With a new year on the horizon, it’s a great time to get your finances in order and start 2017 on the right foot. But the ways your best friend, your coworker, or your sister handle money won’t necessarily work for you.
Business Insider spoke with Kimmie Greene, head of communications at financial services company Mint, to identify several different money management strategies. Here are five methods people commonly employ, as well as how to use and improve on them.
Which one do you identify with?
1. Set it and forget it
Automate all of your bills so you don’t have to worry about remembering to make payments each month. This strategy works best for individuals with consistent spending habits who have a significant financial cushion in case their bill runs high from one month to the next.
While this strategy takes the effort out of money management — and seemingly ensures that you’ll never pay a bill late — Greene points out that not everything can be automated. “People may have one-off or new expenses that fall through the cracks and miss the due date,” she says.
2. Points person
If you have a good handle on using credit cards and are able to pay back what you owe each month, it’s possible to charge all recurring expenses, including rent and utilities, and rack up rewards points.
“All your bills are in one place and you get the points too — on the surface it’s a win-win, it’s often just a single check to cover monthly expenses,” Greene says.
However, this strategy can get tricky if you use the same card for both recurring expenses and discretionary spending. Anyone charging everything to a credit card should be completely sure that they have enough cash flow to be able to stay out of the red.
If you prefer a hands-on approach to your finances, you can use apps and tools like Mint.com or Digit to track your spending, create savings goals, and stay within your spending limits. Micromanaging your money keeps you vigilant about your financial goals and works well for people who are early adopters of new apps that can help them stay on top of their accounts.
This approach can be challenging for those who aren’t naturally detailed-oriented, however.
4. Pay as you go
Some individuals choose to pay their bills as they come. “To be successful, this individual needs a financial cushion so they don’t get into trouble paying bills without being aware of the bigger picture,” Greene says.
As Greene notes, if you take this approach, it’s smart to periodically take a look at your long-term spending habits so you don’t end up hit with any major surprises that you’re not equipped to handle.
“Bills can get out of sync, which can lead to overdrafts or dipping into savings to cover too many payments in a given month,” Greene warns.
5. Pay what you can
Though it’s the least-advised approach, many individuals rely on paying only what they can from month to month. With this strategy, it’s important to set aside time to evaluate the big picture.
“These individuals would benefit from taking a step back to gain a clearer picture of their income and expenses, answering the questions, ‘How much is coming in? How much do I owe? How much do I pay myself? And what do I do with what’s leftover?'” says Green, noting that the bill tracking and reminders offered in services like Mint can help build awareness as well as healthy money habits.