In a 2020 Financial Literacy Survey conducted by the NFCC, they found that 62% of American adults have reported credit card debt from the previous 12 months, while 27% reported not being able to pay their bills on time. With the growing likelihood of unexpected financial emergencies, here are some ways you can improve your financial health.
Be honest about your financial state
In many cases, a number of individuals may be ashamed to talk about their finances due to poor decision-making or other stigmas. However, being honest with yourself and with your loved ones about your financial state can help you solve any issues and create a more positive dialogue moving forward.
The first step is being aware of how much you’re spending, how much you’re saving, and whether you have any unhealthy habits that are holding you back. Instead of contributing to a downward trend, acknowledging that there’s room for improvement can lead to a better financial future in the long-run.
Keep track of all your expenses
Gaining a big-picture view of your spending is the best way to map out your finances. Whether you choose to track your expenses and income through a plain notebook, savings app, or Excel sheet, there’s no right way or wrong way to get started. All you need to do is create budget categories like rent, utilities, and grocery shopping and assign amounts.
Throughout the month, aim to keep track of every expense no matter how big or small. Record each expense into a category and subtract the amount you spent from the current total. Reviewing your daily expenses can help you out if you’re just starting to budget. This way, you’ll be fully aware of how much you’re saving and spending.
Create a budget that works for you
Often, people create a budget and end up not following it after several weeks. It’s important to keep in mind that a budget is not a one-size-fits all spending guide. It should be based on how much you typically earn and spend with some wiggle room on the side. When done right, it can help you change your financial future depending on how well it suits your needs.
At the end of each month, you should check whether your allocated expenditure for each category makes sense. If there are any figures that are too large or too small, you can shift the numbers around. Also, as your income fluctuates, you may also need to adjust your savings targets to be in line with your earnings.
Lower the cost of your major expenses
Some of the biggest expenses that you need to take into account are often rent, utilities, transportation, and food. While you may not be able to reduce fixed expenses unless you make drastic changes to your existing lifestyle, making smaller changes here and there can add up eventually.
You can start by looking at energy-efficient bulbs and other gadgets that can help lower utility costs, buying groceries in bulk stores, and choosing some generic items over branded ones. Investing in a bicycle or electric scooter instead of taking a taxi can also be better for your wallet and your health.
Tackle any debts you owe
One of the biggest financial mistakes you can make is taking on a lot of debt and being unable to pay it back. High-interest credit card debt can quickly accumulate if you end up choosing buy-now-pay-later options and installment plans that charge large amounts of interest.
To get yourself out of debt as quickly as possible, you should list down all of your current debts including car loans and student loan debts, and figure out the minimum amount you should pay to stay on top of each balance. Next, figure out how much of your budget you can put towards debt repayment and practice mindful spending habits in the meantime.
Improve your credit score
Your credit score is one of the most important indicators of your financial health. Having a good credit score can impact your insurance rates, ability to get approved for a loan, and accessibility to better credit card terms. Some factors that contribute to a better credit score include making payments on time, having low balances on your credit cards, and more.
In general, you should aim for 30% of credit utilization or less, meaning that you should try to maintain a total outstanding balance at 30% or less of your total credit limit, or ideally 10% if possible to improve your score. You should also avoid applying for too many new credit cards even though they might seem to have tempting offers.
Get rid of automatic subscriptions and memberships
These days, there are plenty of subscription plans and memberships that make it appealing for individuals to sign up. From on-demand streaming services like Netflix, Hulu, and Spotify to gym memberships, shopping memberships, and subscription boxes, you may be spending more than you think on a monthly basis.
To save some money, consider sharing memberships between family and friends. Often, sites like Netflix allow you to watch shows using multiple screens if you upgrade your account. You can also cut down on similar services and see which ones you can’t go without. Lastly, don’t forget to end any free trials before you get charged!
Read personal finance books
For beginners, getting into personal finance can be intimidating due to the technical language involved in investing. However, no matter what stage of life you’re in, there’s probably a finance book out there that can help shed some light on what you’re confused about.
There are books on budgeting, how to address debt, how to get started with building an investment portfolio, and how to build better money habits. To save even more money, you can buy used copies online, try an ebook, or borrow them from your local library. Audiobooks are also a great option for auditory learners who want to learn on the go.
Start investing your savings
If you really want to grow your savings, you should have a passive means of earning income. Instead of working for it actively, you can save and invest your money in financial instruments like real estate, stocks, bonds, and mutual funds. Over time, these will lead to greater annual returns.
Because investing comes with risk, it’s best to start with a smaller amount and diversify your portfolio. This way, you don’t put all your eggs in one basket and you can avoid losing more than you can afford. Enrolling in a class on the basics of investing basics or talking to a trusted friend can provide you with some guidance.
Practice constant discipline
It may be easier said than done, but the road to good financial health involves making sacrifices and sticking to the rules. For instance, if you’ve just received a large work bonus, inheritance, or a significant sum of money, it can be extremely tempting to splurge on a huge purchase.
However, investing this money might be a better idea. Putting it in a high-yield savings account and consulting a financial advisor can help you out. The harsh reality is that saving money is a constant process that doesn’t take place in one night.
Taking it slow and steady by making automated deposits into a savings account and retirement plan is the way to go. This way, you’ll be less tempted to spend your paycheck and have a better safety net in the future.
Set up an emergency fund
You may not want to think about the worst case scenario, but having a backup plan in place can give you some peace of mind right when you need it. An emergency fund can cover things like unforeseen medical costs, a period of unemployment, and major home repairs. This way, you’re less likely to have to rely on credit cards or take out a loan.
Ideally, an emergency fund should cover three to six months of living expenses. However, those who work freelance or have seasonal jobs might want to save more just in case. It’s okay to start small and gradually work your way up as you achieve greater financial stability. If you have debt, having an emergency fund can also help you avoid borrowing more.
Take advantage of digital tools
Unlike physical wallets, digital wallets have a larger host of features that can help you with budgeting. A digital wallet securely stores payment data and passwords, making it more efficient to complete purchases. It can be used to send money through mobile devices during a meal, or a financial transaction.
In addition, major companies like Starbucks, Target, and Amazon offer further perks like loyalty points and coupons if you use their mobile payment apps. You can easily manage your cards and cash, and some of these even have integrated spending tools so you can automatically see how much you’re spending and saving every month.
By taking it day by day to manage your finances and look for new opportunities to gain financial security, you can eventually create lasting strategies that can help you persist during times of economic hardship. Leave a comment below if you have any personal tips on how to promote financial health!