Better money habits for smart spending

Just about everyone wants to be better with money — whether that’s never again missing a payment,  simply saving for the future, or whatever your goal is. But building better money habits can seem like a massive effort, and it seems everyone has a different idea of what smart spending looks like. 

The good news: Better money habits start with small steps. You can implement these steps quickly and painlessly, making the process a lot less intimidating and keeping you motivated along the way. And before you know it, your small steps are leading to big moves that can make a big difference for your financial as well as your mental health.

Here are some of the big moves, and small steps, you can take to strengthen your personal finances.  

Big move: Create a budget for smart spending

Creating a budget is essential to building better money habits. It allows you to learn where your money is going, gives every dollar a purpose, and ensures you have enough money to pay for expenses and save for the future. Plus, by creating a budget, it’s easier to uncover where you may have some bad money habits (like impulse purchases).  

Small step: Choose how you’ll budget

There are plenty of ways to create your budget: a spreadsheet, an app, or good, old-fashioned pen and paper. Choose the method that works best for you based on your lifestyle, preferences, and anyone you’ll be budgeting with. It might take a little research, but you can find a high- or low-tech solution that makes budgeting doable.

Small step: Assess current spending habits

Next, take stock of your current spending habits. Know how much your minimum payments are for any loans, the cost of rent and utilities, and how much you currently put into savings every month. Using the last few months of spending as a guide, write out where your money is currently going and note when payments are due to avoid paying late fees. This process gives important information you can use as you move ahead.

Small step: Set realistic goals

Maybe this process helps you see that you’re spending a shocking amount on fast food, or you discover your credit card payments are taking over your life. Either way, you’ll want to set goals that your budget will reflect.

Cut back on overspending, but budget some money for things you enjoy, like hobbies, lunch with friends, or a travel fund. That makes your budget realistic, which can help you stick to it. Plus, it lets you balance living your life while tending to your money goals.

And don’t be afraid to reassess your budget after each month to make sure it’s an accurate reflection of your lifestyle, spending, and financial health goals for the future.

Big move: Pay off debt

Building better money habits is more challenging when you have a lot of debt and big monthly payments. Though it may feel like debt is an inevitable part of life, paying down debt is not only possible, but immensely rewarding. Break repayment into manageable steps and work steadily toward becoming debt-free.

Small step: Pay off your smallest debt

While paying off debt can seem overwhelming, start small: One way is called the “debt snowball method” where you figure out the smallest sum you owe and throw everything extra at it, paying it down as quickly as possible while making the minimum payments on your other debts. Just paying off one debt proves that it’s possible to make real progress.

This approach allows you to gain momentum as you pay off each debt, smallest to largest. When you pay off each debt, take the moment to celebrate your win! Taking the time to acknowledge how far you’ve come can help you stay motivated.

You may be wondering where interest rates fall into consideration here. With the snowball method, you still pay down the smallest sum, regardless of interest rates.

Other strategies include the debt avalanche (prioritizes the highest interest rate) and debt consolidation loan (bundles all debt into one account). A word of caution: A debt consolidation loan may seem like a way to simplify things and may save some interest in some cases; it can also push debt down the road rather than actually paying it off.

Small step: Get a side hustle

Consider getting a side hustle, or part-time job, and using all your extra earnings to pay off debt. A side hustle doesn’t have to be time-consuming — there are plenty of ways to earn cash that you can do on weekends and evenings, including monetizing a hobby or skill you already have. Making even an extra hundred dollars a week allows you to make progress toward paying off debt and building better money habits. Using a banking platform like Spruce, a mobile banking app that helps you get better with money, provides the opportunity for cash back  at select retailers, which you can use toward paying down debt.

Small step: Avoid running up new debt

If you’re trying to get out of debt, avoid going further into debt whenever possible. Continuing to pay for things with a credit card and taking out more loans (or taking out a larger loan than needed!) will hinder your progress. It could also demotivate you in your journey toward making better money habits. Once you start earning extra income and paying off your credit card debt or other debt, keep the momentum and avoid digging yourself further into a hole.

If money’s tight, Spruce may be able to help keep you on track in a couple ways. For one, with Spruce you can get paid up to two days early. And, if you need it, Spruce Courtesy Coverage can give you some overdraft protection of up to $20.

Big move: Prepare for the future by building good money habits

Part of smart spending is preparing for the future. Rather than focusing only on this month’s budget, it’s important to zoom out and look at the big picture of your finances.

Small step: Write down your goals

One way to prepare for your financial future is to know where you’re headed. Take time to write down your long-term financial goals related to saving money, paying off debt, making big purchases, financial stability, and retiring. Let yourself dream about where you want to be in the decades to come. Knowing your end goal allows you to put good money habits in place that will help you get there. You can always look back at these goals when you’re feeling discouraged or tempted to make a purchase you haven’t budgeted for and remember why you’re making sacrifices now.

Stay motivated and make progress on whatever you’re saving for with Spruce saving goals! This feature lets you tuck away money whenever it works for you. The funds are kept separately, helping reduce the urge to dip into it.

Small step: Contribute to your workplace retirement plan

Talk with your employer’s human resources department to find out whether your workplace offers a retirement plan as part of its benefits package. If you have access to an employer match, contribute enough to get the full match — it’s like getting free or extra money from your employer. Even if you can’t contribute much to a retirement account yet, contributing a small percentage of your salary and getting the full employer match can add up. And that can make a big difference when it’s time to retire. 

Small step: Create an emergency fund

Put some money aside each month to contribute to your emergency fund until you’ve built a sufficient amount to cover any unforeseen expenses (think job loss, sudden car repair, or medical bill). Many experts suggest you have enough money to cover at least three months’ worth of everyday expenses. This approach prevents emergencies from putting you further in debt or eating away at other savings, both of which can add to your financial stress. Using a separate savings account for these funds can also help you avoid the temptation to tap into the funds for non-emergencies.

Building better money habits: How Spruce can help

As you start making small steps toward good money habits, Spruce provides tools that can help along the way.

With the many features Spruce offers, you can choose to tuck money away automatically to add to your emergency fund or save up for a big purchase in a dedicated saving goal, get paid up to two days early ,  have help sticking to your budget, and even allocate a portion of your tax refund to help meet your long-term saving goals.

Get started with Spruce.

This information provided for general educational purposes only. It is not intended as specific financial planning advice as everyone’s financial situation is different.

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