Whether you track every penny you spend, or just periodically check your bank account and credit card balances, everyone maintains a budget to some extent. You could use an app, a spreadsheet, or keep track in your head, but it’s important to know how much money you have coming in, and how much you spend, for a given period of time.

Regardless of how you keep your budget, it is a good idea to evaluate your financial position at least once a year and think about how you could make better use of your money. These tips will help you to evaluate your habits, lower your spending, and improve your planning for the future.

Evaluate the Balances in your Accounts

There are three types of cash accounts that people should have: 

• Checking Account 
  Your checking account should only have enough to cover your monthly expenditures. You should not be spending more than you make, so a general rule of thumb is to maintain the equivalent of one month’s pay in this account. This account balance will fluctuate a lot because there is constantly money going in and coming out, but this account should not be consistently growing over time, because it doesn’t earn interest. If you find that this account has grown over time, you should consider moving some of the funds to a savings account.

• Emergency/Liquid Savings 
  Think of this as your Rainy Day Fund, used to keep a cash buffer in case of an emergency (i.e. losing your job) or to save money for known future expenditures, like a down payment for a house. These funds should be kept in interest bearing, yet liquid accounts, such as a simple interest bearing savings account, where you can access the money at a moment’s notice, without penalty. You should keep between 3-9 months’ worth of expenditures in this account for emergencies in addition to any money you are saving for a specific future event.

• Long-Term/Illiquid Savings 
  These are generally retirement accounts that don’t allow you to withdraw money early, or that would incur a penalty if you did. You should be putting some amount into these accounts monthly—every little bit helps!

Review Auto-Renewal Payments

We are creatures of habit, and it’s important to know how much our habits are costing us. We all have things that we pay for on a regular basis that are automatically deducted from our bank account or charged to our credit cards. This can include subscriptions and memberships that give you access to certain benefits (such as app subscriptions, video streaming services, Amazon Prime, gym memberships, etc.). 

One survey estimates that the average consumer has 11 of these charges each month. While the individual amounts are usually small, they add up quickly.

To clean these up, grab your most recent bank and credit card statements and mark all of the items that are recurring or auto-renew. Add them up—you may be surprised by the total! As you go through these, ask yourself a series of questions about each:

• Did I cancel this? Is this what I ordered?
  Try to find confirmations of your cancellations and call the company to investigate why you are being charged. They should be able to offer a refund if you are being charged incorrectly.

• How much do I actually use the product/service? Is it worth it?
  For some payments, it might help to think about a per-day or a per-use cost. For example, if you pay $15 per month for a photo editing software, but you only use it to edit 2 photos per month, you are paying $7.50 per photo. Another way to think about this is to put it in yearly terms; if you kept this up you would be paying $180 per year to edit 24 photos.

  For payments that get you access to certain benefits, especially those that are intended to save you money in the long term, determine if the benefit you received was greater than the cost. A great example of this is Amazon Prime. Some of these memberships keep track of all your savings, and you may also be able to access this information in your online account. If the amount you saved is less than the cost you paid to get the service, it’s probably not worth it!

  For items that auto-renew at intervals longer than one month, put a reminder on your calendar a few weeks before it renews. When you get the reminder, think about whether or not you actually use what you are paying for, and decide to renew or cancel it before you get charged.

• Could I be paying less?
  Especially for items where you pay on a monthly basis, like your cell phone, internet, or cable, check to see if you could save money by changing your payment plan. Many companies offer discounts to people who pay for 6 months or one year at a time, as opposed to one month at a time. If it’s something you have determined is worth it to you, see if you could take advantage of these savings!
  
  The answers to these questions are going to be different for every person. However, don’t make the mistake of thinking you will change your patterns—if you aren’t using something now, you probably won’t use it in the future!

Don’t forget about your infrequent expenses

Most people have a pretty good idea of their regular expenses that are frequently recurring. You know (or you should know!) how much you spend every month on rent, student loan payments, and car payments. You also probably know roughly how much you spend each month on necessities like food, utilities and gas. 

However, many people struggle to plan for big expenses that are more infrequent, but still fairly certain to occur, such as:

• Car or home insurance, usually paid once or twice annually
• Somewhat predictable car and home repairs
• Taxes (if you are expecting a refund don’t forget to budget for that too!)
• An annual trip home for the holidays

Know your patterns and don’t forget about these less frequent expenditures. For example, if you are expecting to have to purchase new tires for your car in the next four months, start saving a little money for that today. It’s much easier to save a little bit at a time for these expenses than to have to deduct it from your budget all at once.

Reevaluate your long-term savings plan

No matter how old you are or where you are in your career, you should be saving for retirement. When it comes to building your savings, time is your friend. The longer you are able to save, the more your savings will be able to grow, and the effects in the future are exponential. 

An easy way to do this is to ensure that you are taking advantage of everything that your employer offers. Employer-sponsored plans are beneficial for many reasons, including certain tax breaks and deductions straight from your paycheck.

Here are a few things to consider with employer-sponsored retirement plans:

• Some employers require you to “opt-in” to the retirement plans. Make sure that you do this! If you don’t opt in, you could go months or years without contributing anything to your retirement plan.

• Many employers offer a matching program where they will match any contributions you make to a retirement plan, up to a certain amount. You should contribute at least as much as this limit so that you are getting the full benefit of the match.

• You set the amount or percent of your pay that goes to the plan. Determine if you can increase your contribution, even an additional 1% per paycheck can make a big difference!

Every employer offers different things, so talk with an HR or benefits officer at your employer to get the full scope of the benefits. It may also be worth it to speak with a financial advisor about other savings options that you might be able to take advantage of, especially if you feel that you employer doesn’t offer exactly what you are looking for.

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Want to learn more about Finance, Accounting, Economics and Analytics?

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About the Author

Jackie is a member of the HBX Course Delivery Team and currently works on the Financial Accounting course for the Credential of Readiness (CORe) program. She also works on the Leading with Finance Course, and is working to design and develop a course in Entrepreneurship for the HBX Platform.

Jackie holds a BSB in Accounting and Finance, and a Masters of Accountancy, all from the University of Minnesota. In her free time she enjoys cheering on her favorite Minnesota sports teams and baking.

Considering enrolling in an HBX program but still have questions? The HBX team has done a little roundup of existing resources to help you find the answers you've been looking for! 

1. Start With our FAQ Pages

Whether you have questions about course structure, the admissions process, grading, fees, or financial aid, check these pages for answers to dozens of the most common questions we get about our programs:

• CORe FAQs
• Courses FAQs
• Disruptive Strategy FAQs
• Leading with Finance FAQs

2. Read Through Facebook Reviews and Past Q&As

We are lucky to have such a rich and supportive community of learners from around the world. Some of them have been kind enough to write up thoughtful reviews of their HBX experiences or join us for Facebook Q&A sessions, answering questions for prospective students. You can read through the entire conversations here: 

• CORe Q&As (Part One and Part Two)
• Disruptive Strategy Q&A

3. Learn About Other Past Participants Through Their Student Profiles

“Is this program right for me?” This is a question we hear all the time, but it's a difficult one for us to answer objectively. Often times, what people are really asking is if their educational background, professional goals, interests, or existing skill set will position them for success in an HBX course or if they will find the investment of time, energy, and money to be worthwhile. 

Our Student Profiles are a great resource for anyone who wants to hear firsthand from a variety of past participants about why they chose to participate in our programs, what they hoped to gain from the experience, and how they are using what they learned. 

• CORe Student Profiles
• Disruptive Strategy Student Profiles

4. Browse the HBX Blog

The HBX Blog is a place where you can dive a little deeper into the subject areas covered in the HBX programs (i.e. What does Cash Conversion Cycle mean, or why should I study accounting), or for those who want to hear more from students who have participated in an HBX program. Here are a few types of posts you may be interested in:

• Student Blog posts 
• CORe
• Disruptive Strategy
• Finance

5. Still have questions? Ask them using #AskHBX on Twitter!

If you've read through these resources and still can't find the answers to some of your burning questions, feel free to ask them on Twitter using #AskHBX. We will keep an eye out for questions and answer as many as we can!

Kayla Lewkowicz participated in the January 2016 cohort of HBX CORe. This is the final installment of a series of reflections inspired by her experiences. The original post appeared on her blog here, and the whole series is available here.

As my time with my cohort comes to a close, I wanted to pause and reflect on what I learned, and what I'll take with me moving forward in my career. HBX was incredibly time-consuming but ultimately, very rewarding and insightful.

To make a decision, look at all the factors

When you make a decision, you have to know everything that's at stake. Building a team of people that can help you see beyond what you want to see--your inherent bias--is essential to make an informed decision. Economic and market forces, cultural shifts, the political landscape, and how your product is received all impact the financial statements and the data. You can't look at one aspect of your business to know whether or not you're successful, but you do have to know what's most important.

Related: Know What's Most Important

This means that judgment can be more important than data collection or quantitative analysis. Though the numbers may tell one side of the story, they can be just as subjective as survey comments or customer sentiment. As a manager and decision-maker, taking a holistic view of all of the possible data points--qualitative and quantitative--and then looking beyond what the data says to get to the "why," will make you more successful.

Be an experimenter

Rather than going with "what feels right," use data to make a decision.

Most people know this is the right way to do it, but have trouble in practice not because they're data illiterate but because failure is psychologically painful. An experimental mindset--where you're tinkering and tweaking--encourages understanding your customer, your audience, and your performance in a well-rounded way.

Related: When In Doubt, Test & Learning to Experiment

To do this right, we need to ask questions. Experiment. Get curious. Test. Otherwise you'll never learn anything, and never ship products that really innovate.

Relationships matter

Where your business fits in the market matters, because its relationship to other companies matters. As consumers, it's how we figure out what we want; as managers, it's how we know how we're performing. In business, everything is tangled up in so many factors that it's often not clear what's what. After all, you can't find the solution if you don't know the problem.

Related: Kickstart Your Business With Networks & It's All Related

Making decisions isn't always so easy as "because of this, we should do that." Whether that's price, logo, or investing decisions, the world isn't so linear. With such high stakes, we need to separate what's important from what's not, and what's related with what's not. We can do that by experimenting, asking questions, or collecting data. Knowing that relationships matter, and seeking them, helps us make more holistic business decisions (see above) and maybe even predict the future.

Would I recommend HBX?

In short, definitely.

As a liberal arts student with very little in the way of business background, I feel more comfortable and familiar with the language of business. In our quarterly earnings presentation, I understood the CFO for the first time. I've been able to take a new look at social media data and performance for the Twitter handle I manage. And ultimately, I have a better understanding of the principles that make up business decisions.

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Interested to know more?

 

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