuracy and to safeguard against identity theft or errors. 

Credit reports

The three major credit reporting agencies (Equifax, Experian, and TransUnion) each provide a free credit report annually; all you have to do is request it. A credit report details your credit history, while your credit score is a numerical representation of your creditworthiness based on that history. Note that your credit reports won’t necessarily tell you your credit score, but your bank or credit card issuer might provide that information free of charge.

Credit report accuracy 

Your reports will show activity like the loans and credit cards you have, the times when creditors have checked your credit, any late payments or accounts that have been sent to collections, and legal activity like whether you’ve been sued, arrested, or filed for bankruptcy. Make sure everything on your report from each agency is accurate. If you see activity that’s incorrect, it may be a sign of fraud or identity theft, and you’ll want to contact the credit reporting agency right away to get errors rectified so they don’t undermine your credit score.

Credit score improvement plans

Credit scores are categorized as follows: poor (300-579), fair (580-669), good (670-739), very good (740-799), and excellent (800-850). If your score falls into one of the three lower tiers, you might want to put raising your credit score on your 2024 financial plan. There are a number of steps you can take, like being sure to pay all bills on time, reducing debt levels, avoiding new credit inquiries, and correcting any inaccuracies on your credit reports. By setting up payment reminders, budgeting to pay down existing debts, and regularly reviewing your credit reports for errors, you can gradually improve your credit score, which may lead to better loan terms and interest rates in the future.

7. Get ready for tax time

April will be here before you know it; prepping for tax season early reduces the stress of a last-minute rush and ensures a smooth filing process. Get started now by making a list of all the income documents you expect to receive. Look over your 2023 spending to identify any potential deductions or credits. If you anticipate owing taxes, early preparation gives you time to budget for the payment. Being proactive with your tax planning can also help identify opportunities for tax savings and ensure compliance with tax laws.

Charitable contributions

Reflect on any charitable donations you made in 2023, as these can potentially be deducted from your taxes if you choose to itemize deductions. It’s important to note that for these contributions to be eligible for tax deductions, they must be made to qualified 501(c)(3) organizations. You may need documentation for each donation when filing your taxes and claiming the deductions, so track down your receipts. 

Student loan interest

If you’ve been paying interest on student loans, you might be eligible to deduct this expense on your taxes. To take advantage of this deduction, gather all relevant documentation, such as statements or 1098-E forms from your loan servicer, which detail the amount of interest paid over the year. Unlike many other tax deductions, you don’t have to itemize deductions to claim this deduction. 

Mortgage interest

The interest you pay as part of your mortgage payments may also be tax deductible if you itemize deductions. Your mortgage servicer should furnish you with a 1098 form detailing how much you spent on interest last year. This deduction can reduce your taxable income, potentially leading to significant tax savings.

W2s and 1099s

W2s and 1099s are both tax forms, but they have a few key differences. W2 forms are issued by employers, and detail wages and taxes withheld for employees. 1099 forms, on the other hand, are given to independent contractors or freelancers and report income without tax withholdings. These forms, which you should receive by the end of January, are essential for determining your total income and taxes paid in 2023. If you have both employment and contract income, you’ll want to combine the information from W2s and 1099s to accurately assess your total tax liability. Remember, since taxes aren’t typically withheld from 1099 income, you may need to account for additional taxes owed.

Interest and capital gains earnings

Money you earn from investments is taxable, though different rates may apply for interest, dividends, and capital gains. You should expect to receive forms such as 1099-INT for interest earned from accounts like savings or CDs, and 1099-DIV or 1099-B for capital gains from investments. These forms, typically sent by banks and brokerage firms, detail the amount of taxable interest and capital gains earned in the year. Inspect these documents closely, possibly with your financial advisor, to accurately estimate your tax liability.

8. Revisit your retirement plans

A lot can change in a year, so be sure to reassess whether your retirement plan still aligns with any life changes you’ve experienced or anticipate, such as starting a family, shifts in income, or adjustments in your target retirement age. These changes can significantly impact how much you need to save and the strategies you use to reach your retirement goals.

Retirement accounts

Reviewing your retirement accounts is a core component of your financial planning checklist. Be sure to check on all of your accounts if you have more than one, including 401(k)s, 403(b)s, and individual retirement accounts (IRAs), across different employers or financial institutions. This will give you a clear understanding of where your money is invested and how each account is performing. You might also consider rolling over old 401(k)s or 403(b)s into an IRA, which can simplify your retirement savings and potentially offer more investment choices. 

Employer plans

Now is the ideal time to take a look at your employer-sponsored retirement plans, such as 401(k)s or 403(b)s, to ensure you’re maximizing their benefits. If possible aim to contribute at least enough to receive the full company match, as this is essentially free money that enhances your retirement savings. When deciding how much to contribute, be aware of the contribution limits for 2024, as the caps usually change annually. Contributing as much as you can within these limits not only boosts your retirement fund but also offers tax advantages. If your financial situation allows, consider increasing your contributions in 2024 to further build your retirement savings.

Additional IRA contributions

If you have a traditional or Roth IRA and have not met the contribution limit yet, you can make contributions for the 2023 tax year until April 15, 2024. For the 2023 tax year, the IRA contribution limits are $6,500 for those under the age of 50 and $7,500 for those above. For 2024 contributions, the IRS increased these limits to $7,000 for those under the age of 50 and $8,000 for those above. Unlike traditional IRAs, Roth IRAs have reduced contribution limits based on filing status and income, so do your research to be sure you don’t exceed them. Maxing out your traditional IRA contributions can not only enhance your retirement savings, but may also provide tax benefits if you can deduct your contributions from your taxable income. 

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Target timeline and goal

Completing your financial planning checklist involves reflecting on more than just money; how you want to live your life long-term is part and parcel of the process. Reflect on when you’re hoping to retire, whether that’s in the far-flung future or around the corner, and how much money you’ll need to make it happen. Take a look at your current retirement savings and planned contributions, then calculate if you’ll have enough to retire at your target age. You might also want to estimate how much social security income you’ll receive. This is where financial planning and life planning come together. Are you on track to have the funds to retire at your desired age? If not, you’ll need to either increase your retirement savings or extend the time you’ll remain in the workforce. Doing this exercise annually is an important part of maintaining a realistic financial plan, as your target retirement timeline and savings goals can change due to shifts in your career, family circumstances, and many other factors. 

9. Consider family and estate planning

Changes in your family and estate throughout the year can affect your financial needs and goals. Whether it’s the arrival of new family members, a marriage or divorce, or adjustments in your long-term plans, each of these factors can influence your financial strategy. Annual reviews help to align your financial planning with your current life situation and future aspirations.

Family size and dependents

Consider any changes in your family’s size and your dependents. Your family may be growing, whether you’re welcoming a new child, planning for one, or anticipating the need to support relatives. Or perhaps your household has gotten smaller due to a change in marital status or children moving out. These changes can significantly impact your personal finances and tax filing status, so they necessitate shifts in both your day-to-day budget and long-term financial goals. 

Education costs for children

Now is an opportune moment to think about whether you want to start saving for your children’s future education costs, whether you already have kids or are planning to have them, or if you want to support young relatives with their college costs. Even with the help of financial aid, tuition costs can be a big burden. Investment vehicles like 529 plans or Coverdell Education Savings Accounts offer tax advantages and are specifically designed for education savings. These accounts allow your contributions to grow tax-free, provided the funds are used for qualified educational expenses. Starting early on these savings can greatly ease the financial burden of higher education in the future.

Insurance beneficiaries

This is a heavy but important part of personal finance planning: do you know who will receive insurance benefits in the case of your death? If you haven’t checked your policy in a while, or if you haven’t paid attention to the policy offered by your employer, now’s the time to check. Be sure to review your life insurance as well as any other policies that come with survivor benefits, such as annuities or pensions. Keeping this information up to date ensures that your insurance benefits will be directed according to your current wishes and provides peace of mind that your loved ones will be taken care of.

Your estate

Estate planning may sound like a grandiose endeavor for wealthy people, but it’s actually a valuable part of anyone’s financial planning checklist. Regardless of your age or net worth, making a plan for your estate ensures that your loved ones are informed and prepared to handle your assets in the event of your passing. This involves documenting all pertinent information about your assets, including bank and investment accounts, insurance policies, real estate holdings, as well as any debts like a mortgage, loans, and credit cards. It may be helpful to work with a financial planner to organize this information and store it in a single, accessible location. This can significantly ease the process for your family or executors. Additionally, consider legal instruments like an advance medical directive or a durable power of attorney. Bonus: having this information in one place also comes in handy when you update your financial plan in the future.  

10. Set financial goals

The whole point of your financial planning checklist is to help you attain the things you really want in life. As you look ahead to next year and beyond, define your financial goals and strategize how to save for them. Revisit goals you’ve set in the past and make adjustments as needed. A career shift, a change in family dynamics, or evolving personal ambitions can all influence your financial priorities, so update or set new goals that reflect what matters most to you now. This is your chance to dream big and make a plan to turn those aspirations into reality. 

Short-term financial goals

Short-term financial goals are objectives you aim to reach within a relatively brief period, typically about a year. You might want to save up for a vacation, a major purchase like a new appliance, or a big event like a wedding. Consider setting up a sinking fund in a dedicated savings account to stash money so you don’t accidentally spend it. In addition to tangible savings targets, consider setting short-term goals for financial health habits too, like sticking to a budget, reducing impulse spending, or implementing money-saving tips.  

Mid-term financial goals

Mid-term financial goals typically take up to five years to achieve. These might include saving for a down payment on a home, funding a big home renovation, or accumulating capital to start a small business. For these types of goals, you might want to put your savings to work earning returns with low-risk investments. For example, you might put some money into an FDIC-insured high-yield savings account or certificate of deposit, and invest some of your funds in Treasury bills or notes.

Long-term financial goals

Long-term financial goals are those you aim to achieve more than five years into the future. These often include saving for retirement, funding your children’s college education, or paying off a mortgage. Achieving these goals usually requires a combination of disciplined saving and strategic investing. For instance, contributing regularly to a retirement account and investing in a diversified portfolio can help build wealth over time and outpace inflation. Consider working with a financial advisor to help you clarify and align your current strategy with your future goals; the more specific you can make your goals, the easier it can be to stick to your saving and investing strategy over the long haul.  

11. Prepare your 2024 budget

With the comprehensive components of your personal finances you’ve gathered in the previous steps of your financial checklist, you’re well-equipped to lay out a detailed budget for 2024. Whether you’re new to budgeting or have it down pat, you might want to explore different budgeting methods, like the 50/30/20 rule, envelope budgeting, or a zero-based budget. Whichever approach you take, you’ll need to determine your take-home income, plan out your expenses, and incorporate your saving and investing plans.  

Income

Start by getting a handle on how much money you’ll have to live on each month. This includes not only your regular salary or wages after taxes and other deductions, but also any additional sources of income you might have. These could be earnings from part-time work or freelance projects, rental income, spousal or child support, benefits from government programs, or dividend payments from stocks. If you anticipate any windfalls, like a tax return, bonus, or large financial gift, incorporate this into your budget too; you might want to use it to fund a financial goal or knock out some debt. 

Expenses

Next, categorize your expected expenses based on your spending patterns from 2023 and any anticipated changes for the upcoming year. Break your expenses into fixed, variable, and infrequent categories. Fixed expenses include regular payments such as rent or mortgage, utilities, insurance premiums, and loan repayments. Variable expenses, which can fluctuate, might consist of groceries, entertainment, dining out, and gas. Don’t forget to account for infrequent expenses, like annual subscriptions, car maintenance, or holiday spending, which can upend your budget if not planned for. 

Savings and investing

Integrating regular saving and investing into your monthly budget is key to achieving the financial goals you’ve identified. You might start by determining a specific percentage or amount of your monthly income to allocate towards savings and investments. This could be guided by goals such as building an emergency fund, saving for a down payment, or contributing to a retirement account. For savings, consider setting up automatic transfers to a dedicated savings account right after you receive your paycheck. For investing, consider making regular contributions to a diversified investment portfolio or retirement accounts; you may be able to automate those contributions too. 

Ongoing tracking

The best budget is one you can stick to. That calls for flexibility to accommodate life’s inevitable curveballs and ongoing tracking to adjust as needed. Set yourself up with the tools you need to stay on top of your budget, whether that’s a budgeting app to track your spending, automated budgeting tools in your online bank account, or just a good old-fashioned spreadsheet. And put a recurring appointment on your calendar to balance your budget every week or two. Your financial checklist is about setting yourself up for big-picture success, but ongoing attention to your personal finances is what will keep you on track with your plans. 

Your financial planning checklist: an empowering start to the new year

It can feel refreshing, and even exciting, to kick off the new year with a solid plan for your personal finances. From managing debt and spending to optimizing your saving and investment strategies, each step is an opportunity to enhance your financial well-being and enjoy the feeling of confidence that comes with managing your money. Completing your financial checklist empowers you with the insights you need to navigate both the coming year and your long-term financial journey. And if investing is part of your 2024 financial plan, Stash makes it easy to get started, helping you achieve your financial goals and paving the path to a better future.

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The post The 2024 Financial Checklist: A Guide to a Confident New Year appeared first on Stash Learn.

Celebrating Financial Wellness Month can be an empowering and enjoyable journey toward greater financial stability. So pick a few items from the list below and kick off your new year with a party where the guest of honor is your financial freedom. 

9 ways to celebrate Financial Wellness Month:

1. Take stock of your emergency fund
2. Check your credit report
3. Review your retirement plans
4. Tackle your credit card debt
5. Evaluate your student loan options
6. Set saving and investing goals 
7. Review and rebalance your investment portfolio
8. Build your 2024 budget
9. Increase your financial literacy

1. Take stock of your emergency fund

Your emergency fund acts as your lifeline when unexpected events inevitably happen, so its health is critical to your financial wellness. Give it a check-up with these steps:

• Assess your current balance: Your fund should have enough for at least six months of living expenses in case you lose your income or have a major unexpected expense. 
• Adjust goals: Tweak your target savings goal to reflect your current needs if your lifestyle or expenses have evolved in the last year. 
• Replenish savings: If you spent money from your emergency fund last year, plan to build it back up in the coming months.
• Seek better rates: Keeping your money in a high-yield savings account or money market account helps your emergency savings grow faster with interest; shop around to see if you could get a better rate at a different bank or credit union. 

2. Check on your credit 

Your credit influences multiple aspects of your life, including loan rates, rental opportunities, insurance premiums, and even employment. So what better time to look into your credit report and score than Financial Wellness Month? 

Your credit report is a detailed record of your credit history, while your credit score is a numerical reflection of your creditworthiness. Monitoring both can help you keep track of your financial standing, recognize signs of identity theft, and find opportunities to improve your credit. You’re entitled to one free credit report per year from each of the three reporting agencies, and you can usually get your credit score from your bank or credit card issuer. 

3. Review your retirement plans

You’re likely hoping to enjoy your retirement party some point in the future. Make sure you’ll have the money you need by throwing yourself a retirement planning party for Financial Wellness Month. Include these activities in your financial festivities:

• Account overview: Start by examining all your retirement accounts, including 401(k)s, 403(b)s, and IRAs. Be sure you know about all the accounts you have, what institution manages them, and the balances in each. You might also want to estimate your future social security benefits, which play a crucial role in budgeting during retirement.
• Retirement calculator: Whether retirement is four years away or forty, you need to know how much money you’ll need when the time comes. Use a retirement calculator to find out how much you need to be investing every month in order to leave the workforce with enough to live on. 
• Up your retirement contributions: If your employer matches a portion of your 401(k) contributions, don’t leave that money on the table. Bump up your contributions to at least the full amount that your company matches. And if you have an IRA, you have until April 15, 2024 to make contributions for the 2023 tax year; consider adding to your account if you haven’t yet met the contribution limits. 

4. Tackle your credit card debt

The sooner you get out of debt, the sooner you can start earning interest instead of paying it. High-interest debt can quickly mount to daunting proportions, adding stress and pinching your budget. So it’s particularly important to pay this type of balance off as soon as possible. 

For Financial Wellness Month, take yourself on a metaphorical trip to the mountains by choosing one of these popular debt-payoff strategies:

• The avalanche method: This approach involves paying off the debt with the highest interest rate first while making minimum payments on other debts. Once the highest interest debt is paid off, you move on to the next highest, and so on. This can reduce the total amount of interest you pay over the long haul.
• The snowball method: Instead of prioritizing by interest rate, the snowball method focuses on paying off the smallest balance first while making minimum payments on the rest. After the smallest debt is cleared, you move on to the next smallest. This approach provides a sense of accomplishment with each debt you eliminate, giving you motivation to stick with your debt-payoff plans.

5. Evaluate your student loan options

If student loan debt is weighing you down, making a bigger dent in it can increase your sense of financial freedom. This Financial Wellness Month, take a look at ways to pay off your student loans faster:

• Extra payments: One straightforward approach is to make extra payments on your principal balance. This reduces the overall amount owed and shortens the loan term. Even small additional amounts can make a big difference over time.
• Refinancing: Refinancing your student loans may lead to lower interest rates and potentially lower monthly payments. But be aware of the downsides: you might give up some debt-relief options, and there may be fees involved.
• Loan forgiveness programs: If you work in certain sectors, you might qualify for federal student loan forgiveness programs. Some teachers, medical professionals, government workers, and nonprofit employees can have some or all of their student loan debt forgiven after meeting certain criteria. If your career ambitions are leading you toward those fields, take a look at whether you might qualify for forgiveness. 
• Consolidation: Consolidating multiple student loans into one can simplify your payments and sometimes lower your interest rate, which can make it easier to manage your debt and repay it faster. Just like refinancing, though, there’s a chance you’ll have to pay fees and might disqualify yourself from forbearance, deferment, and forgiveness programs. 

6. Set saving and investing goals 

What’s the real meaning of Financial Wellness Month? It’s more than just crunching numbers; financial health is all about helping you attain the things you really want in life. And to do that, you’ll need to set clear financial goals. This is your chance to envision what you want to achieve in the near and far term, then make a plan to turn those dreams into reality. 

Settle in for a goal-setting sesh; grab some colorful paper and pens for extra merriment. Jot down your goals and group them into three categories:

• Short-term goals (within one year): Saving for a big trip, building a solid emergency fund, planning a wedding without going into debt… your short-term goals can be practical, fun, or both. Once you decide what you’re saving for, set up sinking funds and store your money in an interest-bearing account to help it grow. 
• Mid-term goals (within five years): Common mid-term savings goals include a down payment on a house, buying a new car, or starting a small business. Consider using high-yield savings or money market accounts, which tend to offer higher interest rates than regular savings accounts while keeping your money easily accessible.
• Long-term goals (more than five years): These are typically retirement or long-term wealth accumulation goals, and they’re often for things decades into the future. Investing, whether through a brokerage account or retirement accounts, can help you work toward these bigger objectives. The longer time horizon lets you take advantage of compound returns and helps balance out the risk of stock market volatility. 

7. Review and rebalance your investment portfolio

Investing for the long term doesn’t mean you shouldn’t keep tabs on your portfolio’s performance. Over time, changes in the market can shift how different assets weigh in your investment portfolio. Periodically checking your investments allows you to assess whether they still match your needs and goals. Consider the following factors:

• Asset allocation: Balance your investments across different asset classes like stocks, bonds, and funds, based on your goals, risk tolerance, and investment horizon.
• Portfolio rebalancing: Adjust your portfolio’s asset proportions to maintain your original allocation or adjust it if your risk profile has changed. If one type of asset has grown proportionately too large, you might sell some of that asset and buy more of another.
• Diversification: Diversifying your assets, or spreading investments across various classes, sectors, and industries, reduces the risk that a downturn in a single stock, sector, or market will significantly impact your overall portfolio.

8. Build your 2024 budget

Whether you’re an old hand at financial planning or are just getting started, creating a budget is a classic Financial Wellness Month activity. Take time to reflect on last year’s spending while it’s still fresh in your memory, making it easier to plan accurately for 2024. 

• Analyze past spending: Review your 2023 expenses to identify spending patterns. This analysis will help you forecast your regular monthly expenses for the new year, plus alert you to expenses that caught you by surprise last year so you can plan for them this time around.
• Categorize expenses: Divide your expenses into categories that make sense to you, such as housing, utilities, groceries, transportation, entertainment, etc. Don’t forget to include infrequent expenses like annual subscriptions or insurance premiums, as well as consider things with variable costs like gas and dining out.
• Plan for savings and investments: Based on your financial goals, allocate a portion of your monthly budget to savings and investments. Whether it’s for an emergency fund, a down payment on a house, or retirement, regular contributions to these goals are crucial for achieving your bigger ambitions.
• Test drive some budgeting strategies: At its core, a budget is a plan for how you’ll spend your income each month. But putting that into practice is easier if you have a solid strategy. Try one or more of these popular budget approaches to see which makes the most sense for you: the 50/30/20 rule, envelope budgeting, or a zero-based budget.
  

9. Increase your financial literacy

They say knowledge is power, and Financial Wellness Month is a perfect time to power up your financial literacy. Dive into the world of finance by reading books or articles on financial topics, attending workshops or webinars, following reputable financial bloggers or podcasters, or even taking a financial literacy course. By embracing your financial education, you can increase your confidence and knock out financial stress.

Pave a prosperous future during Financial Wellness Month

However you celebrate, this month can be a catalyst for continued growth and achievement in your financial journey. Each step you take is a stride toward a more secure and prosperous financial future. And don’t forget, you’re celebrating Financial Wellness Month; give yourself a high-five for the progress you’ve already made and put a line item in your budget to treat yourself a bit for taking steps toward greater financial health. 

And remember to keep the party going all year long by keeping up with your monthly budgeting, debt management, saving, and investing plans. After all, National Financial Awareness Day is on August 14, 2024, so you’ll want to be prepared for your next financial wellness celebration.  

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To help get your finances on track and prepare for your future, you may want to start a budget.

Budgeting is the process of creating a plan for how you’ll spend and save your money to help achieve your goals.

To help you on your financial journey, we’ve gathered the following tips that can help with budgeting for young adults:

1. Track your spending
2. Prioritize paying off debt
3. Set short and long-term goals
4. Create a detailed plan
5. Try a zero-sum budget
6. Start an emergency fund
7. Take advantage of employer matching
8. Practice frugal habits
9. Follow the 50/30/20 budget
10. Save for retirement
11. Use a bullet journal
12. Talk to a professional
13. Keep taxes in mind
14. Try a side-hustle
15. Use personal finance apps
16. Protect your health
17. Negotiate your salary
18. Try the envelope method
19. Automate your savings

Ready to start budgeting? Let’s get started with these 19 financial tips!

1. Track your spending

Before you can get started on your young adult budget, you must first understand where your money is going. You can do this in many ways, whether by keeping track of your receipts, using an app, or setting up a spreadsheet.

When tracking your spending, it can be helpful to categorize your transactions to help get a sense of what you’re spending your hard earned money on. These categories may include rent, groceries, utilities, clothing, entertainment, and more.

Remember, there is no set group of categories you should follow, so be sure to categorize your spending however works best for you and your shopping habits. Once you get a big-picture sense of your spending, you can better organize a budget that makes sense for you.

2. Prioritize paying off debt

When looking to improve your future spending, it’s crucial that you don’t forget about any debt you may have. From student loans to credit card debt, prioritizing getting out of debt can help you get out from under any interest payments that are getting in the way of your financial goals.

You can prioritize paying off your debt in different ways, including:

• Snowball method: You can follow the snowball method by paying off your debts, starting with the smallest amounts and working your way up to the largest. This works well for people with small debts, typically less than $3,000.
• Avalanche method: With the avalanche method, you’ll prioritize paying off your debts by starting with the highest interest rates and working your way down to the debts with the lowest interest rates. That way, you’re limiting the time spent holding on to debt with high-interest rates and your overall interest expense.

Whether you decide to use the snowball or avalanche method, continue making the minimum monthly payments on all of your debts as you focus your extra money on paying off the highest-priority debts.

3. Set short and long-term goals

Setting short and long-term goals is a great way to boost your financial success. That way, you can always keep your eyes on the prize. Start a practice of writing down your goals, this will help keep them top of mind for you when you’re making daily spending decisions.

These goals should be customized based on your specific wants and needs. For example, a short-term goal may be to pay off all of your student loans within three years and a long-term goal might be to retire by age 60.

4. Create a detailed plan

A financial plan is a way to assess your current financial situation, identify long-term financial goals, and create a road map to achieve them.

No matter your financial situation or goals, creating a detailed financial plan for young adults is a surefire way to keep yourself committed to financial success. A budget and a financial plan may sound very similar. A budget is a tool for tracking and managing your spending and savings on a short-term basis, where a financial plan actually maps out your goals over the long-term and your plan to achieve them. You can keep it simple and do this using a pen and paper, or you can utilize spreadsheets, templates, budgeting apps, or whatever works best for you.

5. Try a zero-sum budget

Now that you have a sense of how to start a budget, you may wonder what type of budget you should follow. A popular option for young adults is the zero-sum budget. The zero-sum budget is a budgeting method in which you use every penny of your income every single month.

But don’t get your hopes up, as it doesn’t mean you get to blow all of your money on flashy purchases and summer vacations. Instead, you’ll allocate your monthly income towards your wants and needs, debt payments, and savings goals until every penny of your income is accounted for.

For example, let’s say you have a monthly income of $4,167. With the zero-sum method, your budget may look like this:

As you can see, by combining your spending and saving, you’re using up all of your monthly income while also meeting your savings and debt payment goals.

6. Start an emergency fund

Let’s face it. Life can get in the way sometimes. Whether it’s unexpected job loss, car damage, or any other financial emergency, there are times when we could all use some extra cash. Fortunately, you can help dampen the financial burden of these situations by starting an emergency fund with your first budget.

Generally speaking, you’ll want your emergency fund to cover around 3-6 months of expenses. By building up an emergency fund, you can live your life in comfort, knowing you’re prepared to handle any unexpected circumstances that could impact your financial well-being.

7. Take advantage of employer matching

If you’re fortunate enough to work for a company that offers retirement plans with employer matching contributions, it can benefit your financial future to take advantage of it.

For example, if your salary is $50,000 and your company offers 6% matching with their 401(K) plan, your employer will match your contribution up to $250 each month. This means if you decide to contribute $250 a month towards your 401(K), your employer will also contribute $250 bringing the total monthly contribution into your 401(K) to $500. 

By taking advantage of this benefit, you can increase the amount of money that goes towards your retirement every month, allowing you to build up your retirement savings and accumulate wealth more quickly.

8. Practice frugal habits

When prioritizing budgeting for young adults, adopt smart spending habits to avoid spending unnecessary money. Examples of these frugal habits include:

• Making meals at home: By prioritizing groceries over eating out at spendy restaurants, you can limit the money you spend on food every month.
• Shopping secondhand: Whether you buy a used car or furnish your home with used furniture, shopping secondhand can help you reduce spending.
• Skipping brand name items: Generic brands are usually much cheaper than their brand-name counterparts. By shopping for generic brands, you can cut costs at the register.
• Waiting before you buy: If you’re prone to impulse spending, try forcing yourself to wait a few days before making any big purchases. Often, waiting it out can help you realize if your desired purchase is truly necessary.
• Learning to say “no”: In some cases, you may get invited to do things that go against your financial goals. By learning to say “no,” you can avoid committing to things that may be beyond your financial means.
• Buying in bulk: From toilet paper to canned goods, buying in bulk can sometimes come with huge savings, keeping you from paying more than you have to for your essential items.
• Buying essential items only: By sticking to only the essentials every time you shop, you can avoid throwing money away on unnecessary junk spending. Creating a list before you go shopping can help you stick to the task at hand and not get distracted by what you see.

While nobody goes from a mindless spender to a frugal shopping wizard overnight, keeping these frugal habits in mind can help you spend less on your shopping outings.

9. Follow the 50/30/20 budget

Another popular budget for young adults is the 50/30/20 budget. Under the 50/30/20 rule, you’ll split up your monthly income as follows:

• 50% for essentials
• 30% for wants
• 20% for savings

For example, if you make $4,167 a month, you’ll dedicate $2,083.50 to essentials, $1,250.10 to wants, and $833.40 to savings.

By sticking to this simple rule, you can easily budget your spending without skipping out on fun purchases and experiences, all while satisfying your monthly savings goals.

10. Save for retirement

As a young adult, meeting your retirement goals can seem like a far-fetched idea or tomorrow’s problem. But the reality is there is no better time to start saving for retirement, as the earlier you start, the quicker you’ll be able to retire.

This is especially true due to compound interest. In simple terms, you can think of compound interest as “interest on your interest,” meaning the quicker you save money for retirement, the more time it has to grow.

Let’s say you begin saving $150 a month with an average positive return of 1% a month, compounded monthly over 30 years. After those 30 years, your retirement savings will be nearly $525,000.

On the other hand, let’s say you waited 30 years and instead invested $1,200 a month for ten years with the same average positive monthly return. Despite your increased monthly contribution, your retirement savings would only be around $275,000.

As you can see, time is your friend when saving for retirement. Keep in mind that many compound interest accounts require a minimum deposit to get started. Because of this, be sure to do your research and select an account that works best for your financial situation.

11. Use a bullet journal

Another popular way to create budgets for young adults is to use a bullet journal. A bullet journal is highly customizable and includes specific sections you can use to organize your spending, goals, time, and other aspects of your life.

Because there is no right or wrong way to use a bullet journal, you can organize your pages however you’d like. This is a helpful method for those who prefer to physically write things down rather than using a digital method such as a spreadsheet.

12. Talk to a professional

A lot of the time, people may wait until they have a lot of money or are in a crisis before seeking help from a financial advisor. But that doesn’t have to be the case with you.

By being proactive and going over your finances with a professional, you can help come up with a plan tailored to your income, expenses, and financial goals. Plus, it doesn’t hurt to have someone who can answer all of your questions and help you create a personalized budget based on the advice of an expert.

13. Keep taxes in mind

Whenever you’re thinking about budgeting and financial planning, you’ll want to keep your taxes in mind. After all, the amount of money listed for your salary isn’t the same amount that will reach your bank account. Because of this, always use your monthly income after taxes when planning your budget.

In addition, you’ll want to do your research and see if you’re eligible for any tax deductions that can put money back into your pocket. Examples of common tax deductions include deductions for student loan interest and charitable donations.

If you’re unsure what deductions you qualify for, you may want to talk to a tax professional.

14. Try a side-hustle

If you’re looking to turn your free time into some extra cash, you may want to take up a side hustle. Side hustles can vary, from picking up an extra job to turning one of your unique skills or talents into a source of income. Need some side hustle inspiration? Try one of these ideas:

• Become a rideshare driver (Average hourly pay: $21.41)
• Tutor your favorite subject (Average hourly pay: $18.33)
• Sell your talents as a freelance writer (Average hourly pay: $24.26)
• Start babysitting (Average hourly pay: $16.22)
• Become a dog walker (Average hourly pay: $17.54)

No matter your interests or talents, there are many paths to bring in some extra income. If time is a limiting factor, consider passive income sources.

15. Use personal finance apps

For those interested in using technology to help with budgeting ideas for young adults, there are numerous personal finance apps you can use to take control of your finances.

From tracking your spending with a budgeting app to practicing long-term investing with an investing app like Stash, your phone can be a valuable tool for staying on top of your financial goals.

Not only that, but personal finance apps are a great way to manage your budget and finances wherever you go, with some apps even offering the option to link your debit or credit cards to give you an up-to-date view of your monthly spending.

16. Protect your health

Even if your goal is to save as much money as possible, you shouldn’t write off medical insurance as an unnecessary expense. Accidents happen, no matter how careful you are, and medical insurance can be the difference between small out-of-pocket costs and life-changing medical bills.

Something as minor as an accidental sports injury could end up costing you thousands of dollars if you’re uninsured and could put a massive roadblock in between you and your financial goals. Because of this, research what medical insurance is best for you. In some cases, it may be offered through your employer.

17. Negotiate your salary

On top of prioritizing saving money to improve your financial well-being, you can also work towards increasing your monthly income by negotiating your salary. When negotiating your salary, you should first determine your fair market value by assessing the salary of similar job postings.

Then, you’ll want to bring evidence of your value to the company to help show your boss why you deserve a raise. From there, be prepared to answer any questions your boss may have. While this isn’t guaranteed to work every time, you may be able to earn an increased wage which can help you achieve your financial goals.

18. Try the envelope method

Another popular budgeting method for young adults is the envelope method. The envelope method is a budgeting system used to help control where your money goes.

With the envelope method, you’ll want to dedicate an envelope to each spending of your spending categories. For example, if you allow yourself $500 a month for groceries, you’ll want to cash your paycheck and then put $500 into your grocery envelope.

Then, when it’s time to go grocery shopping, you’ll take the $500 and start shopping. Once you’re finished, you’ll put the change back into the envelope, so it’s ready for next time. Once you run out of money, you’re done buying groceries for the month.

This method is a great way to keep yourself from overspending, as you’ll have a physical sense of the money that is leaving your hands with each purchase.

19. Automate your savings

Another great way to help with your budgeting is to automate your savings. Depending on your checking or savings account, you may be able to set up automatic transfers every month. An example of this would be an automatic monthly transfer of $100 into your savings account or emergency fund. Another method to automate savings is to split your paycheck into two different accounts each payroll period, this way a portion of your money goes directly into a savings account where it is out of sight and out of mind.

That way, you can rest easy knowing that your savings goals are being met without you even having to lift a finger, allowing you to focus on other aspects of your financial health, like saving money or earning extra income.

Why you should start budgeting as a young adult

As a young adult, you may feel that budgeting is something that can wait. But by putting off prioritizing your financial health, you’ll be missing out on a wide range of benefits, including:

• Financial stress relief: Taking the time to plan your finances and set spending limits can help you get a birds-eye view of your finances so you have a better understanding of what you can afford. This can help prevent the money stress that can come from poor money management.
• Debt-free living: A large benefit of budgeting is that it allows you to allocate specific amounts of money to help pay off your debts. By prioritizing debt payments early in your life, you can limit the money wasted on interest payments.
• Earlier retirement: When it comes to retirement, the earlier you start saving, the earlier you can retire. Because of this, taking control of your spending at a young age can help maximize your retirement savings.
• Increased savings: By automating your savings and starting an emergency fund during your budgeting process, you can increase your overall savings.
• Preparation for the future: Similar to planning for retirement, setting a budget can help you be better prepared for the future, whether you’d like to purchase a home or go on an international vacation.
• Long-term growth: If you start taking your finances seriously at a young age, you can reap the benefits of time, leading to increased growth compared to starting years down the line.

When it comes to budgeting for young adults, remember that the earlier you start, the better. Whether you’d like to quickly get out of debt or take the money you’ve saved to grow your wealth with long-term investing, focusing on budgeting is a great first step to getting your finances in check.

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Budgeting for young adults FAQs

Still have more questions about budgeting advice for young adults? We’ve got answers.

How do you keep track of a budget?

You can keep track of a budget in many ways, including using a pen and paper, spreadsheets, budgeting templates, a bullet journal, or budgeting apps.

Is the 50/30/20 rule realistic?

While the 50/30/20 rule can be a realistic option for some, it may not work for everyone’s specific financial situation. Because of this, prioritize following a budgeting plan that works best for you and your financial goals.

What is the 70% rule for budgeting?

The 70% rule for budgeting is when you allocate your money as follows:

• 70% for all spending
• 20% for saving and investing
• 10% for debt payments

The post Budgeting for Young Adults: 19 Money Saving Tips for 2024 appeared first on Stash Learn.

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A financial plan is a way to assess your current financial situation, identify long-term financial goals, and create a road map to achieve them. A good financial plan not only considers your current finances—including your cash flow, budget, debt, and savings—but also your long-term financial goals like saving for retirement. 

In this post, we’ll break down the necessary steps to create a financial plan, including:

• 1. Find your net worth 
• 2. Examine your cash flow 
• 3. Identify your financial goals
• 4. Build an emergency fund 
• 5. Contribute to an employer-sponsored retirement plan
• 6. Pay down high-interest debt  
• 7. Invest to build wealth 
• 8. Periodically review and adjust your financial plan 

Dive into a more thorough breakdown below as we help answer the question: what is a financial plan? 

8 essential financial planning components

Financial planning is like a road map to help you meet both your short-term needs and long-term goals. While every financial plan is different, they typically include the following: 

• Your net worth: your assets (things you own) minus your liabilities (debts) 
• Cash flow and spending analysis: your flow of money coming in and out each month (or year) and analysis of spending patterns
• Financial goals and priorities: your financial goals, both big and small, short term and long term 
• Budget and savings plan: your current cash flow and financial goals can guide how you set up your monthly budget 
• Debt management: any debts you currently have and a plan to pay them down. 
• Retirement plan: a plan for saving a portion of your income (15–20%) for retirement, ideally in an employer-sponsored retirement account like a 401(k) or IRA
• Long-term investing: additional outside investments to further build wealth, such as index or mutual funds  
• Tax reduction strategy: a strategy for minimizing taxes on personal income

Remember, there’s no template for the perfect financial plan—it should be customized to fit your unique circumstances and priorities. Review each financial plan component and adjust as necessary. 

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How to create a financial plan in 8 steps

Personal financial planning is an ongoing process and should be highly unique to your needs. That said, addressing the following steps can help you create a well-rounded plan. 

1. Find your net worth 

Find your net worth by assessing your current assets and liabilities. Assets are anything of value that you own, like a home, car, cash savings, or investments. Liabilities include anything you owe money on, like credit card debt, student loans, car loans, or mortgages. 

To find your net worth, subtract your total liabilities from your total assets. This gives you a clearer picture of your current financial health.

2. Examine your cash flow 

A financial plan can’t exist without first knowing where your money is going each month. Review how much you earn and spend to determine how much you could reasonably save and invest on a monthly basis—or where you could cut back to save and invest more.

Start by documenting your mandatory monthly expenses like rent or mortgage payments, home or car insurance, bills, and utilities. Then, factor in other costs like food and groceries, transportation, and subscriptions before moving onto additional spending categories like clothes, travel, and entertainment. Subtract your expenses from your income to see what’s leftover. 

This should give you a better idea of exactly where your money is going each month. From here, you can assess if your current spending aligns with the financial goals you’ll outline in the next step. 

3. Identify your financial goals  

You can’t make a financial plan without first knowing what your financial goals are. Your financial goals are simply the things you hope to accomplish with your money, both short term and long term. Ultimately, it means considering what you want in life and how you can put your money to work to get there. On a high level, consider the following: 

• What do I want to achieve? 
• What’s most important to me? 
• What type of lifestyle do I want to lead? 

Use these questions to make a list of goals, and break them down by short term, medium term, and long term: 

• Short-term financial goals can be achieved in one to three years (i.e., building an emergency fund).
• Medium-term financial goals can be achieved in 3-5 years (i.e., saving for a down payment on a home).
• Long-term financial goals can be achieved in 10+ years (i.e., retiring by 45).

Are you hoping to pay off debt or build an emergency fund? Those are examples of short-term goals. Long-term goals could include saving for retirement, saving for your future children’s college funds, or building a dream home in a new city. 

Determine how much each goal will cost and the time frame for when you hope to achieve it. The more specific your goals are, the easier it will be to take action on them. 

4. Build an emergency fund 

If you don’t already have an emergency fund, prioritize building one. Ideally, it should be enough to cover three to six months of living expenses, but if you can’t afford that yet, you can start small and add more over time. Stashing away even just $1,000 can help cover any small emergencies, sudden medical procedures, or unexpected repairs. You can incrementally add more to your fund over time. 

5. Contribute to an employer-sponsored retirement plan  

If it’s available to you, the next step is to ensure you’re contributing to an employer-sponsored retirement plan like a 401(k)—especially if your employer offers a matching contribution. If they do, prioritize contributing at least the minimum amount needed to get the match, as that match is essentially free money. 

Even if you have high-interest debt, you should still prioritize contributing to an employer-sponsored retirement account (at least the minimum amount to get the match). The reason is because employer matching funds are tax-free, risk-free, guaranteed returns—often at a higher rate than your debts.   

6. Pay down high-interest debt 

Once you’re taking advantage of your employer match, you should make a plan for tackling any debt. Prioritize high-interest debt first, as you could be paying double or triple what you actually owe due to high interest rates. In any case, a good starting point is to make the minimum monthly payments on all of your debts. 

There are a variety of approaches to paying off debt, from increasing your monthly credit card payments, getting a debt consolidation loan, or using the snowball method or avalanche method. Choose the approach that works best for you, but remember to pay off the most demanding debt first. Ultimately, the goal is to become debt-free as soon as possible, so figure out how much you can feasibly allocate toward debts each month and get started. 

7. Invest to build wealth  

Make a plan to invest in the stock market based on your financial goals and risk tolerance. Regardless of your specific long-term financial goals, planning to have enough income in retirement is key to any well-rounded financial plan. 

This could include various savings accounts and retirement accounts like 401(k)s and individual retirement accounts (IRAs), which are a good starting point for your retirement savings. From there, you can add other accounts to fit your goals. While there are countless ways to invest, ETFs or mutual funds make excellent long-term investments due to their stable growth over time. 

Rather than putting all your eggs in one basket by investing in a single stock, ETFs or mutual funds contain shares of hundreds of different companies within a single fund, instantly diversifying your portfolio. This makes them a great choice for new investors who don’t have the time or experience to analyze individual stocks but want a reliable way to invest for the long term. A diversified portfolio will help you grow your investments steadily over time.

8. Periodically review and adjust your financial plan 

Regularly check in on your financial plan to track your progress toward goals and make any adjustments. This may include altering timelines for certain goals, setting higher savings minimums, or increasing your investments or rebalancing your portfolio. 

You might find that you don’t have the same priorities five years down the road, and life is full of unexpected circumstances that can impact your plan. Stay flexible and expect to revise your plan based on your unique experiences. 

Here are some check-in questions to consider (or questions to regularly ask a financial advisor): 

• How is my current portfolio working toward my goals?
• What major life events are approaching (if any) that I should plan for (starting a family, moving cities, starting a business, etc.)? 
• Are my current spending and saving habits serving the lifestyle I want to live?
• How do I feel about my current budget?
• Are there any upcoming big purchases (over $500) that I should be aware of?
• What is my top spending category? Does this feel aligned with what I value?
• Can I increase my automated savings/investments?

Committing to annual check-ins ensures your financial plan remains aligned with your goals. 

Additional financial planning considerations 

The steps above will position you for financial success early on. 

Once you’ve made progress with your initial goals and investments, consider these additional financial plan components:

• Risk management planning: you may already have home or car insurance, but don’t forget about life and disability insurance, personal liability coverage, and property coverage to further protect you in the event of unexpected emergencies. 
• Tax reduction planning: once your investments are set, you can move on to more advanced goals like creating a tax reduction strategy to minimize taxes on personal income. 
• Estate planning: having a plan for who will inherit your estate (your possessions and valuables) might seem irrelevant if you’re young, but you’ll eventually need to consider this important financial plan component. This ties into your generational wealth goals that will directly impact your family and loved ones, including your will. 

Remember, the only asset more valuable than money is time. The steps above are key to protecting all the hard work you’ll put into the rest of your financial plan. If you’re feeling overwhelmed at the thought of navigating a financial plan on your own, a financial advisor can be an incredible resource. 

Eventually, you may consider eliciting some outside help from any of the following types of financial advisors: 

• Traditional financial advisor: a financial advisor can help with all aspects of your financial life, including saving, investing, insurance, and other forms of planning. If you have a complicated financial situation, they also offer specialized services like tax preparation and reduction or estate planning. 
• Online financial planning services: instead of visiting a financial planner in person, you can access the same services virtually. Most offer the same services as a traditional advisor, such as investment management and helping you build a financial plan. 
• Robo-advisor: if you’re only looking for help managing or building your investment portfolio, a robo-advisor can help—and at a low cost. A robo-advisor automatically builds your portfolio based on your investment preferences, and manages it on your behalf. Robo-advisors can be a less expensive, more accessible avenue for investors who don’t want to cover the cost of a personal financial advisor.

If you choose to go with a traditional financial advisor, we recommend fee-only advisors who are fiduciaries—meaning they’re legally obligated to act in your best interests. When looking for a financial advisor, be sure to find one who cares about your big picture: paying off debt, having emergency savings, covering tax bases, and building wealth for the long term.

At the end of your financial plan, you’ll have a strong understanding of where you are financially, where you want to be, and how you’ll get there. While finances as a whole can be complicated, the financial plan components are quite simple—and once you get started, you’ll feel more empowered to build the financial life you deserve. Successful wealth building doesn’t happen overnight, but planning for the long-term will pay off in big ways down the road. 

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FAQs about financial planning

Find answers to any lingering questions about financial planning below.

What is the purpose of a financial plan?

A financial plan is a road map for putting your money to work in a way that serves the life you want to lead, both now and in the future. Achieving short-term and long-term goals, gaining control over your finances, and ensuring financial security during retirement are all key purposes of a financial plan. 

Why is financial planning important? 

Financial planning is more than just accumulating wealth—it’s about using that wealth intentionally in a way that supports your core values and dreams in life. When you have a financial plan, you’re more likely to put your money toward only the things that serve your highest goals. Financial planning also helps reduce stress about money. 

What are the types of financial planning?  

There are a variety of types of financial planning, including cash flow planning (your monthly income and expenses), investment planning (using index or mutual funds to achieve long-term wealth goals), insurance planning (prioritizing health and life insurance), and tax planning (strategically minimizing income taxes). 

The post What Is a Financial Plan? A Beginner’s Guide to Financial Planning appeared first on Stash Learn.

When your income barely covers your monthly expenses, it can be tough to find extra money to put into savings. Yet putting aside money for emergencies and future goals is an important part of building long-term financial security. The good news is that there are several strategies you can use to cut costs and begin saving.  

In this article, we’ll cover these savings tips:

1. Estimate your income
2. Identify your fixed monthly expenses
3. Manage your variable expenses
4. Don’t forget about periodic expenses
5. Prepare for unexpected expenses
6. Compare your income and expenses
7. Choose your budgeting method
8. Remember to budget for discretionary spending
9. Implement the 30-day rule
10. Try a cash diet
11. Delete online payment info
12. Plan out meals to reduce food waste
13. Be strategic at the grocery store
14. Make more coffee at home
15. Reduce restaurant spending
16. Use a cashback credit card
17. Opt for thrift stores and local shops
18. Use browser extensions for online shopping
19. Explore community events and free concerts
20. Compare car insurance plans
21. Maintain a good driving record
22. Take a close look at your coverage level
23. Remove policy add-ons you don’t need
24. Switch to LED bulbs
25. Optimize laundry habits
26. Adjust your refrigerator temperature 
27. Use your dishwasher’s air-dry setting
28. Manage home’s temperature
29. Change furnace filters regularly
30. Conduct a home energy audit
31. Cancel unnecessary subscriptions
32. Look for ways to save on essential subscriptions
33. Choose a debt repayment strategy
34. Consider debt consolidation
35. Establish an emergency fund
36. Plan for short-term goals
37. Set medium-term goals
38. Focus on long-term goals
39. Check your current savings account interest rate
40. Switch to a high-yield account for better earnings
41. Automate transfers to your savings account
42. Define your financial goals and values
43. Limit your time on social media
44. Have a weekly money date
45. Celebrate your financial wins

Track your spending against your income

Scouring through a list of all the best ways to save money can be fun. But before start trimming down your spending, you need to get a clear picture of where your money is going every month. So, the first step in saving money is to track your spending and compare it to your income. 

Here’s how.

1. Estimate your income

Income is all the money you bring home. You need a clear picture of what’s coming in to make sure you have enough to cover your expenses and savings goals. Make a list of all sources of income, which might include:

• Your net pay from your job 
• Extra cash you make from a side hustle or passive income stream
• Child or spousal support
• Disability or veterans benefits
• Dividends or other income from investments

2. Identify your fixed monthly expenses

Fixed expenses are your life’s must-haves. They’re usually consistent every month. Understanding these is crucial for creating a budgeting plan and avoiding credit card debt. Common expenses include: 

• Rent or mortgage
• Utilities, like electricity, water, and gas
• Phone and internet
• Health insurance
• Healthcare, like prescriptions and regular doctor appointments
• Minimum debt payments, such as student loans and car payments
• Transportation, like bus fare, gas usage, car insurance
• Childcare and school tuition
• Streaming services and subscriptions
• Membership fees, like a gym or co-working space 

3. Manage your variable expenses

Variable expenses are just like they sound: spending that varies from month to month. While the amount of money you spend may change, you can get an average by tallying up what you’ve spent over the last six months and dividing by six. Expenses you may want to capture:

• Groceries
• Dining out
• Entertainment
• Pet costs, such as food, grooming, doggy daycare
• Home maintenance
• Medical and veterinary bills
• Travel
• Gifts
• Personal care and wellness

4. Don’t forget about periodic expenses

Periodic expenses occur less frequently, so they’re easy to forget about. But you’ll need to add them to your budgeting plan if you want a complete picture of your finances. The key is to break these costs down into how much they cost monthly. 

For example, if it costs $120 a year to renew your car’s tags, divide that amount by 12 to get $10 a month; that’s how much money you’d need to put aside each month to have the amount you need when the bill comes due. Check your records for expenses like:

• Annual vehicle registration
• Annual tax preparation
• Quarterly utilities
• Subscriptions that renew annually
• Car maintenance
• Home maintenance
• Periodic healthcare, like new glasses or annual physicals 
• Clothing and shoes
• Household items and furniture

5. Prepare for unexpected expenses

Unexpected expenses like emergency repairs and medical bills are unpredictable. Creating an emergency fund can be a good way to cover these costs without having to rack up credit card debt. Some unexpected expenses you could save for include: 

• Car or home repairs
• Medical and dental bills 
• Unplanned travel
• Emergency vet bills
• Weather emergencies
• Replacement appliances
• Unexpected sudden loss of income

6. Compare your income and expenses

Once you’ve gathered the info about your income and expenses, it’s time for some simple math. Add up all your monthly expenses, including averages for variable expenses and periodic expenses. Then tally up your monthly income. 

When you compare the two numbers, ideally your income will be larger than your expenses. If it’s not, you may want to consider how to save money by reducing discretionary spending or trimming the cost of necessities.

Create a budget that works for you

With your list of income and expenses in hand, you’ll be ready to make a budget. In its simplest form, a budget is a list of your planned monthly income and expenses. Once you set it up, you can track spending in real-time, compare it to your plan, and adjust as needed. 

Making and sticking to a budget is half the battle of saving money. It gives you a clear picture of your finances in real time and helps you plan for your goals, like getting out of debt, saving up for a vacation, or building an emergency fund. 

It also allows you to manage short-term spending, like whether you can order take-out for dinner without putting yourself in a pinch when your car payment is due. 

7. Choose your budgeting method

There are many approaches to budgeting, including budgeting for young adults. While they all have benefits, what matters is finding one that works for you. Here are a few popular budgeting methods you might try:

• 50-30-20 budgeting: You categorize your expenses and allot income accordingly: 50% to needs, 30% to wants, and 20% to saving and investing.
• Zero-based budgeting: You assign every dollar to a specific expense so that the difference between your income and expenses is zero. 
• Pay yourself first method: Each month you first set aside money for saving and investing, which cuts spending and prioritizes your long-term goals.
• Envelope method: You allocate funds to expense categories and put the money into literal or digital envelopes; when an envelope is empty, your spending on that category is done for the month.

8. Remember to budget for discretionary spending

While budgeting for the necessities, be sure to include space for some discretionary spending in your budget too. This promotes healthier spending habits, as it can be easier to stick to your spending plan when you have money specifically set aside for fun. Also, it can give you a bit of a buffer if you underestimate your needs in one of your budget categories.  

Cut out impulse purchases

Everyone has those moments: the last thing you want to do after a long day is cook dinner, so you open a restaurant delivery app and unwittingly spend a good chunk of your grocery budget on one meal. Or an ad for a cool jacket pops up on your screen, you click the link, and suddenly you’ve spent money you’d planned to put in savings on something you don’t really need. 

Impulse spending is only human, but it also creates a huge barrier to saving money. Consider trying these tricks to help you put the brakes on that spur-of-the-moment spending that undermines your budget plans.

9. Implement the 30-day rule

If you find you want to make an unplanned purchase, set the money aside and wait 30 days. This is known as a 30-day spending rule. If after a month you still want to buy the item, go ahead. But you may find that the delay takes some of the shine off of the thing that seemed so appealing at first glance, and a month later you might decide to put that money into your savings account instead.

10. Try a cash diet

A “cash diet” is where you commit to only making impulse buys in cash. Build it into your budget with an “allowance,” then take the money out in cash at the beginning of the month. Swiping a card makes impulse spending that much easier, but handing over actual cash has a greater psychological impact and makes you stop and think about the purchase more carefully. 

11. Delete online payment info

The more effort it takes to shop online, the more likely you’ll be to pause and think about whether you truly want to fork over your money on a whim. Delete your saved debit or credit card information on any website where it’s stored and forget the autofill option; when you want to buy something, get your physical card and enter the number. That little work might prod you to think about your budget and saving goals.

Look for ways to save on food

If you’re like most people, food is one of your three biggest spending categories. Between groceries and dining out, it can add up quickly. Here are a few ways to trim down food costs.

12. Plan out meals to reduce food waste

Feeding America states that America wastes 80 million tons of food, totaling $444 billion, each year. The USDA adds that the average American family of four loses $1,500 to uneaten food per year.

Planning out your meals and snacks for the week helps prevent groceries from being wasted. For instance, if a recipe calls for half a head of cauliflower, you can plan to use the other half later in the week instead of watching it go bad in the fridge.

13. Be strategic at the grocery store

Efficient grocery shopping and meal planning can lead to significant savings. Here are some other ways to help keep your grocery costs down and foster better savings habits:

• Scan sale circulars and grocery store apps to find the best deals, and use print or digital coupons. 
• Consider shopping at several grocery stores to get the best price on different items, if time allows. 
• Check your pantry before heading to the store so that you don’t double up on products you already have.
• Shop from a list, which will help you avoid impulse spending on products that grocers put in special displays.
• Purchase items in larger quantities and use them in several meals throughout the week or freeze portions for later use.
• Buy store brands or generic brands instead of name-brand products. Most have the same ingredients.
• Keep grocery trips down to once a week, if possible, which will force you to use up the food you already have at home.
• Shop online and pick up your groceries to avoid the temptation of going off your list while browsing the shelves.

14. Make more coffee at home

It’s probably not a good idea to cut out a coffee shop for good. It’s a cozy experience all in itself. But frequent visits to the coffee shop can quickly add up, especially when a large oat milk latte can easily cost $7, plus tip. Consider brewing more coffee at home and treating yourself to your favorite coffee shop once or twice a week.

15. Reduce restaurant spending

Dining out often can significantly impact your budget. Limit restaurant spending by exploring new recipes at home, opting for takeout over dine-in to avoid additional costs like tips, or taking advantage of restaurant deals and specials.

You don’t have to cut out restaurant food completely. Start with small amounts. Try to eat out one or two fewer times per week than you do now. Over time, continue to trim it back until your food budget is where you want it to be.

16. Use a cashback credit card

For necessary purchases like grocery shopping, consider using a cashback credit card. These cards return a percentage of the amount spent, reducing the overall cost and potentially saving you money over time. 

Only use this strategy if you’re sure you can pay your credit card balance in full each month. Otherwise, stick with your debit card or look for a debit card that earns rewards. 

Discover ways to save on shopping and entertainment

There are tons of ways to save on shopping and entertainment. Explore these practical tips to cut down your expenses while still having fun.

17. Opt for thrift stores and local shops

Skip the brand names and shop at thrift stores and local stores in your own city instead. You’ll find unique items at lower prices and keep your shopping cart total low. Plus, you’re supporting the community!

If you find yourself on a wedding guest list, use online thrift stores like Poshmark and Tradesy to snag the perfect outfit at a discount.

18. Use browser extensions for online shopping

Online shopping is convenient but can lead to overspending. To avoid this, use browser extensions. They help compare prices and find discounts, ensuring you don’t miss out on lower prices and keep those small amounts from adding up.

19. Explore community events and free concerts

One of the easiest expenses to reduce is entertainment costs. Your own city likely offers numerous free attractions and activities. 

• Explore local parks or community spaces for a change of scenery without the added expense. 
• Visit museums with no admission fees and community centers that host free events. 
• Look for free concerts that not only offer entertainment but also provide a chance to socialize and discover local talent.

Save money on car insurance 

There are many avenues to explore when looking at how to save money on car insurance: comparing plans, maintaining a good driving record, and taking a close look at your coverage level and add-ons.

20. Compare car insurance plans

Even if you’re happy with your current insurance company, requesting quotes from several other companies might reveal opportunities for saving money if you switch. You can also call your current insurer and ask if you’re eligible for any discounts; they’re often willing to offer an incentive to keep your business. 

21. Maintain a good driving record

Car insurance rates are based on several factors, including your driving record and your credit score. That means being a safe driver and improving your credit can save you money on car insurance. 

22. Take a close look at your coverage level

If you don’t have an outstanding loan on your car, another way to save money is to change the type of coverage you carry. Generally, there are three types of coverage available: 

• Liability insurance: Liability covers only the other person’s damages if you get into an accident; this is the minimum level of coverage required by law.
• Collision insurance: Collision pays to repair damage to your car if it crashes into another vehicle or object.
• Comprehensive insurance: Comprehensive covers damages and pays if your car is stolen or damaged by storms, vandalism, or hitting an animal. 

Collision and comprehensive insurance never pay more than what the car is worth. So, if you have an older car that’s worth less than your deductible plus the cost of annual coverage, you might be paying more than you need to; you could save in the long run by only carrying the liability insurance mandated by your state.

23. Remove policy add-ons you don’t need

Review your current policy to see if you’re paying for any add-on services that you don’t need. Many policies offer extras like rental car reimbursement, roadside assistance, or windshield repair. If you’re paying for them, consider whether they’re really worth the cost. 

Once you finish this process for car insurance, do it again for life insurance, home insurance, and any other policies you have.

Reduce your energy costs

Saving money on electricity can add up over a year. Much like with groceries, one of the simplest ways to start is to reduce waste. A few simple habits can boost efficiency and shave dollars off your bill.

24. Switch to LED bulbs

LED bulbs use 75% less energy than incandescent bulbs. Making the switch can work wonders in helping you cut down on your electricity bill.

25. Optimize laundry habits

Wash your clothes in cold water and avoid overfilling the dryer to conserve energy. Adopting these simple habits can significantly lower your energy consumption and reduce your utility bills.

26. Adjust your refrigerator temperature 

Maintain your refrigerator at 37°F and your freezer at 0°F, and clean the coils periodically to ensure optimal efficiency. Proper temperature settings and regular maintenance can help prevent unnecessary energy use and prolong the life of your appliance.

27. Use your dishwasher’s air-dry setting

Use the air-dry instead of the heat-dry setting on your dishwasher to save energy. This small adjustment can make a noticeable difference in your energy bill without compromising the performance of your dishwasher.

28. Manage home temperature

Close shades on hot days and turn off the air conditioner when not needed to reduce cooling costs. Being mindful of home temperature and making adjustments based on the weather can lead to substantial energy savings.

29. Change furnace filters regularly

Regularly changing your furnace filter ensures it runs efficiently, saving you money in the long run. A clean filter improves air quality and allows the furnace to heat your home more effectively, avoiding unnecessary energy waste.

30. Conduct a home energy audit

If you own your home, consider making energy-efficient updates. Your local utility company or a professional home inspector can conduct a home energy audit and tell you how much energy your home uses, where inefficiencies exist, and which fixes you should prioritize to save energy. 

Review your current subscriptions

Have you been keeping up with your Mandarin lessons, or is it time to let go of that language-learning app? When you turn on the TV, how many services do you rarely, or never, actually use? 

31. Cancel unnecessary subscriptions

When you’re looking for savings opportunities, review all your subscriptions. Keep the ones you use at least three times a week and cut ties the rest. Look at things like phone apps, music services, TV and movie streaming, print and digital publications, and any free trials you signed up for but forgot to cancel. What do you really use and need? Cancel subscriptions that don’t enhance your life.

32. Look for ways to save on essential subscriptions

There may be ways to save money on some of the subscriptions you want to keep. For example, some services have multiple tiers or allow you to share an account with friends and family to split costs. Also, some phone or internet plans have a streaming service included. Check to see if your library has a video or music streaming app.

Pay off high-interest debt

Whether it’s personal loans, student loans, auto loans, credit card bills, or mortgages, around 340 million Americans carry some form of debt. Saving money can be a struggle when your budget is burdened with monthly payments. Credit card debt is often a particularly tough hole to dig out of; the average credit card interest rate is 27.81% as of January 2024.

33. Choose a debt repayment strategy

The sooner you make a plan to get out of debt, the sooner you can stash more money away in your savings account, emergency fund, and investments. If your budget allows, start paying down your high-interest debt like credit cards, personal loans, and car loans. Doing so can also help you improve your credit score.

But which loans should you tackle first? There are two popular approaches:

• The avalanche method is focused on paying off the debt with the highest interest rate because that higher rate costs you more money the longer you hold the loan.
• The snowball method is based on paying off your smallest balance first, then moving on to the next-highest balance, to give you a sense of momentum and accomplishment.  

34. Consider debt consolidation

Debt consolidation can be a useful strategy for managing and reducing your debt. It involves combining multiple debts into one, often with a lower interest rate, making it easier to manage and pay off. This method can help reduce your monthly payments and save you money on interest over time, enabling you to allocate more funds towards savings.

Set realistic savings goals

Your monthly budget is a plan for what you’ll do with your money. That includes covering necessities like rent, groceries, and utilities as well as discretionary purchases. But your budget isn’t only about spending; it’s also your plan for saving up. So when you’re planning how to allocate your income, be sure to budget for savings. 

In addition to asking how to save money, ask yourself why you want to save money. That’s how you determine your goals, and saving up can feel more achievable if you determine specific, realistic aims.

35. Establish an emergency fund

When the unexpected strikes, your emergency fund is there to cover expenses that you might otherwise have to put on a credit card or leave your budget squeezed. Keep your emergency fund in a savings account so it’s easy to access in the event of things like a big car repair, medical bill, or even covering living expenses in the event you’re laid off. 

Ideally, you’ll have enough money to cover six months of living expenses in your emergency savings. That may sound like a large sum, but if you put a little aside each month, you may be surprised at how quickly it adds up.

36. Plan for short-term goals

Think about what you want to save for in the next one to three years. Maybe it’s fun stuff, like a vacation, a new bike, or a gaming console. You might want to save for practical things, like replacing your aging car or moving into a bigger apartment. 

For each goal, figure out how much money you’ll need, how long you’ll save, and how much you’ll have to set aside each month to get there. 

37. Set medium-term goals

Saving for things three to five years in the future is also more achievable when you set specific goals; your motivation to keep saving may be stronger if you can picture what you’re going for. You might save for a downpayment on a house, remodel if you already own a home, or start a small business

38. Focus on long-term goals

When you think a decade or more into the future, goals might be harder to picture, but saving for them now can help you get there. Building up retirement savings and paying for your children’s college education are big targets, so focus on consistently saving a certain amount over time. When the far-off future arrives, you’ll be better prepared for it.  

Open a high-yield savings account

If you’re wondering how to save money more quickly, think about interest. When your money earns money, you add more to your nest egg without lifting a finger. The higher your savings account’s interest rate, the more your money will grow. And with compound interest, the interest you’ve earned also earns interest, so your savings grow even more rapidly. 

39. Check your current savings account interest rate

If you’re keeping a large amount of money in a basic savings account at a big bank, you could be missing out on some serious earning potential. In December 2023, the average national bank savings account interest rate was only 0.47%, and it was a meager 0.01% at the largest banks.

If you don’t know your current savings account interest rate, log into your dashboard or look at your latest bank statement. While you have your bank accounts pulled up, review your checking account to see if you’re being charged any pesky bank fees that could be hindering your ability to save money. 

Use a high-yield savings calculator to see if you could be earning more.

40. Switch to a high-yield account for better earnings

If your current savings account isn’t earning much, take 15 minutes today to sign up for a high-yield savings account. A high-yield savings account can help you reach your short-term savings goals and build your emergency fund faster. 

These accounts work just like regular savings accounts; some have minimum balance requirements or monthly fees, but many don’t. With the proliferation of online banks and credit unions, there are a growing number of options; some online banks offer high-yield savings accounts with annual percentage yields of 4% or more. 

Curious about other ways to put your idle cash to work? Learn more about this investment.

41. Automate transfers to your savings account

Saving up money is an exciting idea in theory; in practice, though, it can take a lot of discipline. That’s where automatic transfers come in. Setting up an automatic monthly transfer from your checking account to your savings account is an effortless way to make sure you don’t accidentally spend. 

Another option is to have your employer direct deposit a certain percentage of your paycheck into your savings account. As the old saying “out of sight, out of mind” goes, tucking away your funds before you see them will help to reduce the likelihood that you’ll spend all of your money each month.

Stop trying to keep up with the Joneses

Your college roommate is posting photos from another Caribbean vacation. Meanwhile, you’re clipping coupons and eating leftovers for lunch. When you compare your life to what everyone else around you seems to have, it can lead to anxiety and poor self-esteem. 

Trying to keep up with the Joneses can lead you to torpedo your financial plan, spend money on things you don’t really want, and even accrue unmanageable levels of debt. 

Learning how to save money isn’t just about the logistics of budgeting and adding to a bank account. It’s also about adopting a mindset that puts your financial priorities first:

42. Define your financial goals and values

Get clear about your money values and both the short-term and long-term financial goals you’re working toward. This clarity will help you stay focused on your priorities, rather than getting swayed by others’ spending habits.

When you see someone else splurging, picture the things you’re saving for. This mental imagery can act as a powerful motivator and reinforce your commitment to your financial objectives.

43. Limit your time on social media

Minimize your time on social media and unfollow accounts that make you feel envious or discouraged. Reducing exposure to ostentatious displays of wealth can help alleviate the pressure to conform to societal spending norms.

Associate with people who have similar values and personal finance goals. Being around individuals with comparable financial mindsets can help reinforce your saving habits and reduce the temptation to overspend.

44. Have a weekly money date

Make a weekly date with yourself to update your budget and check on your progress. Regularly monitoring your financial situation keeps you informed and motivated to achieve your set savings goals. If you have a partner or spouse, be sure to include them. Only if they know your household financial goals and the steps you’re taking to achieve them, can they make fully informed spending decisions with household dollars.

45. Celebrate your financial wins

When you achieve something, whether it’s hitting a set savings goal or coming in under budget on your groceries, celebrate your accomplishment. Acknowledging your successes, no matter how small, can boost your morale and keep you motivated on your savings journey.

Save and invest for the long haul with Stash

Once you get clear on your goals and figure out how to save money in ways that work for you, you may find yourself looking for more ways to work toward your long-term financial health. And that could include investing. 

If that sounds daunting, you’re not alone: 90% of Americans say they want to invest, but nearly half don’t know where to start. Stash makes it easy to begin putting your money into the market with automated investing and fractional shares that allow you to become an investor with as little as $5.

The sooner you start saving money and investing, the longer your money has to grow. Whatever methods you use to save, and no matter how small you start, taking the first step can set you on the course toward long-term success. 

Investing made easy.

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Frequently asked questions about how to save money

What is the 30-day rule?

The 30-day rule is a simple budgeting technique where you wait 30 days before making a non-essential purchase. If you need help controlling impulse purchases, this rule is a good one to use. It helps you determine whether the item is a true necessity.

How can I save $1000 fast?

To save $1,000 fast, consider cutting non-essential expenses, selling unused items, working extra shifts, or finding additional sources of income. Creating a budget and tracking expenses can also help you best save for your goals.

How can we save money in the current economy?

In the current economy, you can save money by reducing discretionary spending, shopping smarter with discounts and coupons, and prioritizing needs over wants. Consider refinancing high-interest loans and consolidating debt to further reduce expenses.

How can I save money with high inflation?

During high inflation, prioritize essential expenses, and cut back on non-essential spending. Consider buying store brands instead of name brands, and look for discounts and sales. Also, keep money in interest-bearing accounts to offset the impact of inflation.

Is it safe to keep money in the bank during inflation?

Yes, keeping money in the bank is generally safe during inflation due to the FDIC insurance protecting deposits up to $250,000 per depositor, per bank. However, the purchasing power of your money may decrease, so consider diversified investments to hedge against inflation.

The post How to Save Money: 45 Best Ways to Grow Your Savings appeared first on Stash Learn.

What is the 50-30-20 budget?

The 50/30/20 budget rule is a budgeting guideline in which you divide your monthly income among three broad categories: 50% to needs, 30% to wants, and 20% to savings/investing. 

• 50% goes to needs: These are your essential living expenses and bills that must be paid; if you have debts, include at least the minimum payments in this category.
• 30% goes to wants: These are the things you’d like to spend money on but could live without.
• 20% goes to savings: This bucket includes sinking funds for short- and mid-term savings goals, your emergency fund, and long-term investments like retirement.

What’s the difference between a want and a need?

What counts as a “want” and what counts as a “need” will look different for different people. 

Your needs are unavoidable bills. These generally include food, housing, transportation, utilities, and debt payments. They can also include things like childcare, medical costs, care for family members, tithing, and more. Think about all the money you have to spend in a month to take care of your and your family’s must-haves: those are your needs.

On the other hand, your wants are the things you’d like to have or do but could do without. Typical wants include things like entertainment, takeout, hobbies, gym memberships, and subscriptions. They can also include things like classes, gadgets, home decor, and other more expensive purchases.

Defining what you need versus what you want is very personal. For one person, a gym membership may be a want, something they enjoy but could give up if they had to. Someone else may be unable to live without a gym membership due to chronic pain or a lack of other options. Similarly, your lifestyle, where you live, who you support financially, and your dependents will all impact what you define as a want versus a need. A single young adult’s budget may look different than one for a family or someone with multiple dependents. For example, a parent working from home who doesn’t have childcare options might see a streaming service subscription as a need if their kids get home from school a couple of hours before the workday ends; that expense may be necessary for their kids to be safely occupied while they get their work done. But a college student who has a tight budget may see that subscription as a nice-to-have.

Organize your needs and wants, on paper or mentally, before you get started making a budget. That way, you’ll go into your 50/30/20 budget with a framework already started.

How do you budget for savings and investing?

The savings category is for your short, mid-term, and long-term savings and investments. There are three primary areas to consider.

• Emergency fund: Your first savings priority is an emergency fund. Many experts recommend keeping six months of expenses in your savings account so you won’t have to struggle if your water heater breaks, your cat needs surgery, or you have an unexpected medical cost. This amount can also be a buffer to get by if you unexpectedly lose your job.
• Savings goals: This is the money dedicated to your short- and-mid-term goals. These goals might include smaller expenses like upgrading your laptop, buying new shoes, or getting tickets to an upcoming concert. You might also have bigger goals like buying a car, funding a wedding, or putting a down payment on a house. The size and type of your goals will vary and change over time.
• Retirement: Finally, putting aside money for retirement is part of your savings/investing category. Most experts recommend you dedicate at least 10%-15% of your monthly income to retirement. Consider starting with a set percentage going into your retirement account and increasing your investments annually. The sooner you start, the better, as your investments can benefit from the power of compounding.

How you save money, how much you’re investing, and what you save for are going to shift over time as you achieve your short-term goals and are able to focus on your long-term investment opportunities. 

How do you budget for debt repayment?

Making the minimum payments on your debts is generally considered a need, because missing those can incur fees, damage your credit score, and even lead to collections. However, paying more than the minimum payments can help you get out of debt faster and reduce the amount of interest you pay in the long run. 

So if you have a lot of high-interest debt, it may make sense to shift the 50/30/20 rule temporarily to pay down your debt faster. You could use a 60/20/20 rule, or even 70/20/10, categorizing extra debt repayment as a need and devoting more of your income to that category.    

5 steps to budgeting with the 50/30/20 rule

Since your budget is unique to your lifestyle and circumstances, there are several steps you need to take to ensure you have all the information you need for a successful 50/30/20 budget.

1. Calculate your monthly take-home income

Step one is to understand what you have to work with. Add up the money you make each month from every income source you have. Look at your paystubs to see your actual take-home pay, which is what you get after you pay taxes. Also include any other money coming in, like child-support payments, interest on savings, side hustles, or second jobs. If you make money as an independent contractor, don’t forget to set aside a percentage of your earnings from taxable income; don’t include the money you’re putting aside to pay your taxes when calculating your take-home income. If your income is inconsistent, consider starting by averaging what you made over the past three months and using that as your framework. 

Once you know how much money you have, it’s time to bucket it based on the 50/30/20 rule. 

2. List all your needs

Next, make a list of your needs, those things you can’t live without. Start with your monthly bills, and then consider your quarterly and yearly expenses. You can account for those expenses by dividing them by three, six, or twelve. 

For example: 

• A quarterly water bill that’s $150 can be budgeted as $50 a month: $150 divided by three months
• If you get a $60 oil change every six months, that could be $10 a month: $60 divided by six months
• A yearly insurance bill that’s $1,200 can be $100 a month: $1,200 divided by 12 months

Now add up all those expenses and see how close you fall to the 50% allocation for needs. If your needs are 50% of your income, or pretty close, you’re ready to take a look at your wants. 

If your needs are more than 50%, look for opportunities to reduce your costs. Are there cheaper options for some of the things on your needs list? Could you get by with a less expensive phone plan? Shop around for lower insurance rates or special internet/phone bundles. Finding less expensive options is ideal, but not always possible. Don’t be afraid to shift to a 60/20/20 structure while you look for cost-cutting opportunities.

3. Determine your wants

Your next priority is understanding your wants. Initially, focus on the money you already spend to see if it adds up to about 30% of your income. Take a look at your transactions over the last couple of months to get a realistic idea of the don’t-need-but-really-want expenses in your life. If the total cost of your wants falls around 30% of your take-home pay, you’re good to go. 

If your wants exceed the 30% allocation, consider prioritizing them so you can cut or delay those with the lowest priority. Be realistic when making these decisions: if you cut out too many of life’s little pleasures, there’s a good chance you’ll start feeling deprived and blow your budget with impulse buys. And on the flip side, if you prioritize lots of wants that don’t really give you much enjoyment, you’re losing the opportunity to save up for the things you truly want down the line.  

Budget tip: If your wants are coming in way over the budgeted 30%, consider shifting the more expensive items to the savings category and saving up for them over the course of a couple of months. This way, you’re sticking to your 50/30/20 rule but can still afford to buy the things you really want by planning ahead.

4. Decide your savings/investing split

The last 20% of your budget is all about savings. Take a look at your short-term, mid-term, and long-term dreams and set your savings goals. What do you want to achieve this year? In the next five years? What about retirement?

Your first priority is likely filling your emergency fund so you can cover the recommended six months of expenses. Once you’ve done that, or if you already have an emergency fund, you’ll want to think about your savings and retirement split.

How you break down your 20% is up to you, but here are some questions that might help guide you as you ponder your options.

• Do you have any big goals coming up, such as a house or wedding?
• Do you have any expected expenses coming up in the next few years, like a new roof, upgraded computer, soccer camp for your kids, or educational courses? 
• How reliable is your income, and how much of a safety net do you already have?
• Are your retirement investments matched by your employer?
• How old are you, and how soon do you hope to retire?

Remember to look at the timeline, size, and priority of your goals. Start as simply as you can; it’s always possible to add goals and complexity over time. 

5. Learn and adjust as you go

Now that you’ve implemented the 50/30/20 rule, it’s time to stick to it and make adjustments along the way. Here are a few tips for making the most of your budget: 

• Create a system. Whether you use an app, spreadsheet, or pen and paper, the 50/30/20 budget will only work if you stick to it. Automating with tools can help, but your priority is creating a sustainable and realistic budget and saving strategy.
• Schedule a regular money date with yourself. Make sure to check your progress. You can start with weekly check-ins to see how it’s going and make adjustments if things aren’t working quite how you planned. If your budget doesn’t work one week, see what went wrong and make the necessary adjustments for the next. The better you understand your income, expenses, and savings, the better you’ll be able to manage your financial health. 
• Celebrate your wins. It’s easy to focus on what didn’t work, but make sure to celebrate your budgeting successes so you stay motivated and excited about managing your money.

Is the 50/30/20 rule right for you?

The 50/30/20 rule is a simple way to make sure you’ve got the essentials,, while still enjoying things you want and putting money into savings and investments. 

Of course, there isn’t a one-strategy-fits-all solution. If you try out the 50/30/20 rule and it isn’t for you, consider giving zero-based budgeting a try. The best budget is one you can stick to and one that gives you confidence with your money. With the right tools and the right budget, you can change your approach to spending, saving, and investing to set yourself up for long-term financial success.

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In this article, we’ll cover:

• Why you need an emergency fund
• When emergency funds come in handy
• How much you should save up
• How to build your emergency fund
• Where you can keep your savings
• Emergency savings vs other savings

Why you need an emergency fund

Without emergency savings, you wind up sacrificing your future plans to stay afloat during a time of need. Think of your emergency fund as a double-pronged defense: it protects you in the moment when unforeseen expenses arise and safeguards your ability to build long-term financial health.

• Avoid racking up debt: An emergency fund prevents you from relying on credit cards or loans for unexpected expenses, so you don’t have to accumulate debt, pay interest on loans, or risk damaging your credit score.
• Don’t deplete your savings: Instead of withdrawing money you’ve earmarked for other savings goals, an emergency fund ensures you have a separate cache in case of a crisis.
• Protect your investments: With an emergency fund, you won’t be forced to liquidate investments before you’d planned to, potentially taking a loss in the process.
• Maintain peace of mind: Knowing you have money in reserve reduces the worry that a financial emergency could undermine your financial stability, especially during challenging times.

When to use an emergency fund

An emergency fund is a safety net to cover large expenses, generally over $1,000, or to sustain you if you lose your income. It’s crucial to use it only when it’s truly urgent and necessary; if you deplete your emergency savings for non-essentials or to cover normal monthly expenses, the money won’t be there when you genuinely need it.

Emergency expenses

An unexpected expense is just that: unexpected. That means you can’t necessarily anticipate what you’ll need emergency savings for. That said, there are some common scenarios in which people rely on an emergency fund. 

• Major car repairs: Situations like a car accident, engine failure, or a transmission issue can all pose a high financial toll.
• Home repairs: Whether you’re a homeowner dealing with a failing furnace or a renter fighting a bedbug infestation, unexpected home repairs can be costly.
• Medical emergencies: Health is unpredictable. From sudden surgeries to treatments not covered by insurance, medical expenses can take you by surprise.
• Unplanned travel: Sometimes, urgent trips are unavoidable. Whether it’s attending a family emergency, a funeral, or assisting a sick loved one, having funds set aside can ease the journey.

Income loss

Even the most stable-seeming job can go up in smoke, so it’s important to be prepared for the possibility of unemployment. If you face a sudden loss of income due to layoffs or health issues, an emergency fund can help cover your living expenses without going into credit card debt while you find a new job. 

Emergency cash is especially crucial if you’re self-employed or a gig worker, since government financial aid options like unemployment or disability benefits might not be available to you.

How much money should you have in your emergency fund?

A widely accepted rule of thumb is to keep three to six months’ worth of living expenses in your bank account for emergencies. The reasoning is that it can take many months to find a job, so you want to have enough to cover your living expenses in case of unemployment.

The exact amount for a healthy emergency fund will vary for everyone. To get a ballpark figure for yourself, jot down all your monthly expenses and multiply that by three (for the conservative side) or six (for a more comfortable cushion). The number you come up with might seem like a lot of money, and you may want to whittle it down by subtracting expenses you’d temporarily cut if you lost your job, like entertainment or treats. 

For example, say your total expenses add up to $5,000 a month. You’d need between $15,000 and $30,000 in your emergency fund to cover three to six months of living expenses. But if you were to remove some discretionary spending from your budget, you may find that $10,000 or $20,000 would be enough to get by if you tighten your belt.  

In reality, however, six months of living expenses sounds like an intimidating savings goal for most people. The good news is, you don’t need a specific amount of money to start an emergency fund. If you just start saving a portion of your paycheck based on what you can afford, your fund will grow over time.

How to build an emergency fund

Like any financial goal, building an emergency fund may sound daunting at first, but it’s much more accessible when you have a plan and tackle it in small chunks. 

The key is saving consistently and gradually increasing your contributions as you’re able.

Make a budget you can stick to

Building a budget is the foundation of managing your day-to-day spending, paying down debt, and working toward your savings goals. There are many different budgeting strategies out there, such as the 50/30/20 rule, the envelope method, and zero-based budgeting. The best approach for you is the one you can stick with. Include a line item in your budget specifically for your emergency fund so you’re adding to it bit by bit every month.

Automate your savings

One of the smartest moves you can make for your savings is to automate your contributions. By setting up a direct deposit from your paycheck into your savings account, you can tuck a portion of your earnings directly into your emergency fund before you even see it, thereby reducing the temptation to spend that money. Over time, this consistent, automated approach can significantly grow your emergency savings without feeling the pinch.

Take advantage of windfalls

Sometimes life drops a financial bombshell, but every so often you get a pleasant surprise as well. Windfalls like tax refunds, bonuses, and gifts are an opportunity to bolster your emergency savings. When you find yourself with extra money, consider channeling a portion into your emergency fund. Allocating windfalls to your savings can accelerate your fund’s growth, getting you closer to your financial goals without affecting your regular income.

Trim your expenses

Every dollar saved can be a dollar earned for your emergency fund. By reviewing and cutting back on non-essential expenses, you can free up more money for your savings. From cutting back on discretionary spending to reducing the cost of monthly expenses, look for practical ways to save money and funnel the extra cash into your emergency savings.

As you begin reviewing your spending habits, you might find some easy wins—such as canceling unused monthly subscriptions or seeking out the most cost-effective car insurance provider—these small changes can quickly reduce your total spending and free up dollars to grow your emergency fund.

Where to keep your emergency fund

When storing your emergency savings, two principles are key: liquidity and growth. Liquid means you can access your funds quickly and easily, without facing penalties. And growth is all about earning money on your savings. 

While it’s essential for your emergency cash to be accessible, you don’t want it to sit idle in your checking account. Opting for an interest-bearing savings account can help your emergency fund grow more quickly without you having to lift a finger.  

• Savings accounts: A traditional savings account offers a safe place for your money, typically with minimal or no fees. Many banks offer options with a low minimum required deposit; the trade-off is that these bank accounts usually pay lower interest than other short-term ways to grow your money.  
• High-yield savings accounts: These are similar to regular savings accounts, but offer a higher interest rate. This means your money can grow faster over time. Some might have higher minimum balance requirements or monthly fees, so be sure to read the fine print.
• Money market accounts: A money market account combines features of both checking accounts and savings accounts. Typically offering higher interest rates than standard savings accounts, they may also come with checks or debit cards. However, they might require a higher minimum balance and have monthly limits on transactions, making your emergency fund less liquid.

Emergency savings vs. other savings

Saving money is all about planning for the future, whether it’s unanticipated expenses or things you know you’ll need or want. An emergency fund is one component of an overall savings strategy; be sure you understand how it differs from other types of savings funds so you can plan accurately for all your financial goals.  

• Emergency fund: Emergency savings are for unexpected and significant expenses, typically those over $1,000, or even much more.  
• Rainy-day fund: Tailored for smaller unforeseen expenses, a rainy-day fund can cover living expenses you may not have accounted for in your budget. For instance, if there’s an out-of-the-blue spike in your water bill or a surprise visit to the vet, this fund comes to the rescue.
• Sinking fund: This is your planned savings pool. It’s for anticipated expenses you know are coming down the road, like regular vehicle maintenance, holiday gifts, or a vacation. When you have a solid emergency fund, you can rest assured you won’t have to siphon money away from these savings goals if you’re in a financial pinch. 
• Retirement savings: Preparing for your golden years is a marathon, not a sprint. Many people opt for tax-advantaged retirement accounts like IRAs or 401(k)s to maximize their savings. Withdrawing funds early can have substantial financial repercussions, so it’s extra important to rely on your emergency fund instead of tapping into retirement savings in a crisis. 

Protect your present and future with an emergency fund

An emergency fund equips you to navigate life’s uncertainties with confidence. And it also prepares you to work toward your longer-term financial health. Knowing you have a buffer to weather a financial storm empowers you to focus on saving and investing money to reach your bigger goals. 

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Debit cards take money out of your bank account when you swipe, while credit cards add debt to your line of credit when you use them. Understanding the differences between debit cards vs. credit cards will allow you to use the right one for your needs.

In this article, we’ll cover:

• Debit cards and how they work
• Pros of debit cards
• Cons of debit cards
• Credit cards and how they work
• Pros of credit cards
• Cons of credit cards

What is a debit card?

While cash is still a viable payment option for most goods, businesses have long been progressing toward digital payment methods. Purchasing trends have also shown an increase in online shopping, even for groceries, making cash and checks obsolete.

A debit card reduces the need to carry cash or physical checks to purchase. Some retailers no longer accept physical checks as payment, which will likely increase with time.

How a debit card works

A debit card is connected to a bank account the cardholder opens up at a financial institution. You can use a debit card in one of three ways: to make purchases at a point-of-sale (POS) system in a physical store, at an ATM to withdraw cash, or to make purchases online.

The amount of money you can spend using a debit card depends on what you have in your bank account. There is no line of credit you can borrow with a debit card. If funds are unavailable in your account at the time of purchase, the transaction will likely be declined or cause an overdraft to occur.

When a purchase is made in person, you use a personal identification number (PIN) set up at the financial institution when the card is ordered. The transaction is then sent through the online network used by the merchant to remove the funds from your account.

Some debit cards allow you to forgo using the PIN and choose the “credit” option, which typically requires a signature. The transaction is then processed through the global digital payment technology company network, where a hold is placed on the amount, processing within a few days.

The benefits of debit cards

Convenience

Debit cards deduct purchases from your account immediately, so you don’t have to wait days for the money to be subtracted from your available balance. Using a debit card for transactions or to withdraw cash provides benefits like convenience and speed, and some even have rewards.

No annual fees

Debit cards do not require annual fees to stay activated. The bank account that the debit card is connected to may have monthly maintenance fees, but there are ways to avoid those fees with direct deposits or other means.

Avoid overspending

Debit cards can help you avoid overspending since you can only spend what is available in your bank account. If there are not sufficient funds to cover a purchase, the transaction will likely be declined. There are exceptions to this, and some financial institutions allow you to overdraft your account, but overdraft fees apply.

No interest

Since purchases are taken directly from your account, debit cards don’t accumulate a balance to be paid. This means debit cardholders avoid having to pay interest on a balance owed.

Debit card rewards

While they are usually not as generous as the rewards offered by credit cards, some debit cards also come with rewards, When you use your debit card for purchases, some banks might offer you cashback or discounts on specific products or services. While these rewards may be smaller, they still provide a little extra something for your everyday spending.

Cons of debit cards

Spending limit

A debit card restricts you to the money you have in your account. There may be instances where you need to spend more than what you have available. You can budget for those larger purchases, but sometimes, some emergencies require immediate funds.

Overdraft fees

If you don’t have overdraft protection on your account, there may be instances when using your debit card causes an overdraft. When an account is overdrafted, a fee is triggered as a penalty. If you immediately bring your account out of the negative, you can avoid future fees. If not, some financial institutions will charge you an additional fee every day the account is overdrafted.

Limited fraud protection

Any time a debit card is lost or stolen, you must notify your bank immediately. According to the Federal Trade Commission, if you report your lost or stolen card within two days, you may still be held responsible for up to $50 of fraudulent charges. If it takes you more than two business days, you’ll be responsible for up to $500, and anything past 60 days could make you liable for all the fraudulent charges on your account.

Don’t build credit

Since a debit card doesn’t allow you to borrow funds, it doesn’t assist in building credit. While debit cards don’t affect your credit score, other lines of credit, including a credit card, will.

What is a credit card?

Similar to a debit card, a credit card is a small rectangular piece of plastic or metal issued to you by your bank or a financial services company. However, how a credit card functions differs from a debit card.

Credit cardholders may also be granted a separate cash line of credit (LOC). In this case, cardholders can borrow a specified amount of money through cash advances at their financial institution, ATM, or by using credit card convenience checks. Cash advances come with terms that typically involve higher interest rates and no grace period.

How a credit card works

A credit card can be swiped, inserted, and tapped at a payment terminal. You can also use them online with the credit card number, expiration date, and security code. The only time you can use them to obtain physical money is through a cash advance.

Once you make a purchase, it will appear as “pending” in your account activity and take a few days to clear. Once the amount is posted, it will be added to your balance owed and removed from your available credit.

Every month, you’re required to make a payment on your credit card on a specific date. You can pay off your entire balance owed, your current statement cycle balance, the minimum payment, or an amount of your choosing. Paying any amount but the total balance will incur interest, and paying anything below the minimum payment will incur fees.

The benefits of credit cards

Build credit

A credit card can build credit. The type of credit built depends on payments being made on time and the balance owed steadily decreasing. You don’t need to maintain a balance owed to build good credit, so paying the full balance every payment cycle is the best and safest approach.

Rewards

Credit cards generally have incentives or rewards for the cardholder to encourage use. The types of rewards will depend on the card, but they can come in the form of cashback, airfare points, a free night stay at a hotel, and more.

Consumer protections

Many credit cards offer cardholders a zero-liability policy if fraudulent purchases are made on the card. In other words, you won’t be responsible for unauthorized charges. You can also dispute a charge if the product purchased was falsely advertised, unsatisfactory, or absent.

Reservations and travel perks

Certain situations require a credit card, like booking a hotel room. Aside from cash, hotels will only accept credit cards as payment for the room and incidentals, should anything in the room become damaged or go missing. Special travel credit cards have useful perks like concierge services, rental car insurance, no foreign transaction fees, and more.

Cons of credit cards

Overspending

The ease of using a credit card with a large credit limit can lead to cons like overspending. Spending to the credit limit could put you in a cycle of only being able to afford to make the minimum payments and incurring interest charges, which causes your debt to grow. High balances on your credit card can damage your credit score.

Debt

Credit cards allow you access to more funds than your budget may allow, which can lead to debt if overspending occurs. Interest charges can be about as much as the minimum payment if your balance is high, making it difficult to pay down your debt.

Interest rates

Credit cards have variable interest rates, which depend on the federal funds rate. Rising interest rates can cause credit card balances to go up, making it harder to budget and pay down debt. If a balance is left after a payment is made, finance charges can increase.

Fees

Many credit cards have annual fees, fees for adding an authorized user, fees for cash advances, foreign transaction fees, or fees for making a late payment. It’s important to review the fees and perks of a credit card, and how they may or may not impact you, so you can decide if the card is right for you.

Debit vs credit: key takeaways

Having the best of both worlds

You don’t have to choose one over the other when it comes to having a credit card or debit card. Each has its benefits and can be used for separate occasions. For example, the fraud protection on a credit card is more robust, making it the safer option for online purchases. Debit cards are more suited for everyday purchases, so you can better control your spending. Many people have both to manage their funds, establish credit, and take advantage of rewards.

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By understanding your income and expenses, you can create a budget using the 50/30/20 budgeting rule and determine just how much of your paycheck you should save or invest each month.

In this article, we’ll cover:

• Saving with the 50/30/20 budgeting rule
• When to break the 50/30/20 budgeting rule
• What to do with your savings
• Where to keep your savings

Determine your income and expenses

The first step to any savings strategy is to create a budget that will allow you to plan a specific amount to save after your expenses are covered each month. To get started, you’ll want to understand your income and expenses. That’s how much money is coming in and where it’s currently going. 

A good way to do this is to add up your income and expenses for the last two to three months, then calculate the average to get a sense of your usual monthly financial picture. Looking at a few months’ worth of financial records helps ensure you capture expenses that don’t come up every single month, and it’s especially important if you don’t make a consistent paycheck. 

To identify income, add up all the money you take home, which might include your paycheck, money from a side hustle, and payments from things like child/spousal support or government programs. Then take a look at your expenses: everything you’re spending your money on, including both necessities like bills and groceries as well as discretionary spending on things you want but don’t necessarily need. 

With a clear picture of your income and expenses in hand, you’ll be prepared to create your budget. 

Use the 50/30/20 budgeting rule 

The 50/30/20 budgeting rule can help you determine how much of your paycheck you should save by assigning every dollar you make to a bucket, determined by the percentage of income. 50% of your paycheck goes to your needs, 30% to your wants, and 20% to your savings/investments. 

What you consider a need versus a want is inherently personal and based on your unique situation and goals. For example, the nature of your work may require you to purchase a more powerful laptop. For you, that’s a need if you cannot do your work without it. Someone else may be able to accept a cheaper alternative, and a nicer computer would be considered a want.

Here’s how the buckets break down:

• 50% to needs: Everybody has different needs, but you can think about them as your necessary expenses. Typical needs often include rent or mortgage payments, utilities, insurance, car payments, groceries, debt payments, etc. Depending on your circumstances, needs also may include recurring medical costs, caretaking for a child or family member, education-related costs, public transportation, pet costs, tithing, and more. Look at your recurring expenses over the past few months to identify the expenses you have to cover each month and include them in your needs category. 
• 30% to wants: This category incorporates things like hobbies, vacations, dining out, streaming services, gym memberships, and recreational activities. The breakdown could end up encompassing many small expenses, like eating out, or a few larger ones, like a vacation or phone upgrade. Remember, it’s only a “want” if it isn’t necessary. For example, if you have to go to physical therapy to treat a medical condition, that’s a likely need, not a want. If you prefer the gym treadmill to running outside but could take the alternative, a gym membership may be just a want. It depends on what’s truly important to you.
• 20% to savings and investments: How you save and invest can also look different. You may want to focus on short- or medium-term saving goals like education expenses, a house or car, and building your emergency fund. Or you might want to invest for the long term with a brokerage account, an IRA or 401k for retirement, or an investment account for your children’s future education. Whether you’re saving for short-term goals or investing in your long-term financial future is very dependent on your situation. It is recommended that you start by building an emergency fund with enough savings to cover up to six months of expenses before moving on to other savings goals. 

When to break the 50/30/20 budgeting rule

Of course, how much of your paycheck you should save will depend on several factors, and the 50/30/20 rule doesn’t have to be exact. You may need more than 50% of your income to cover your needs, or you may need to save/invest more than 20% of your income to reach your goals. If you have a lot of debt or live in a high-cost-of-living city, for example, you may end up committing 60% of your income to needs, 20% to wants, and 20% to savings/investments. Or, if you’re saving for something important, you could rethink your breakdown and temporarily use a 50% needs, 20% wants, and 30% savings strategy. 

The 50/30/20 budgeting rule is a framework, and how you adjust it is dependent on your financial situation, lifestyle, savings goals, and needs. Here are a few specific scenarios in which you might want to allocate your income to categories a bit differently.   

High or low expenses vs. income

If your expenses are more than 50% of your income, you’ll need to adjust your budget strategy to compensate. First, identify what expenses are wants versus needs. If they’re mostly needs, adjust the 50% to cover the amount required. If they’re mostly wants, look for opportunities to reduce these costs to get closer to 30%. Even if you can’t commit 20% of your monthly income to savings/investing, you can still find ways to save money. Your priority is creating a realistic budget that works for you; saving 10% of your paycheck, or even just $10 or $20 a week, will build up over time. 

If your needs are less than 50% of your income, you have an opportunity to put more money into savings and investments. This is a chance to avoid lifestyle creep, which is when you artificially inflate your needs or wants to fit a higher income, and instead double down on achieving your financial goals. For instance, if you get a raise at work, you might consider putting some of that additional income toward your savings goals instead of increasing discretionary spending.

Large amounts of debt

If you have a lot of debt, especially high-interest debt, it may make sense to focus on paying down your debt before committing to saving 20% of your income. You’ll still want to maintain a healthy emergency fund, as emergencies can’t be avoided or predicted, but devoting more of your income to paying off debt faster will help you pay less in interest over time and could relieve some pressure on your budget. You can utilize the avalanche method, in which you pay your debts from the highest interest rate to the lowest, or the snowball method, where you pay down debts from the smallest to the largest amount. Once you’ve paid off your debt, you can re-adjust the framework and commit more money toward your savings goals or investing. 

Two-income households

How much of your paycheck should you save versus your partner or second-income earner? You can adjust your approach to the 50/30/20 budgeting rule to accommodate dual-income households. If both parties are earning roughly the same income, one earner could cover your household’s basic, necessary expenses in the 50% needs category. The second earner could commit their income to wants and savings/investing. This won’t work for all financial situations, but it can be a helpful framework for applying the 50/30/20 budgeting rule when sharing expenses. 

What to do with your savings

How you use your savings will depend on numerous factors. Emergency savings, a house fund, saving for education, and saving for your children or other family members are all common savings goals. There is no one-size-fits-all savings amount, and you should always factor in the stability of your employment situation and your lifestyle when setting your savings goals to ensure they’re realistic and achievable.

Build an emergency fund

First things first, focus on your emergency fund. The size of your emergency fund can depend on your current income, your existing savings and investments, how many dependents you have, and more. It’s recommended that you maintain an emergency fund with up to six months’ worth of expenses. That way, if you suddenly lose your job, your car breaks down, or you have a medical emergency, you don’t have to panic or go into debt to get by. 

An emergency fund is different from a rainy day fund; the latter is usually smaller and designed to cover more predictable, lower-cost things like car maintenance and your dog’s yearly vet visit. 

Set savings goals

Of course, determining how much of your paycheck you should save is only the first step; you still have to determine what you’re saving for. You’ll likely have short-term, mid-term, and long-term savings goals. Short-term goals are generally achieved in 12 months or less and might include things like planting a garden in the spring, saving for braces, upgrading your computer, taking a vacation, or saving for holiday gifts. Mid-term goals are a little further out: usually about one to three years. This can be something like putting a down payment on a house, moving to a different city, getting a new car, having or adopting a child, or having a wedding. Creating a sinking fund is best for these types of savings goals.

Remember, what you see as a short- or mid-term goal will depend on your income, other expenses, and timeline. Whatever the case, having specific saving goals can motivate you to stick with your plan and put that money aside instead of spending it.  

Invest for the long term

Long-term financial goals typically focus on retirement planning, wealth building, and financial freedom. These savings goals take a longer time to achieve but are well worth the work. They often look like contributing to a retirement account, building a diversified investment portfolio focused on long-term gains, or investing in an account for your child’s education. Often, people work toward these long-term goals by investing rather than keeping money in the bank, where inflation may outpace the interest earned. 

Where to keep your savings

While you technically can save your money in any account, there are some account types that amplify your savings because they earn interest or returns. When selecting what account to put your savings in, you’ll want to think about potential returns, how likely you’ll need to access that money, and how long you want it to stay in the account. 

• High-yield savings account: A high-yield savings account is best for short- to mid-term savings. These accounts act much like traditional savings accounts but pay more in interest. Like a traditional savings account, you may be limited to six monthly withdrawals, but your money can be accessed quickly if needed. A high-yield savings account can provide competitive returns, but remember that most interest rates are variable, so they could drop at any time.
• Certificates of Deposit (CDs): A certificate of deposit, or CD, is essentially a loan you extend to the bank. Your deposit earns a fixed interest rate for a set period of time. You’ll generally get higher interest than a traditional savings account, but you often can’t access that money without paying a penalty before the end date. The term length can vary from a few months to a few years. A CD can be a great place to store money you’re confident you won’t need to access before the term is up.  
• Retirement accounts: Retirement accounts like a 401k, IRA, or Roth IRA are for your long-term investments. These tax-advantaged investment accounts have deposit and withdrawal limits; typically, you can’t cash out your investments before age 59 ½ without incurring substantial penalties. You only want to invest money in these accounts that you won’t need to access before retirement. 
• Brokerage accounts: A brokerage account is a taxable investment account you use to buy and sell securities. Unlike a retirement account, you can invest as much money as you want and withdraw that money before retirement. A brokerage account can be a good vessel for mid- and long-term goals but comes with risks, as you can lose the money you invested. These accounts also aren’t tax-advantaged, so you’ll pay taxes if your investments receive dividend or capital gains payments, or if you sell securities that have gone up in value resulting in an investment gain.

Ready to start saving?

Once you’ve created a budget, you should be able to confidently decide how much of your paycheck you should save based on your personal circumstances. But your budgeting and savings journey isn’t over. The amount you save will likely shift as your income, expenses, and savings goals change. Budgeting and saving for young adults will likely look different from the approach that works for people in their 30s, 40s, and beyond. You can adjust your strategy to reflect your ever-evolving financial landscape by periodically asking “How much of your paycheck should you save?” with a fresh perspective.

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Budgeting doesn’t have to be complicated. This guide will take you through the process, including six steps for learning how to make a budget you can stick to.  

In this article, we’ll cover:

• What a budget is
• The importance of budgeting
• Calculating your net income
• Recording your spending habits
• Predictable vs. variable expenses
• Balancing your budget
• Types of budgeting
• Setting goals for your budget

What is a budget?

In its simplest form, budgeting is just figuring out how much you make and how much you spend and then using that information to inform your future financial decisions. Your budget allows you to plan how you’ll spend your income and keep track of money coming in and out. Tracking your spending lets you see your true financial picture in real-time so you can make informed choices. And planning ahead gives you a chance to put money toward your longer-term goals, like paying off credit cards, saving for a downpayment on a house, or planning for retirement.  

Why budgeting is important

Why learn how to make a budget? The short answer is that knowledge is power. It can be difficult to exercise control over your money until you have a clear picture of your finances. However, the benefits of budgeting extend far beyond just gaining financial control. Let’s dive into the specific advantages and rewards that come with implementing a budget.

Improved financial security

Let’s face it, life can be unpredictable. But with a budget, you can gain control over your finances and build a safety net. By understanding your financial situation, you can build an emergency fund to handle unforeseen circumstances, such as medical emergencies, car repairs, or job loss. This financial security provides peace of mind and reduces the stress that comes with financial uncertainty.

Reduced stress

Financial stress can take a toll on your well-being. Whether you’re living paycheck to paycheck or worrying about money in general, it can be overwhelming and emotionally draining. A budget gives you a clear overview of your income, expenses, and financial goals. It helps you identify areas where you can cut back, eliminate unnecessary debt, and save for the future. With a budget in place, you can make informed financial decisions and eliminate the anxiety that arises from financial instability.

Better decision-making

Picture this: you’re equipped with a budget that serves as your compass. It guides you to make intentional choices aligned with your goals. When you have a budget, every financial decision becomes more deliberate and informed. By tracking your spending habits, you become aware of patterns and identify areas where you may be overspending. This knowledge empowers you to make adjustments and allocate your resources according to what truly matters to you.

Ability to achieve financial goals

A budget serves as a roadmap for reaching your financial aspirations. Whether your goals include paying off debt, saving for a dream vacation, saving for a down payment on a home, funding a child’s education, or planning for retirement, a budget provides a structured approach to allocate funds towards these objectives. It helps you track your progress, make necessary adjustments, and stay motivated on your path to financial success.

Enhanced control and discipline

Setting a personal budget promotes discipline and self-control in managing your finances. It encourages you to prioritize expenses, distinguish between needs and wants, and resist impulsive spending. By consciously allocating your income, you gain control over your money and avoid the pitfalls of overspending or unnecessary debt. Over time, budgeting becomes a habit that empowers you to make smart financial choices that align with your values.

Improved relationships and communication

Money matters can strain relationships. Budgeting is not only a personal endeavor but can also benefit relationships. It fosters open communication about money between partners or family members, ensuring everyone is on the same page regarding any financial goal, spending limits, and saving strategies. Budgeting encourages accountability and cooperation, leading to stronger relationships and shared financial success.

6 Steps to budgeting your money

Step 1: Calculate your monthly net income

You may have heard the terms “gross income” and “net income.” Gross income is the total amount you earn before taxes, benefits, and other payroll deductions are taken out. Net income is the amount of money you actually take home every month after taxes and deductions. For budgeting, you want to identify your net income.

If your sole source of income is a job with a regular paycheck, it’s pretty straightforward: tally up the total amount of all your paychecks during a month. Your employer typically subtracts taxes and other deductions from your base salary before issuing your paycheck. 

You might have additional sources of income, so be sure to include those when calculating your monthly net income. This might include things like:  

• Alimony payments and/or child support 
• Government payments, like disability or veterans benefits
• Passive income, such as income from rental properties 
• Any money you earn from a side hustle or gig work

Step 2: Gather and record your expenses

Once you know how much money is coming in, figure out how much money is going out. Make a list of everything you spend money on every month and about how much you’re spending: bills, necessities, discretionary spending, etc. It can be tough to remember everything, so do some digging by looking at your records. 

You might start by reviewing statements from the accounts you use to pay for things, such as:

• Bank accounts
• Credit cards 
• Digital payment apps

Other useful information about expenses might be found in statements or receipts from:

• Car payments
• Car insurances
• Mortgage documents
• Utility bills
• Investment accounts
• Email receipts 

After your initial pass at tracking your expenses, consider some of the following options to help automate your tracking:

• Embrace budgeting apps: These user-friendly apps often allow you to link your bank accounts and credit cards and automatically categorize transactions and provide a visual representation of your spending patterns.
• Leverage online banking tools: Your bank’s online platform can have a treasure trove of features to help you track expenses. Explore the tools provided, such as spending categorization, transaction history, and spending alerts. 
• Use expense tracking spreadsheets: If you prefer a hands-on approach, a spreadsheet can be your best friend. Create a personalized template with columns for date, description, category, and amount. Enter your expenses regularly and categorize them accordingly. 
• Use the envelope system: The envelope system is a physical method where you assign cash to different envelopes, each labeled with a specific spending category. Whether it’s groceries, transportation, or entertainment, this system allows you to visualize your available funds and make mindful spending choices.
• Keep your receipts: Make it a habit to collect and store receipts for your purchases. Create a designated email folder for digital receipts and store your physical receipts in an envelope or folder.
• Account for cash transactions: Cash can be elusive when it comes to tracking expenses. Stay on top of it by jotting down cash transactions in a small notebook or using a budgeting app that allows manual entry.

Remember, effective expense tracking is crucial for accurate budgeting. Choose a method that works best for you and consistently track and categorize your expenses. Regularly reviewing your spending habits will provide valuable insights for making informed financial decisions and adjusting your budget as needed.

It can be helpful to look through 12 months of records to get a full picture of your spending. Some expenses vary from month to month, and any bill or subscription renewal that recurs yearly will only show up as a charge in one month over the course of the year. Budgeting requires being aware of and anticipating these expenses so you can plan for them. 

Step 3: Categorize fixed expenses vs. variable expenses

Among the easiest expenses to track are those that occur at regular intervals with the same amount, like rent or mortgage payments, your phone bill, and streaming services. These are called fixed expenses, and because they’re predictable, planning for them tends to be easier. 

Variable expenses, on the other hand, shift from month to month. They fall into two categories:

• Predictable expenses that you know will occur even if you don’t know the specific amount, like groceries or utility bills
• Unpredictable expenses that you can’t easily anticipate, such as home and car repair or health care emergencies

Expenses in the first category may vary from month to month but will typically stay within a certain range. The longer you track your spending, the better a feel you’ll get for how much to set aside for these categories. However, even these expenses can sometimes surprise you, as when gas prices suddenly rise. 

Unpredictable expenses are more challenging to budget for. If you own a car, you can reasonably assume that at some point it will need repairs, but you don’t know when or how much money it will cost. For this reason, many budget experts suggest building an emergency fund for contingencies. 

To get you started, here are some examples of different types of expenses: 

Step 4: Calculate your monthly income and expenses

This step is often referred to as balancing your budget; it can be the most sobering part of the process, but it may also be the most useful in planning for the future. If you want to gain any benefit from learning how to budget, you’ll need to be honest with yourself about your income and your spending habits. 

Add up all your monthly income and expenses, then subtract your expenses from your income. The number will tell you whether you’re in the red or in the black. Now it’s time to balance your budget.

• If you’re spending less than you earn, your income is enough to cover all your usual expenses. You can use your discretionary funds to store up for emergencies or start building your nest egg by saving or investing your money. 
  
• If you’re spending more than you’re taking in, you’re living beyond your means, and paying for things with credit cards can hide this fact for only so long. The good news is that learning how to budget will make it easier to gain control of your money. Look over your spending to see if there are areas where you can cut back, paying close attention to your non-essential spending. If you find that your spending is already at the bare minimum, you may want to look for additional sources of income.   

• You may also find that you’re generally in the black, but not by much, or that some months you come out ahead and some months you’re in the red. Reducing your spending on nonessential items might help you spend less than you earn more consistently and make it easier to plan for the future.

Step 5: Choose your budgeting method

You now have a clear picture of your financial situation; it’s time to start planning and tracking your spending. There are several approaches to budgeting, and each has its advocates. It’s up to you to find the method that works best for your circumstances and personality. You might even find that combining elements of different methods makes sense for you. What’s important is that you find a way of budgeting that you can commit to over the long haul.  

Here are some popular budgeting methods you might want to try out:

• 50-30-20 budget: The 50-30-20 budget helps you set your priorities by clearly laying out how much of your monthly income you should spend on each of three categories: 50% to needs, 30% to wants, and 20% to investing and saving. One advantage of the 50-30-20 budget rule is that it provides clear guidelines for your monthly spending while leaving flexibility to adjust as you continue learning how to budget for your personal circumstances.
  
• Zero-based budget: A zero-based budget is just what it sounds like: you assign every dollar of income a category until you hit zero. That includes all your expense categories: necessities, nonessential spending, investing, saving, and emergency funds. Some people enjoy planning with this level of specificity because it can help you feel in control and be disciplined about paying down debt or saving money. That said, you’ll need to track your spending extra closely to make sure you stay on target.
  
• Pay yourself first method: The pay yourself first budgeting method is oriented toward saving and puts your long-term financial goals at the top of the list of funded categories. Essentially, you begin your budgeting process each month by setting aside money for saving and investment. By prioritizing this part of your budget, you can keep your focus on building wealth; some people find it easier to cut down their spending on unnecessary things when the big picture is top-of-mind. 
  
• Envelope method: The envelope method is a classic approach that allocates the money you have on hand to your expense categories. In the most literal form of this budget, you put physical cash into envelopes marked with categories. Then, when it’s time to spend, you take the cash out of the relevant envelope; when the envelope is empty, your budget for that category is used up for the month. The envelope method is the conceptual basis for a lot of budgeting apps, including the Stash partitions feature.   

Step 6: Set realistic financial goals for yourself and stay motivated

Once you learn how to make a budget, the final step is to put your new budget plan to use. That means tracking your spending regularly, planning out your budget for each month, and readjusting as you learn. 

One of the keys to maintaining a budget is motivation: What are you trying to achieve financially? It could be a goal as modest as saving for a new couch or as ambitious as starting your own business. Keeping your focus on why you’re budgeting, and what you hope to get from it, can help you commit to the process.

Here are some tips to help you establish goals that align with your current financial situation and increase your chances of success:

SMART goal setting

Utilize the SMART framework when setting your financial goals. By making your goals specific, measurable, achievable, relevant, and time-bound, you’ll have a solid foundation for success:

• Specific: Clearly define what you want to achieve. Instead of a vague goal like “save money,” specify an amount or percentage you aim to save.
• Measurable: Make your goals quantifiable. This allows you to track your progress and know when you’ve achieved them.
• Achievable: Set goals that are realistic and within your reach. Consider your income, monthly expenses, and financial obligations when determining what you can reasonably accomplish.
• Relevant: Ensure that your goals are relevant to your financial situation, values, and long-term aspirations.
• Time-bound: Set a deadline for achieving your goals. This provides a sense of urgency and helps you stay focused.

Break goals into smaller milestones

Breaking larger goals into smaller, manageable milestones can make them less overwhelming and more attainable. For instance, if your goal is to save $10,000 for a downpayment on a house, break it down into monthly or quarterly savings targets.

Align Goals with Personal Values and Priorities

Consider your personal values, aspirations, and priorities when setting financial goals. Determine what truly matters to you and what you want to achieve in the long run. Aligning your goals with your values will provide a strong sense of purpose and increase your commitment to following your budget.

Remember, the purpose of setting financial goals is to provide direction, motivation, and a sense of accomplishment. Regularly review and reassess your goals as your financial situation evolves. Stay committed to the process and celebrate your progress along the way.

1/4

Quiz

 

With the 50-30-20 budget, 20% of your income should go to:

Savings

Needs

Bills

Wants

Savings. 50% of this budget goes toward fixed or essential expenses (needs), 30% goes toward variable or flexible expenses (wants), and 20% goes toward savings.

2/4

Quiz

 

True or False: Everyone should use the same budget template.

True

False

False. You should tailor your budget to your life and your needs. If you want to prioritize your savings over your “wants”, that’s up to you!

3/4

Quiz

 

Which of the following would be included in your fixed or essential expenses?

Shopping

Retirement

Rent

Going out to eat

Rent. This expense stays the same month-to-month and is essential.

4/4

Quiz

 

Which of the following is another example of a budget you might use?

The piggy bank budget

The zero-sum budget

The credit card budget

The shoe-string budget

The zero-sum budget. With the zero-sum budget, you give every dollar a job and the objective is to get to $0 every month.

 

Quiz

 

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How to budget for beginners

If planning and tracking your spending is new territory, the steps above will get you started on the right foot. It may be helpful to keep in mind that you don’t have to get every detail correct from the very beginning. Your budget will always be changing to reflect your circumstances, and the more you use it the more accurate it will become. So get started now and give yourself permission to learn as you go.    

The best budget is the one you stick to

Just by deciding to learn how to budget, you’ve taken an important step toward improving your financial well-being. Budgeting will do you the most good if you can make it a lifelong habit, and taking a long-range perspective can allow you some leeway. If you overspend in a category one month, try to figure out whether you’re underestimating how much you need or if you can adjust your habits to spend less. Eventually, you’ll start to get a sense of the difference between what you need and what you want. Even the simplest budget can change your approach to spending,  saving, and investing for the long-term if you’re willing to commit to it over time.  

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Side hustles have become a popular strategy for those working toward a savings goal, paying down debt, building an emergency fund, or just padding the budget. In fact, half of millennials and more than half of Gen Zers have a side hustle in 2023, according to a recent survey. 

Like any sort of job, side hustles come in all kinds of shapes and sizes, potential incomes, costs, and time investments. Some are quick, low-effort, and tend to generate less money. Others can be built into real money-makers, but require some up-front investment or additional time and effort. 

In this article we’ll cover:

• What a side hustle is
• Types of side hustles
• Side hustle ideas
• How a side hustle can help you grow your wealth
• Tax implications of side hustles

What is a side hustle?

A side hustle is work that provides supplementary income in addition to the money earned through one’s main job. Essentially, a side hustle is a second (or third, or fourth) job. Side hustles can include anything from gig work, like driving for Uber or Amazon Flex, to flipping houses or furniture, to freelancing using your professional skills. 

Many people with side hustles use the internet, apps, or their professional networks to find opportunities; some go so far as to build small businesses around their side work. The amount of work and potential income earned through your side hustle will depend on what type of work you pursue and how much time you can devote to it.

What is a “legitimate” side hustle? 

A legitimate side hustle is one where you provide the product or service required and can trust that you’ll get paid what you expect. There are many scammers on the internet, though, and it isn’t surprising that they sometimes target those looking for side hustles. Keep an eye out and stay safe while looking for side hustles to protect your time, income, and personal information. If an opportunity seems too good to be true, it likely is. Here are a few tips for checking the legitimacy of a money-making opportunity:

• Screen potential freelance or contract work clients to ensure they’re legitimate businesses. Get a contract in place if possible. 
• Look at reviews and web forums for any apps or websites you’re using to find work. 
• Never pay a fee to apply to work for an individual or company.
• Beware of opportunities that require you to purchase products upfront to resell to others or require you to invest money in training materials. Multi-level marketing schemes (MLMs) often require this, and many people lose money or go into debt with these types of endeavors. 
• Guard your personal information. Review a company’s website, check the Better Business Bureau, and talk to someone directly before providing anyone with your personal information.

Types of side hustles

Side hustles aren’t one-size-fits-all. You can choose from different types that require varying levels of time and effort, upfront costs, and skill requirements. 

Here are five broad categories to consider:

• Freelance or contract work: This work requires an existing level of skill, and many people use the professional skills they rely on for their primary job to pick up freelance work in the same industry. 
• Gig economy jobs: Gigs are temporary and part-time positions in which independent contractors fulfill some services provided by a company, such as making deliveries for a food-delivery service.
• Online side hustles: Online side hustles are generally not jobs so much as tasks. Online roles are generally quick, easy, and attainable, but relatively low-paying.
• Small businesses: Some hustlers turn their side work into small businesses, whether that’s selling a skill or a product. These roles are often more time- and cost-intensive, but consist of building a brand and potentially turning their small business into their main job.
• Passive income: Passive income can come in several different forms but generally consists of investing in something or renting something out, resulting in repeating income that requires little ongoing effort. There may be a fair amount of work up-front, but the goal is to earn a regular income once set up.

Side hustles ideas for 2024

Based on the types of sides hustles we covered, here 29 hustles to consider broken into the following categories:

• Freelance/contract side hustle ideas
• Gig economy side hustle ideas
• Online side hustle ideas
• Small business side hustle ideas
• Passive income side hustle ideas

Freelance/contract side hustle ideas

Generally, these side hustles are hourly or project-based and require some level of skill or expertise. Freelance and contract work can be found through numerous apps like Fiverr, Upwork, Steady App, and many more. You might also find these opportunities through your network, family, and friends, or by building a public or industry reputation. 

Freelance and contract work require an investment in your own expertise, and your income generally depends on the amount of time you put into the work and your experience level. When pursuing these side hustles, make sure the work you do doesn’t breach a non-compete agreement you might have with your main employer. Some examples of freelance work include: 

• Handywork/landscaping
• Writing
• Graphic design
• Bookkeeping
• Editing
• Website development
• Social media
• Tutoring
• Administrative work

Gig economy side hustle ideas

Gig work is a specific type of contract work based on flexible, temporary, or freelance jobs generally managed online or through an app. In the gig economy, everyone is an independent contractor, so people generally don’t have regular schedules or get benefits from employers. Instead, you get the flexibility to work when you want to. 

Pet sitting or dog walking

If you’re an animal lover, you can find opportunities to take care of pets for some extra cash. The amount of time and potential income is dependent on how much work you take on, where you live, and the reputation you build. 

House sitting 

If you like to travel, house sitting might be a good fit for you. Using websites dedicated to sourcing house sitters, you can find opportunities to make some money in exchange for staying at someone’s home, watering their plants, grabbing their mail, and other domestic tasks. House sitting comes with the side benefit of helping with your travel budget since your accommodations are free. You might also find opportunities where you live if you’re interested in this kind of work but don’t want to travel.

Ridesharing

Rideshare driving is a popular side hustle these days. You’ll need to have a relatively new car in good condition, as well as a good driving record. Some people enjoy the chance to travel around the city and meet new people, as well as the chance to earn more money through tips. 

Delivering food through apps

You’ll need reliable transportation to pick up gigs delivering food; most people rely on a car, but some deliver by bike. You’ll usually earn money for each delivery in the form of payment from the company and tips from customers.

Delivering packages

Amazon and other businesses hire flex drivers in hour blocks to deliver packages. If you have three to five hours free, you can sign up for a flex block, pick up packages, and deliver them in your area. 

Online side hustle ideas

Unlike most gig work, online side hustles can usually be done from home. These jobs often require a lower time investment, with a wide range of potential incomes. 

Participating in online surveys

Market research companies often pay participants to share their thoughts, opinions, and experiences. With these websites, you’ll take surveys in exchange for a small amount of money. The more surveys you take, the higher your income. Watch out for potential scams, such as websites that require payment to join their panel of participants; check reviews before signing up to be sure the website is reputable. 

Participating in user testing

You can also test apps, websites, or platforms. Testers are often asked to click through a mockup of a website or sort cards so web developers can learn more about user behavior. These can earn more income than surveys on a per-task basis, but generally require a higher time investment. 

Transcribing videos, calls, or recordings

Some sites hire transcribers to turn audio recordings into text. Those who can transcribe quickly can earn a fair amount of money this way, as you’re often paid per audio minute or per file.

Virtual assistant

Many businesses need some help but don’t need a full-time executive assistant. That’s where a virtual assistant comes in. Often managed completely online, a virtual assistant can perform executive assistant-type tasks contractually. 

Starting a podcast, social media, or YouTube channel

Are you an expert on something, or do you have something you’re passionate about? Viral social media content comes in many forms, and if you can build an audience and you’re good at it, you may be able to generate income from a podcast or social media. It can take time to build a large enough audience to monetize your endeavor, but the effort can also be fun and rewarding in its own right. 

Selling used clothes or items

Those who are good at thrifting or garage sales can often find items at a relatively low price and resell them for a higher price via online marketplaces. The amount of income you can earn varies widely, but you could do well if you’re knowledgeable about niche items that have a high value on the secondary market. It’s possible to get started without investing too much money upfront if you can find good deals on used items; you could even start by selling items you own but no longer want. 

Small business side hustle ideas

A small business is your opportunity to create a brand and sell something you’re good at, whether that’s a product or a service. These are often high-effort, higher-potential income opportunities. 

Selling crafts or art

Do you draw, paint, work with wood, or otherwise create a physical product? These products can be sold at fairs, markets, shows, and through online marketplaces to make some money. Work like this requires some up-front budgeting for materials, websites, booths, or other business investments, as well as the time required to create things to sell. But building a brand can turn your side hustle into your full-time hustle. 

Refurbishing furniture

Another small business opportunity is refurbishing and reselling furniture. With the right supplies, you can update or fix up old or damaged furniture found online, through garage sales, or even on the street for some extra income. This takes an investment in skills and supplies, as well as the time to dig up good finds you can restore. 

Creating and selling art

Art doesn’t have to be physical to sell. If you have skills with platforms like Photoshop, you can create original digital art you can sell online. Because it doesn’t require physical supplies, this can be less expensive than physical art. Many people take commissions to increase opportunities to make money.   

Coaching or teaching classes

If you have expertise in something, you can share your expertise by offering online classes, either through your own website or an online platform. This avenue can also provide repeatable income if you sell the same recorded course many times.

Passive income side hustle ideas

Passive income is different than active income. Broadly, this is income that you can generate without requiring daily participation. While passive income usually requires an initial investment, you may be able to earn dividends for years from that investment. Check out our full breakdown of passive income opportunities. 

Renting

Whether you’re renting a spare room in your home or you’ve invested in a rental property, you can generate regular and predictable extra income monthly. Investing in rental properties will often require a hefty investment, so spend time researching options and budgeting before making such a significant decision. 

Renting out your car

All this requires is having a car and not needing it while it’s being rented out. There are platforms dedicated to these types of rentals and a significant time investment isn’t usually involved. 

Affiliate marketing

Affiliate marketing requires an audience, but once you have one, you can promote content through blogs, videos, or social media and collect ongoing income from your audience’s purchases.

Investing in bonds

While this isn’t exactly a side hustle, it’s an opportunity for passive income that some people overlook. Investing in bonds is a relatively low-risk way to use the savings you have to get a guaranteed return, and there are long and short-term bonds available to fit your timeline. 

Opening a high-yield savings account or CD

While they also aren’t side hustles, both high-yield savings accounts and CDs are ways you can use your existing savings to make more money. Both of these accounts offer short-term opportunities to earn interest for storing your cash.

How side hustles can help your financial health

What you do with the money you make from your side hustle is dependent on your unique financial journey. It can help you balance your budget, put money aside toward retirement, or save up to buy something you really want. Relying on side hustles to pay your monthly bills can be risky because they often don’t guarantee consistent income, but a side hustle can help you: 

• Build an emergency fund
• Save more toward your goals
• Pay down debt
• Invest in the stock market
• Build your retirement account
• Treat yourself

Tax implications of side hustles

Remember, any income you make has implications for your taxes. Many first-time contractors and side hustlers find themselves shocked when they realize at the end of the year that they have to pay taxes on that income. Unlike money from your regular paycheck, taxes aren’t withheld from the money you make through a side hustle. You’ll have to pay state and federal income tax, and may also be responsible for self-employment taxes.  It’s important to research what your taxes are expected to look like and be prepared. You may be able to defer taxes on self-employment income with an IRA. 

How to choose the best side hustle for you

Here are some questions to consider when selecting the best side hustle for your unique situation.  

• What existing skills and experience do you have?
• How much time can you put into this work?
• How much income do you need to make from a side hustle? 
• What resources do you already have available?
• What opportunities would bring you the most joy?

Remember that side hustles don’t have to be huge commitments. You can try something to see if you like it before investing a lot of money or time.

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Wintertime brings a host of holidays and celebrations, with gift exchanges, holiday meals, and festive gatherings to mark the end of another year. But the merrymaking also comes with the reality of extra costs. In 2023, average holiday spending is estimated to be $1,530 per household for gifts, travel, and entertainment. Without a budget for these expenses, the holiday season can put a strain on your finances, and even lead you into credit card debt. But with a bit of careful planning for holiday expenses, you can craft a holiday budget that ensures you savor the season’s delights without stressing over money.

In this article, we’ll cover:

• Benefits of holiday budgeting
• How to make a holiday budget
• Avoiding debt during the holiday season 
• Tips for saving on holiday expenses
• How to save up for holiday expenses

Benefits of holiday budgeting

No matter what traditions you observe, extra expenses can quickly mount during the holiday season. Creating a budget can help ensure you have money to spend on festivities, start the new year in a solid financial position, and keep stress from souring your celebrations. 

• Ensure your expenses are covered: A holiday budget safeguards the money you need for your regular living expenses and bills, preventing you from unintentionally spending it on holiday extras. 
• Protect your savings and investments: By allocating funds specifically for holiday spending, you can avoid the temptation to dip into your savings or disrupt your investment plans. 
• Avoid going into credit card debt: With a budget, you’re less likely to rely on credit cards which can leave you with high-interest debt lingering long after the holiday season ends.
• Reduce stress: Knowing you have a plan for your holiday spending can lift a weight off your shoulders. A budget removes the guesswork and lets you enjoy the holidays without the nagging worry of overspending.

How to make a holiday budget in 3 steps

The goal of a holiday budget is to allocate a percentage of your income and savings to holiday spending while maintaining enough money for your other financial commitments. If you already have a budget, now’s the time to work holiday expenses into your plans. Be sure to integrate specific line items for things like gifts, travel, and entertainment into your existing budget. 

And if you haven’t yet established a monthly budget, the holidays are an opportune time to start. Making a holiday budget may help you start a long-term budgeting habit. 

1. Define your holiday spending categories

The holidays can bring a wide array of expenses unique to each person’s traditions; without a detailed plan, it’s all too easy to overlook certain costs. To know exactly what you should budget for your holidays, first, determine what your typical holiday spending looks like based on previous years. Then think about what you’re planning to do this year and make a list of all your anticipated expenses.   

A reasonable budget for the holidays depends on the traditions you observe and what’s important to you. Consider planning for these common seasonal purchases:

• Holiday gifts: Think of everyone on your gift list, as well as presents you’ll buy for things like office gift exchanges or Secret Santa gifts if you celebrate Christmas.
• Greeting cards: Be sure to consider the cost of both cards and postage if you’re mailing holiday greetings.
• Dining and groceries: Include the costs of dining out as well as money for extra groceries if you’re hosting gatherings. 
• Entertainment and activities: Check the cost of tickets and entry fees for the events you plan to attend this season. 
• Decorations and attire: Remember to include expenses for replacing worn-out decorations, as well as special clothing you may need for a holiday party.
• Holiday travel: If travel is on your agenda, plan for the cost of tickets and accommodations, and remember additional expenses like travel insurance and pet care while you’re away.
• Charitable donations and tips: Giving back is an important part of the holiday spirit for many people, so budget for donations you want to make and tips for service workers. 

2. Fund your holiday budget

Once you’ve identified the various expenses that the holiday season entails, the next step is to determine how much you’ll need for each and ensure you have the funds set aside. 

• Determine spending limits for each category: Look back at last year’s spending to help gauge what you might need this year. This historical insight can serve as a baseline for setting spending limits for each category of your holiday budget.
• Reduce your expenses: To free up funds for your holiday spending, look for ways to save money on other expenses. You might want to make temporary sacrifices in some areas to make room for holiday purchases. 
• Tap into extra money: If you receive any extra income during the holiday season, such as a bonus from work, you could use it to bolster your holiday budget. You may also want to look for additional sources of money, like old gift cards that still have a balance or picking up a short-term side gig. 
• Take unpaid time off into account:  If you’ll be taking unpaid vacation time for holiday travel or observance of special days, remember to factor the reduction in income into your budget. 

3. Track and control your spending

Amidst the bustle of holiday shopping, it can be easy to lose track of your planned spending limits. By tracking your spending meticulously, you can be sure you don’t blow your holiday budget.  

• Consider a budgeting app: A budgeting app can give you real-time insight into how much you’re spending by automatically tracking every transaction. This constant monitoring can alert you to issues so you can adjust your spending habits before they become a concern.
• Try a mini envelope budget: Envelope budgeting involves allocating cash into different envelopes for each spending category. By using this approach for your holiday expenses, you can physically see what you have left to spend, which can be a powerful deterrent from going over budget.
• Use your debit card, not your credit card: While it’s tempting to defer the cost of your holiday expenses by putting them on your credit card, relying only on your debit card can help you ensure you’re only spending money you have in the bank. If you can find a debit card that offers rewards, all the better.
• Remember the reason for the season: It’s easy to get caught up in the thrill of holiday spending and forget the reason you’re celebrating in the first place. Before you decide on a purchase, reflect on whether it adds meaning and joy to your personal experience of the holidays.  

Don’t let debt put a damper on your holidays

If you defer paying for your holiday expenses, the joy of the season can turn into the stress of lingering debt when the new year dawns. By planning and spending within your means, you can create lasting memories without the worry of paying off debt once the holiday lights dim.

Avoid credit card debt

Credit card debt can be particularly insidious during the holiday season. It’s easy to swipe now and worry later, but this can lead to a significant financial hangover. In 2022, 35% of U.S. consumers found themselves saddled with debt from holiday spending. Credit card debt in particular often carries high interest rates, which can quickly compound, making it harder to pay off in the long run. 

Beware of buy now, pay later offers

Buy now, pay later (BNPL) offers might seem convenient to spread out holiday expenses, but they come with caveats. These plans allow you to purchase items immediately by paying for just a portion of the cost and then paying off the rest in installments. While this can make large purchases seem more manageable, it can also lead to spending beyond your means. If you’re not careful, BNPL plans can accrue interest or fees, and missed payments may impact your credit score. It’s crucial to fully understand the terms and consider whether the long-term costs are worth the short-term convenience.

Tips for saving on holiday expenses

The holiday season doesn’t have to be synonymous with extravagant spending. With a few smart strategies, you can trim your holiday expenses without diminishing the sparkle of your celebrations.

How to save on holiday gifts

• Arrange a gift exchange: Organize a gift exchange among your family or friend group where every individual draws a name. This way, everyone receives something special, and each person only needs to purchase one gift, keeping expenses down. 
• Set spending limits: If you’re exchanging gifts with someone, agree on a spending cap that works for your holiday budget. This way, no one feels pressured to overspend, and everyone can enjoy the spirit of giving without financial stress.
• Give as a group: If you want to present someone with a high-cost gift, consider pooling resources. For example, joining forces with siblings or cousins to buy a collective gift for a parent or grandparent allows for a more substantial present without the full burden falling on one person.
• DIY your gifts: Handmade presents are not only personal and thoughtful, but may also be kinder to your wallet. Crafting or baking homemade gifts can also be a fun event to enjoy with family or friends, adding a low-cost activity to your holiday season.

How to save on other holiday expenses

• Go the potluck route: If you’re hosting a holiday gathering, consider making it a potluck. With each guest contributing a dish, you save money on groceries and add variety to the feast.
• Find free fun: Look for no-cost holiday activities in your community. Free events like tree-lighting ceremonies, holiday markets, and winter festivals can create cherished memories without expensive tickets or entry fees.
• Take inventory of what you have: Before rushing out to buy new decorations or holiday attire, scour your home storage for forgotten holiday treasures. Reusing and repurposing decorations and clothing can save you money while being environmentally conscious too.
• Make your own decorations: Gifts aren’t the only holiday cost that can benefit from a DIY mindset. Find free online tutorials for crafting holiday decor to adorn your home; just be careful not to overspend on supplies. Plus, a decoration-making party can be an inexpensive holiday activity, and could even become a treasured tradition.
• Trim travel expenses: What you should budget for a holiday vacation depends on multiple factors, but how you get there and where you stay are often the two biggest expenses. If you’re flying, research the travel dates with the lowest costs; if you’re driving, maximize fuel efficiency. You might also consider staying with family or going in with others on a short-term rental instead of shelling out for a hotel. If you do opt for a hotel, remember to include the cost of lodging tax in your budget.     

How to save on holiday shopping

November and December are the biggest months of the year for retail businesses. Alluring sales and an onslaught of ads can easily send you into a holiday shopping frenzy that undermines your budget. To avoid being swept up in the fray, go into your shopping excursions with thoughtful strategies to bolster your self-control.

• Avoid impulse buys: Don’t let sales and flashy marketing tempt you into an unplanned spending spree. Remember, retailers are great at creating a sense of urgency for holiday shoppers. Before you head to the store or browse online, make a list, check it twice, and have a plan for sticking to your budget for each item.
• Be prudent with promos:  Promotional emails and texts can alert you to genuine savings, but they might also entice you to buy things you don’t need. If you find that these messages trigger unnecessary spending, consider unsubscribing during the holiday season.
• Treat yourself sparingly: It’s easy to be drawn to items for yourself while shopping for others. Bookmark the things you’re interested in and revisit them after the holidays so you can use gift cards or take advantage of post-holiday sales.
• Watch out for Black Friday and Cyber Monday mania: The days after Thanksgiving have become holidays in and of themselves as stores kick off the holiday shopping season with the promise of huge savings on hot items. While you can find significant discounts, not all deals are as good as they seem, and it’s easy to buy more than you’ve budgeted for in the face of the hubbub. To save money on Black Friday and Cyber Monday, plan your purchases ahead of time, compare prices, and stay focused on the items on your list instead of impulse purchases.  

How to save up for holiday expenses

Setting aside money in advance of the holiday season can alleviate the financial pressure of end-of-year expenses. By saving up for the holidays throughout the year, you’re less likely to feel the pinch when the festive months roll around.

• Start saving early: Start saving up for holiday expenses long before the season starts. A budgeting framework like the 50/30/20 rule can guide you on how much of your paycheck you should regularly put into savings throughout the year. 
• Create a holiday sinking fund: A sinking fund is a dedicated savings pot for a specific goal. Building up a sinking fund specifically for your holiday budget can help you spread the cost of holiday expenses over time, making them more manageable when the season starts.
• Do your holiday shopping all year long: If you identify your holiday expenses early, you can spread your spending out over time. That way you can take advantage of a great deal on a perfect present to stow away for gift-giving time or shop post-holiday sales for discounts on things you’ll want for the following year.     
• Grow your money in an interest-bearing account: Placing your holiday savings in an account that earns interest, such as a money market or high-yield savings account, allows your money to grow through the year. Compounding interest can add a little extra to fund your holiday budget. 

Think beyond your holiday budget

Adhering to a holiday budget is more than just a seasonal discipline; it’s a practice that safeguards your financial health well into the future. When it comes to good money management, planning ahead is key. While you build your holiday budget, consider mapping out January’s expenses as well to give you perspective on the impact your holiday season financial decisions will have on your longer-term savings and investment objectives. With a well-managed holiday budget, you can ensure that the joy of the season transitions seamlessly into a prosperous new year.

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If you’ve been watching the market, you know that a recession has been in the forecast for most of 2023. Although the economy has grown at a modest pace throughout the year, inflation and higher interest rates from the Federal Reserve have taken a toll on consumer spending, income, and production. And, whether current conditions are a short-lived downturn or another recession looms in the future, preparing now can help you weather whatever economic ups and downs may come. 

If you’re unprepared for an economic downturn, you’re likely to experience consequences with potentially negative long-term financial impacts. But with some proactive readiness, you can avoid the financial vulnerabilities associated with job loss, financial instability, and other recession-driven hardships. These eight steps will help you make a plan to ride out an economic decline with confidence.

In this article, we’ll cover:

1. Understanding your finances
2. Creating a budget to stick to
3. Building your emergency fund
4. Getting rid of high-interest debt
5. Living below your means
6. Avoiding new financial commitments
7. Securing your career
8. Why you should continue to invest

1. Review your finances

First, evaluate your current situation. Compile a comprehensive overview that includes income, expenses, liabilities, and assets.

• Income: Total up your income from all sources, including your salary and any additional money you bring in from things like side gigs, child-support payments, and government benefits programs.
• Expenses: List all your monthly expenses and how much you spend on them. Categorize them into two groups: necessities like rent/mortgage, utilities, and groceries, and discretionary spending like entertainment, dining out, and treats.  
• Debt: Gather the current balances and interest rates of all your debts. Be sure to include every kind of debt, such as credit cards, auto loans, personal loans, medical debt, mortgages, and student loans. 
• Savings and investments: Add up the balance in all your savings and investment accounts; don’t forget to include any retirement accounts you have.  

This information allows you to lay out a financial plan to guide you through a potential recession, as well as look ahead to long-term goals. Consider creating a visual representation like a spreadsheet or financial statement that allows you to assess your situation at a glance. 

Having all of this information in one place can keep you from making panicked financial decisions in the face of economic uncertainty. Determine where you could make cutbacks if needed now, instead of scrambling to make ends meet if your income decreases or disappears later. 

2. Create and stick to a budget

Making a budget is a fundamental step in planning how to prepare for a recession, particularly if you’re new to managing your personal finances. When uncertainty looms, there’s no better time to track and adjust your spending habits. Understanding your cash flow today and where you could potentially cut back tomorrow is vital, especially if your job is recession-sensitive. 

Start building your recession-friendly budget by subtracting all your monthly expenses from your income; this will tell you whether you’re living within your means or need to trim expenses. With that information in hand, you can establish monthly spending limits for each expense category and set savings goals. This is the time to decide if you want to cut down on your spending in certain areas so you can bolster your emergency fund so you have more of a cushion in case of recession. 

You may want to use the 50-30-20 budget guideline to simplify the process. Assign 50% of your income to essential living expenses like housing, food, utilities, and debt. Devote 30% to things you’d like to spend money on but could ultimately do without, and 20% to savings goals, your emergency fund, and long-term investments. 

3. Build your emergency fund

Financial curveballs like unexpected expenses and job loss could have a bigger impact during an economic downturn. A solid emergency fund provides a safety net you can use to handle those crises without going into credit card debt or wiping out your other savings.

Building an emergency fund can be especially important during a recession, when economic decline can undermine job stability. The rule of thumb is to save up three to six months’ worth of living expenses so you can cover your bills in case your pay is reduced or you get laid off. While you might be able to receive unemployment benefits if you lose your job, they may not cover all your essential expenses or float you for as long as you need. Unemployment usually replaces only half your income and ends after 26 weeks in most states, so chances are you’ll need the extra money in your emergency fund to get by until you find a new job. 

While three to six months of living expenses may seem like a lot to save up, you can make it feel less daunting by breaking that larger goal into smaller ones based on priorities. You might start by saving enough to pay rent for three months, then setting aside enough for your essential bills, and so on. Just getting started is what matters most.

If you want to grow your emergency fund faster, consider cutting some discretionary expenses and putting that money toward your emergency savings. If you get a bonus, tax refund, or other windfall, add it to this savings goal. Keeping your fund in a high-yield savings account can also help amplify your savings by earning interest, as well as ensuring your money is easy to access when you need it.

4. Prioritize paying off high-interest debt

High-interest debt is expensive, and it can keep you stuck in a rut of never-ending monthly payments that strain your budget and undermine your savings goals. Credit cards, personal loans, unsecured lines of credit, and payday loans are generally classified as “bad debt” because they tend to have high interest rates and steep late fees; the interest rates are also variable, meaning they could skyrocket at the lender’s discretion. Bad debt can even negatively affect your credit score if you’re late on a single payment. 

If you’re worried about how to prepare for a recession, getting out of debt as soon as possible may be high on your priority list. And paying off credit card debt might be extra important: the average credit card rate in the U.S. is 27.80% as of November 2023. Even if you currently have a low rate, credit card issuers often hike their rates when the Federal Reserve raises interest rates during periods of inflation. 

Consider attacking your high-interest debt before recession strikes by using the avalanche method. This debt-repayment strategy prioritizes paying off your highest-interest debts first in order to reduce the overall amount you spend on interest over time. As you pay off each debt, the extra money rolls down to the next, and the impact becomes greater over time. Here’s how works:

1. Organize your debts by interest rate, highest to lowest.
2. Make the minimum monthly payments on all of your debts, except for the highest-interest one.
3. Every month, pay extra on your highest-interest debt. 
4. When the first debt is paid off, put the amount you’d been paying on it toward the debt with the next-highest interest rate. 
5. Repeat the process until all of your debts are paid off.  

Here’s an example of the avalanche method in action. Imagine you have the following debts and can afford to put an extra $110 a month, over and above the minimum payments, toward paying them off.

After eight months, the credit card would be paid off, so you’d start paying an extra $150 on the personal loan; $150 is the total of the credit card’s minimum payment and the extra avalanche payment.

Once the personal loan is paid off, you’d put an extra $190 toward the unsecured line of credit until all your debts are satisfied.

5. Spend less and stay frugal

While you don’t need to deprive yourself of every little luxury, it does help to adopt a frugal mindset while preparing for a potential recession. Reducing discretionary expenses can help you put more money toward your emergency savings. 

When looking for ways to save money, use the financial plan and budget you’ve already created to distinguish between needs and non-essential wants, then make some choices in the name of frugality. Dining, entertainment, and impulse buying are some of the most common culprits in a ballooning budget, so many people find that reducing these expenses can have a big impact.

• Limit dining out: Meal planning and cooking at home takes more time than dining out or ordering in, but it saves money on food costs in the long run. You might be surprised at how much you really spend in this category. If your parent ever said, “We have food at home” when you wanted to stop at the drive-through, you might want to adopt that adage yourself.
• Reduce entertainment expenses: Spending on events, travel, and hobbies can add up quickly, but you can have fun without breaking the bank. Keep an eye out for low-cost entertainment alternatives like home streaming services, free community events, or hobbies that don’t require expensive supplies. 
• Suspend subscription services: There are a vast number of options for entertainment delivered right to your home: movie and music streaming services, mobile apps and games, monthly product deliveries, and many more. In many cases people rarely use most of the services they subscribe to. Review all of your subscriptions and consider canceling or temporarily suspending those that don’t truly feel worth the money.
• Curb retail therapy: Everyone wants a little treat from time to time, but impulse buys and regular retail therapy can take a toll on your budget. Remove the temptation to buy on impulse by deleting your payment information from websites that store it, and carry only cash when you’re shopping in person so you can’t spend more than you have in your pocket. Institute a 24-hour rule before you buy something that’s not in your budget; you might find that the urge to spend fades if you wait a day. 

6. Avoid new, big financial commitments

When preparing for a recession, signing up for new expenses puts you on the hook for things you might not be able to afford if your cash flow starts to dry up. Avoid making new financial commitments, especially those with high monthly payments or interest rates. Forgo taking on new debt, stick with your roommates or your parents for a little while longer, and say no to pouring money into risky new ventures. 

• Mortgages: The beginning of a recession often sees rising interest rates, so the timing isn’t great for locking yourself into a fixed-rate mortgage. Instead of buying real estate, save for a downpayment so you can buy that house when conditions are more favorable. 
• Car loans: Getting more miles out of your current car instead of buying a new one keeps you from signing up for payments you may not be able to afford if recession hits. Funnel the money you’d spend on those car payments into your emergency fund or a sinking fund you can use to repair your existing vehicle. 
• Large personal loans: Going into debt should be a last resort when preparing for a recession, and that includes borrowing significant sums of money for non-essential purposes. If you need a personal loan to buy something, it may be wiser to put that purchase on hold and save up for it instead so you’re not committed to monthly payments and interest.
• Business ventures: Starting a new business is a risk under any circumstances, but even more so during a recession. An economic downturn is likely to significantly curb consumer spending, leaving you without the customers and cash flow you need to succeed. Use this time to shore up your business plan and save so you can launch your venture when economic indicators are more favorable.

7. Cushion your career

Financial preparedness includes both enhancing your job security and focusing on career development, just in case you need to make an unexpected change. When you make yourself indispensable in your current position, you might be in a better position to weather potential layoffs. But if you do wind up in the market for a new job, ongoing professional development efforts could help you get noticed and hired faster. In either case, it’s important to know your industry, stay up to date with trends, learn new skills, and network before a recession hits. Consider taking these steps to stay ahead:

1. Diversify your skill set: Identify and acquire skills that are in demand across various industries. Diversifying your skill set can make you more adaptable during economic downturns, especially if your specific industry takes a harder hit.
2. Update your resume: Job searching can be stressful, especially when you haven’t updated your resume in a while. Give yourself some peace of mind and polish it up now. You’ll be more prepared to make a move, whether your company decides to downsize or an unexpected job opportunity pops up.
3. Network, network, network: Landing a job often comes down to knowing the right people. Building a strong network of professional relationships can lead to new opportunities or fortify your job security in the midst of a recession. Stay in touch with colleagues on LinkedIn, join professional organizations, and attend industry conferences to grow your network.
4. Stay informed about your industry: It pays to know what’s going on. Don’t ignore company news and industry reports. Stay informed about the health of your industry overall and monitor economic indicators so recession doesn’t take you by surprise. 
5. Deliver your best work: It may be difficult to stay positive and productive at work with economic uncertainty on the horizon. However, consistently delivering high-quality work, being flexible with company changes, and projecting optimism can enhance your professional reputation with your colleagues and boss. It can also help you obtain the glowing recommendation you need to snag your next job.

8. Continue to invest what you can

Perhaps the most important thing for investors to remember when recession looms is this: don’t panic. Even when the stock market is in a slump, don’t abandon your investing plans. While it may be stressful to see the value of your portfolio drop, remember that economic downturns don’t last nearly as long as periods of economic growth. A long-term investment strategy is intended to help you ride out market volatility and natural fluctuations in the business cycle, including a recession. 

As long as your spending is under control and your emergency fund is solid, continuing to invest now can help you work toward retirement and other far-off goals. Keep making your regular contributions to 401(k) and IRA. If you want to make adjustments to the holdings in your brokerage account, you might consider defensive stocks and other investments that may perform well in a recession to further diversify your portfolio. You might also want to talk with a financial advisor about the options that best align with your goals and risk profile. 

When recession looms, take the long view

Determining how to prepare for a recession involves taking stock of where you are now as well as your long-term goals. When you’re uncertain about the immediate future, it can help to get a firm handle on your personal finances to build a solid budget, emergency fund, and plan for paying off debt. 

At the same time, remind yourself that economic recessions are temporary and recovery will follow. Staying invested throughout the ups and downs of the market cycle is key to reaching long-term investing success. 

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Passive income is different from active income in that you can generate it without active, daily participation. 

It could be money you make by owning an apartment and collecting rent from your tenants. It could also be earnings or dividends from your investments in the stock market. Or it could even include royalties you make from selling a book or acting in a commercial. 

Sounds pretty hands-off, right? That’s why people strive for passive income, whether they’re at the beginning of their career or working toward retirement. 

With countless passive income ideas to consider, we’ve rounded up 29 of the lowest-effort, highest-impact ways to make passive income: 

• 1. Open a high-yield savings account 
• 2. Invest in certificates of deposit (CDs)
• 3. Invest in dividend stocks
• 4. Invest in index funds 
• 5. Invest with a robo-advisor 
• 6. Invest in bonds
• 7. Invest in rental properties
• 8. Invest in REITs
• 9. Invest in royalties
• 10. Build an app  
• 11. Create and sell software 
• 12. Own a vending machine business 
• 13. Own an ATM machine
• 14. Dropshipping 
• 15. Affiliate marketing
• 16. Sell digital designs online
• 17. Publish ebooks
• 18. Start a blog 
• 19. Start a YouTube channel 
• 20. Create an online course 
• 21. Sell stock photos 
• 22. Create and sell resume templates
• 23. Do voice-over work
• 24. Rent your car
• 25. Rent your parking space 
• 26. Rent your bike 
• 27. Rent out your room 
• 28. Advertise on your car
• 29. Open a cash-back rewards card 

Now, ready to learn how to make passive income?

1. Open a high-yield savings account 

Upfront time commitment: 45 minutes

If you’re looking for a set-it-and-forget-it approach, a high yield savings account (HYSA) is one of the simplest ways to make passive income that doesn’t require a ton of money upfront. With this type of account, your earnings come from the interest they generate. Unlike a traditional savings account, a high-yield savings account can provide returns around 20–25 times the national average in interest. 

While a high yield savings account likely won’t yield as high a return as other passive income ideas, it will always earn more than if you held your money in a typical checking account (which yields no returns, as is the case for simply holding cash). HYSAs are better suited for short-term savings goals like building up an emergency fund, as opposed to meeting your long-term wealth goals. 

Be sure to do your research to find the best rates. You can open this type of account at a traditional bank and online banking platforms. 

2. Invest in certificates of deposit (CDs)

Upfront time commitment: 1–2 hours

A simple path to passive income investing as a beginner is to invest in certificates of deposit (CDs). They operate similarly to a traditional savings account, but they can earn more in interest over time—no effort on your part. 

How much you can earn with a CD depends largely on the term length you choose—a few months or up to ten years—and the institution with which you choose to get a CD. Consider opting for an online bank over your local brick-and-mortar branch so you can shop around for the best interest rates. With longer terms, your money has to grow. 

While interest rates constantly change, most CDs can earn between 0.25% and 2% in interest. While this method will earn you more than a regular savings or checking account, don’t expect it to yield mass amounts of wealth. It’s best for shorter-term income goals, like saving for an upcoming purchase in the next year or two. 

3. Invest in dividend stocks 

Upfront time commitment: 2 hours

A dividend is the portion of profits that a company regularly pays out to investors—often quarterly. While dividend stocks won’t yield returns as high as more volatile growth stocks, they’re generally more stable and can be a great source of dependable cash payouts. 

There are thousands of companies you can buy dividend stocks from. The key is researching potential companies before you buy. Instead of looking for companies with the highest returns, seek out companies with a strong track record of consistent growth. High-performing companies may also increase their dividend payouts as time goes on. 

4. Invest in index funds 

Upfront time commitment: 1 hour 

For passive income investments that carry less risk, consider index funds. Contrary to an individual stock, an index fund is a basket of many stocks and other securities that tracks a certain index (like the S&P 500) that aims to yield returns equal to that index’s performance. 

Index funds are an appealing passive income option for new investors. Since they contain hundreds of companies within a single fund, the success of one company in the fund can offset the poor performance of another. As a result, it’s a low-maintenance, hands-off way to generate income and diversify your portfolio—a win-win! 

5. Invest with a robo-advisor 

Upfront time commitment: 30 minutes

New investors who are also keen on creating a passive income can benefit greatly from investing with a robo-advisor. Robo-advisors take the guesswork out of building a portfolio, and they automatically manage it for you once it’s set up. 

Once you share your risk preferences and financial goals, a robo-advisor selects and oversees the ideal asset allocation for your portfolio. You can invest as much or as little as you want and let your robo-advisor do the work for you. To get started on Stash’s automated investing platform, for example, all you need to do is set your preferences and add funds—then sit back and relax.  

6. Invest in bonds

Upfront time commitment: 45 minutes

Bonds can offer low-maintenance sources of income, often for very little risk depending on the type of bond you choose. 

Bonds are essentially a form of debt owed to you by the government, a corporation, or whatever entity sold them to you. They all come with a price, a maturity date, and an interest rate. When the maturity date arrives, you’re paid the price of the bond plus interest earned. 

You can choose from bonds with different time frames, from a few months to ten years. If you’re looking for immediate forms of passive income, you may opt for short-term bonds. While they’re less risky with faster turnaround keep in mind that they have lower interest rates and overall returns than longer maturity bonds. 

7. Invest in rental properties

Upfront time commitment: Ongoing

Investing in rental properties is one of many the ways to make passive income. Traditionally, this involves buying property—whether it’s your first or second home—and renting it out to tenants. At first, the extra income can help pay down the mortgage. Once that’s paid off, everything else is pure supplemental income, save for eventual repairs (or property management fees, if you’d rather hire someone else to actively manage the property). 

8. Invest in REITs

Upfront time commitment: 3–4 hours; ongoing 

If you want a more hands-off approach to capitalizing on real estate that doesn’t require you to buy your own property, consider real estate investment trusts (REITs). A REIT is a company that owns and manages real estate—which you can purchase in shares just like with dividend stocks. 

Since the law requires REITs to deliver at least 90% of taxable income back to shareholders, they typically yield higher returns. Though not all are created equal, and you’ll need to do some research to pick a solid REIT. They’re available for a variety of different sectors, from healthcare buildings to commercial apartments, all of which perform differently in the economy. 

What’s more, if a REIT doesn’t perform well, dividends can be cut or even halted entirely, making your research all the more imperative. Factors to analyze before buying into a REIT include tenants’ rent payment history (if they’re not paying their rent, dividend cuts are likely), a manageable debt rate, and the overall state of the economy. 

9. Invest in royalties

Upfront time commitment: 1 day; ongoing

Investing in royalties means earning returns for the ongoing use or ownership of a type of asset, whether physical or digital (such as a product or a song). Owners of such assets often choose to sell royalties to get funding, allowing investors to capitalize on the product’s success. 

There are many types of royalties to invest in, from copyrighted works like books and music to natural resources like oil and gas. You can start earning royalty income through royalty auction sites or buying shares of royalty income trusts (similar to how one can buy shares of a REIT). 

When choosing a royalty to invest in, it’s best to stick with something you understand. If you happen to have expertise in, say, operating franchise businesses, you may opt for earning royalties that way. Whatever you choose, royalties can be a great avenue for creating passive income as long as the asset itself is profitable. 

10. Build an app  

Upfront time commitment: 3–6 months depending on experience; ongoing maintenance 

If you have existing programming experience or have an idea for an app you’ve been wanting to try, building an app is another way to make passive income. You may also only have an idea for an app but lack the expertise to build it. In this case, you could hire a developer or programmer to build it for you. 

While this method can certainly be lucrative if it succeeds, it requires a great deal of research—not only for the app itself but also for how you’ll market it once it’s built. Without a thoughtful marketing plan in place, it’s unlikely that your app will gain much traction. Knowing your intended audience and having a strategy for marketing and distributing your app is key to success. 

A smart way to combat this dilemma is to consider building an app for someone else. Simply search for opportunities on sites like Upwork or relevant job boards to find individuals or businesses looking to hire an app developer. 

11. Create and sell software 

Upfront time commitment: 2–6 months

If you have a background in programming, you can monetize your skills by creating and selling software. Developing software products may include creating your own mobile game, business software, or educational software. 

Alternatively, you could build one-off programming projects for individuals and businesses if you’d rather not come up with a new software idea yourself. Remember that your software doesn’t need to be overly complex. If you can create easy, useful software that serves a specific need for a specific audience (like B2B companies, for example), you can make a hefty side income.  

12. Own a vending machine business 

Upfront time commitment: 1 month; ongoing 

Owning a vending machine business is a low-maintenance way to create passive income streams without needing specialized skills— save for a little business savvy. The main requirement is the funds to purchase the vending machine, which can be upwards of $2,000. You’ll also need to account for the ongoing costs of stocking your machine. 

Once these costs are covered, a successful vending machine business comes down to understanding profitable locations and how to best serve the market needs of that specific location. This will include choosing what products you’ll stock, the type of vending machine you’ll buy, and finding a high-traffic area for your machine. 

While a vending machine business is highly passive once everything is in place, keep in mind the up-front time investment required to be successful. In addition to sourcing locations and ongoing machine maintenance, you’ll also need to handle legalities like proper tax filing and obtaining licensing permits for potential locations. 

13. Own an ATM machine

Upfront time commitment: 1 month; ongoing

ATMs are everywhere, from convenience stores and gas stations to bars and hotels, and many are owned by everyday individuals. Not including ATMs that clearly belong to a bank branch or financial institution, anyone can own an ATM as a source of passive income. They generate revenue through the fees charged to customers who use your ATM to withdraw money. 

While the fees you earn from your ATM are relatively small (usually around $3.00), the daily transactions add up quickly: the average ATM processes around 180 transactions a month. If you earn $3.00 for each transaction, that’s $580 a month. The key to success here is finding high-traffic locations where your machine will attract more customers, earning you more money. 

Keep in mind that, similar to owning a vending machine, you’ll need to have enough funds to purchase your machine, which can cost anywhere from $2,000 to $3,000. 

14. Dropshipping 

Upfront time commitment: 1 month; ongoing 

If you’re wondering how to make passive income with no money, dropshipping can be one of the best ways to make passive income. Dropshipping is an online business model that doesn’t require store owners to manage an inventory. Instead of sourcing, storing, and shipping a huge inventory of products, dropshippers use a third-party vendor to handle those jobs. 

The main task of successful dropshipping is finding the right products and having an advertising strategy to get them in front of your target customers. Dropshipping is an appealing beginner passive income idea since it doesn’t require a large investment to begin—you don’t need to purchase any inventory, rent a storage space or worry about handling shipments. 

With these costs out of the way, the main focus is making your online store appealing and executing strategies to drive traffic. 

15. Affiliate marketing

Upfront time commitment: 3–6 months to build an audience

Affiliate marketing involves earning commissions by promoting someone else’s (or another business’) product or service. It’s akin to a salesperson making a sale and earning a commission, except you don’t work for the owner of the product you’re promoting. Instead, you act as a link between your audience and the third-party product. If someone from your audience uses your affiliate link to purchase from a third-party company, you earn a commission. 

Successful affiliate marketing requires an audience—whether that’s from your podcast, your blog, social media, or your website—making this avenue well-suited for online content creators. While you can start with affiliate marketing as soon as you have that home base established, you won’t see much monetary traction until you amass a decent amount of followers, readers, or listeners. 

While affiliate marketing is a passive income strategy, you won’t begin to earn money passively until you’ve invested time in creating content and growing your traffic. The amount of time this could take depends on your niche and your platform, but it can take significantly longer than you might think. However, once you’ve built up some momentum, it can be quite lucrative. 

16. Sell digital designs online

Upfront time commitment: Ongoing

If you have graphic design skills, put them to work to create an alternative income stream. Sites like Creative Market or 99designs allow you to quickly connect with potential customers who are looking for design products, from logos and branding assets to website themes, fonts, and illustrations. 

17. Publish ebooks

Upfront time commitment: 6 months

If you enjoy writing and have expertise in a particular subject, writing and self-publishing ebooks can be a lucrative passive income stream. They don’t require a lot of money to get started, either—as a digital product that you buy and sell online, there are no printing or shipping costs to cover. And, most platforms allow you to self-publish your book for free. 

Successfully publishing an ebook requires some time and effort upfront. You’ll need to decide on a publishing platform, research the market demand for your idea, and of course, spend time actually writing your book. Costs to consider include hiring a proofreader and editor, hiring a designer (it turns out people do judge books by the cover!), and any commissions and taxes you have to pay  from your earnings.

Even with those bases covered, your efforts could fall flat if you don’t also consider how you’ll market your ebook. Creating a marketing strategy or campaign is crucial to ensuring your ebook finds your target audience. For this reason, you can start generating income faster if you already have an established audience. 

18. Start a blog 

Upfront time commitment: Ongoing

Online content creation has quickly become one of the most popular ways to make passive income, and those with a penchant for writing can do so by starting a blog. You can set up a blog website in less than an hour—the hardest part is committing to creating quality content and building a sizable enough audience to start generating income. 

There are a variety of ways to monetize a blog, including becoming an affiliate marketer, publishing sponsored posts, running ads, or even selling your own products. You may want to determine your monetization strategy first so it can inform the type of content you create and where you’ll promote it. 

Starting a blog is a winning beginner passive income strategy because you don’t need any special coding or design skills—plus there are countless web hosting platforms available for little to no cost. The main thing to keep in mind is how much effort it takes to create and promote your content. With patience and persistence, however, it’s possible to make upwards of thousands of dollars a month with a blog. 

19. Start a YouTube channel 

Upfront time commitment: 3–6 months to start building an audience; ongoing 

Just about anyone can become a successful content creator on YouTube and generate a sizable passive income, so long as you’re willing to invest time in building an audience and consistently creating content. 

Ads, such as the advertisements you see before a video plays, are the main way YouTube creators make money. Different channels can earn varying income levels depending on their particular niche and number of subscribers. 

That said, to earn money through ads, you’ll need at least 1,000 subscribers, which is why this passive income stream requires an upfront time investment and commitment to creating genuinely useful content. The more content you share and views you receive, the more you can earn. 

20. Create an online course 

Upfront time commitment: 3–6 months

Creating and selling online courses can be a highly lucrative form of passive income, and once you gain some momentum, you can truly start earning money in your sleep. 

If you’re knowledgeable about a topic and want to educate others, an online course is a great way to monetize that expertise. Once you have one or multiple courses up and running, you can continue to sell them without having to tend to things like stocking and shipping inventory since it’s all online. 

To successfully create online courses as a form of passive income, you’ll need to invest some time upfront outlining your course, recording it, and creating additional elements like bonus downloads or templates for your students. 

21. Sell stock photos 

Upfront time commitment: 2 hours; ongoing 

If you like photography, consider using your photos as a passive income source.   While earning money from photography used to require expensive equipment and tedious time spent uploading and editing photos, there are plenty of alternatives to monetizing your photography skills nowadays—like selling stock photos using nothing more than your smartphone. 

Sites like Shutterstock and DepositPhotos offer platforms where creators can sell photos, typically with a commission or flat fee for every photo you sell. In theory, just one photo could become a recurring passive income stream since you can sell it over and over again with no extra work on your part. You’ll just need to create your portfolio, add your images, and collect your monthly earnings. 

With the large demand for stock photography, focusing on a certain niche or style can help differentiate your photos and allow you to cater to (and be found by) a more specific audience. You’ll need to submit a portfolio for approval on most platforms to get started, and it’s quick and easy to get up and running from there. 

22. Create and sell resume templates

Upfront time commitment: 2 hours

For individuals with a keen eye for impactful resume design, creating and selling resume templates could be a fantastic passive income opportunity. In a competitive job market, job seekers are always on the lookout for ways to make their applications stand out, and a well-designed resume to highlight their experience and wins is a crucial component.

These resume templates can be tailored to various industries, job roles, and design preferences. Sellers can craft visually appealing, professionally designed templates with the right balance of style and readability. Sites like Etsy provide a platform to showcase and sell these templates, allowing creators to reach a broad audience of job seekers.

One of the great advantages of this passive income idea is that you can sell the same templates over and over again. Once a template is designed and uploaded to a platform like Etsy, it continues to generate additional income as long as there is demand. Furthermore, updating and adding new templates to your store can help keep your offering fresh and appealing to a wide range of customers.

So, not only can you generate extra cash from your design skills and expertise in information hierarchy, but you can also feel good about helping job seekers improve their chances in a competitive job market. This passive income stream combines creativity and business acumen in a way that benefits both you and your customers.

23. Voice Act for Real-World Narrations

Upfront time commitment: +2 hours; ongoing

Voice acting can be a highly rewarding passive income option for those with a memorable voice and a desire to diversify their income streams. While the world of anime and video game character voice-overs may be enticing, there’s a wide range of real-world opportunities waiting to be explored.

Many industries require voice narration for various purposes, including company training videos, phone system recordings, radio ads, and audiobooks. The demand for professional voice talent is ever-present, making it an ideal avenue for generating passive income.

To get started, you’ll need some upfront investments in essential equipment, such as a good microphone and a quiet room setup to ensure high-quality recordings. Patience and practice are key as you hone your craft and develop a professional portfolio. Once established, you can leverage platforms like Upwork, Fiverr, or specialized voice-acting websites to connect with clients and secure ongoing narration work. This passive income stream allows you to turn your distinctive voice into a lucrative asset while contributing your talents to various industries.

24. Rent your car

Upfront time commitment: 30 minutes

Similar to renting out your home on Airbnb, you can rent out your car as a way to earn passive income. This is truly a passive income idea since owning a vehicle is the only requirement to start earning money. 

You can rent your car on platforms like Turo, which makes it easy to sign up and get started. If you’re renting out a car you already own, be sure it’s not the one you use for everyday transportation—this passive income idea works best if you have an extra car or two that you don’t typically drive. 

Other popular online rental platforms include Getaround, Avail, and HyreCar.  Most of them manage all the logistics—like screening potential renters and processing payments—for you, making it surprisingly easy to start earning. Your earning potential depends on your location, type of car, and how often you list your car for rent each month. 

You can also earn more by listing more than one car. According to Turo, the average annual income is $10,516 for those with at least two active vehicles valued between $25,000 and $34,999 and who rented at least seven trip days per month. 

25. Rent your parking space 

Upfront time commitment: 20 minutes

If you live in a large city or densely populated area (even better if it’s near an airport), renting out a parking space you don’t use might be one of the easiest passive income ideas out there. If you’re centrally located near popular concert venues, sports arenas, or convention centers, renting your parking spot can earn you some serious cash during those events. 

With online parking marketplaces like Neighbor, Spacer, and SpotHero, you can sign up and get started in just a few minutes. While city dwellers may have an easier time cashing in on this idea, other opportunities include renting to local office workers, commuters, or students in need of a parking spot. 

Ultimately, your location will determine your earning potential, but beginners can expect to earn around $50–$300+ a month, according to Neighbor. And other sites like Parklet even have handy price guide tools to help you find a rough estimate of what you might be able to earn.  

26. Rent your bike 

Upfront time commitment: 30 minutes

You might not have an unused vehicle lying around, but what about a bike? Much like renting your car or parking space, creating a passive income is also possible with a bicycle. 

Rental sites like Spinlister can connect bike owners with people actively searching for a rental bike. In addition to insuring your bike against theft on your behalf, most platforms will also handle verifying potential renters and processing payments. If you’ve been wondering how to make passive income with no money, this could be the idea for you! 

Similar to renting out your car, your earning potential depends greatly on your location, local demand, and how often your bike is available to rent. Need an alternative to bike rentals? Spinlister also lets you rent out surfboards, snowboards, and skis! 

27. Rent out your room 

Upfront time commitment: 2 hours; ongoing

There’s no denying the wildly popular world of renting out your home on Airbnb. But for a more approachable beginner passive income idea, consider renting out a single spare room or other underutilized space. If it has a roof, people will rent it—be it a treehouse, a shipping container, or the aforementioned spare room you don’t use. 

Of course, some thought and planning are necessary when listing your spare space for rent. You’ll need to research local demand and the going rate for room prices to determine a fair price. You should also consider safety precautions, like interviewing potential renters before having them stay in your home. And, you’ll want to put some effort into your listing photos to make it appealing to prospective renters. 

Depending on what you want, there are many ways to make this idea work for you. If you’ll be traveling for an extended period, that could be a good opportunity to earn some extra cash by letting someone else stay while you’re away. Or you may choose to set a specific cadence based on how much you want to earn, like renting out at least two weekends a month. 

How often you make your space available is entirely up to you, but building a consistent flow of renters adds up faster than you’d think. 

28. Advertise on your car

Upfront time commitment: Varies

What if you could make a passive income just by driving your car? We’re not talking about Ubering, either—instead, consider getting paid to put advertisements on your car, or “wrapping” your car. 

You’ll first need to find an advertising agency that offers this service, then apply and go through their screening process. To qualify, they’ll assess things like your driving record, the age of you and your car, and whether you meet the minimum requirement for daily miles driven. Once approved, they’ll wrap your car with the ads for free. The type of car you drive does matter—approval is more likely if you drive a newer car. 

This can be a truly passive income opportunity since you don’t have to change anything about your day-to-day driving habits—you’ll just be driving around with the advertisements, potentially pocketing hundreds in extra cash each month. Read the application thoroughly for a rough estimate of what you’ll earn—it should include your compensation rates and how long a given campaign will last (that is, how long you’ll need to drive to be compensated). 

While this passive income idea requires little to no effort, do your due diligence in finding a reputable agency. Legitimate operations will never charge drivers a fee to have their car wrapped, so if an agency requests payment, take it as a red flag and look elsewhere. 

29. Open a cash-back rewards card 

Upfront time commitment: 30–45 minutes 

If you’re a responsible credit card user who pays your bills in full each month, consider opening a credit card with a cash-back rewards program. Such programs offer a percentage of cash back on qualifying purchases, which you can redeem for card credits or online purchases. 

Cash-back rewards programs vary depending on the credit card you choose, with some offering a fixed cash-back rate and others offering higher rewards for certain categories, like groceries or gas, or on websites like Amazon and eBay. Regardless of the one you choose, it can be a great passive income idea if you already use a credit card for everyday purchases. 

Pros and cons of passive income

When it comes to learning how to make passive income, there are countless avenues available depending on your skills, interests, and how much time you’re willing to devote. While there are plenty of truly passive income ideas, like advertising on your car or renting out your parking space, the most lucrative ideas typically require a bit of time and effort. 

That said, increasing your monthly income by even the smallest percentage can help you reach both short-term and long-term savings goals, especially saving for retirement. 

FAQs about how to make passive income

Still have questions about how to make passive income? Find the answers below. 

How can I make passive income with little money?

A low-cost, hands-off way to make a sizable passive income is by investing in index funds. Even if you’re brand-new to investing, index funds are approachable and don’t cost much money to start. If you want to earn significant returns over time, index funds are a low-cost way to do so—the S&P 500 index, for example, has seen average annual returns of nearly 12%. 

How many income streams should I have?

There’s no right or wrong answer—the number of income streams you should have depends on your personal goals. If you’re interested in earning passive income as a way to pocket some extra cash each month, a single passive income stream can do that for you. 

On the other hand, individuals looking to break from their 9-5 job and fully support themselves with passive income alone will likely need multiple passive income streams to do so comfortably. 

How can a beginner earn passive income?

One of the best beginner passive income ideas may be investing in index funds or ETFs. Compared to picking individual stocks, which requires time, knowledge, and effort, funds are a low-cost way to own many different stocks at once without having to keep tabs on the performance of individual companies. 

Not only are these funds an easy way to start building a passive income, but they can also have significant long-term payoff potential.  

The post How to Make Passive Income: 29 Passive Income Ideas For 2023 appeared first on Stash Learn.