An earlier version of this article was written with wikiHow and featured on its website. We updated and shortened it for 2026.
Before you can improve your financial health, you need to analyze your current finances. Start by tracking your spending for a month. Then look at where most of your money goes. After that, use any extra money to pay down debt, build an emergency fund and save for retirement.
Part 1: Track your current finances and spending
Record every purchase
For one month, write down every purchase. Note the amount, the date and what you bought. You can use a spreadsheet, a notebook or a budgeting app. Many banks also sort your card spending into categories for you.
Add up your fixed expenses
Fixed expenses stay about the same each month. For example, they include rent or mortgage, insurance, car payments, utilities and loan payments.
Review your discretionary spending
Discretionary spending changes from month to month. It includes groceries, dining out, gas, clothes and entertainment. Also, notice when you spend the most. For instance, do you shop right after work or on weekends? If so, a small change in routine can help.
Compare your budget to the 50/30/20 rule
This rule suggests spending 50% of take-home pay on needs, 30% on wants and 20% on savings and debt payments. Of course, it won’t fit everyone. For example, rent alone may take more than half your pay in a high-cost area. Still, the rule shows where you may be falling short.
Part 2: Look closely at your debts
List every debt
Make a list of each account, its balance, monthly payment and interest rate. To make sure you haven’t missed anything, check your credit reports. You can get free reports from all three credit bureaus at AnnualCreditReport.com.
Lower your interest costs
Next, look for ways to reduce what you pay in interest. For example, ask your card issuers for a lower rate. You might also consolidate debt with a lower-rate loan or a balance transfer card. Refinancing a mortgage to a shorter term can also save interest, although payments usually rise.
Choose a payoff method
- Debt avalanche. Pay the minimum on every debt, and put extra money toward the highest-rate debt first. This method saves the most interest.
- Debt snowball. Pay off the smallest balance first, then move to the next smallest. Quick wins can keep you motivated.
Part 3: Reduce your expenses
First, set a savings goal. Many planners suggest saving 15% or more of your take-home pay. If that isn’t realistic yet, start smaller and increase it over time.
Then look for savings in each area:
- Food. Cook at home more often and plan your grocery trips.
- Entertainment. Use free options, such as your public library, parks and potlucks with friends.
- Utilities. Switch to LED bulbs and ask your utility about a home energy audit.
- Insurance. Shop around each year and ask your insurer to match better quotes.
- Housing and transportation. These are harder to change. However, they often offer the biggest savings.
Part 4: Save for the future
Build an emergency fund
Aim to save three to six months of expenses. Start small, and put aside whatever you can. Ideally, you can build this cushion while you also pay down high-interest debt.
Use your workplace retirement plan
Ask HR whether your employer offers a retirement plan and a match. For example, if your employer matches up to 4% of pay, contribute at least 4%. Otherwise, you leave free money on the table.
Consider an IRA
If you don’t have a workplace plan, an IRA is a good option. With a traditional IRA, your contributions may be tax-deductible, and you pay tax when you withdraw. By contrast, you fund a Roth IRA with after-tax money, but qualified withdrawals are tax-free. For details, see the IRS guide to IRAs.
Get help reviewing your current finances
A clear view of your finances also helps at tax time. To talk through your situation, call (415) 842-2940 or book a free 15-minute call.