Financial health is vital for any lifestyle. But the past year was challenging and brought great financial difficulties for those who did not have a stable income or an emergency savings fund. If you’ve also ended up stuck in a cycle of debt that never seems to end, you’re not alone.
According to recent data, the average American has debts that add up to $90,000 and include credit cards, personal loans, mortgages, student debts, etc. The debt by age group varies considerably: Gen Z (youths between the ages of 18 and 23) tend to have debt in the $10,000 range, while Millennials (ages 24 to 39) may have debts of $80,000.
It can be easy to let your finances get away from you (especially at a time of unexpected expenses) and increasingly challenging to get them under control. Fortunately, there are ways to become financially stable again and begin to grow wealth. Incorporate these steps into your routine to regain control over your financial life.
1. Get Rid of Debt
In most cases, the biggest financial instability and money suck is debt. Whether credit card debts or investments in the future (such as student loans), it’s important that you get rid of them before you can start saving. For that, you need to learn to live within your means.
Make a list of all your current debts and the minimum amount to pay each month to avoid interest. Try to renegotiate some of these debts to gain advantages. Most importantly, get rid of any possibility of creating new debts until you can clear the old ones.
Credit cards, for example. If you want to get your finances in order, stop using them momentarily and avoid buying things on credit as much as possible. Cash purchases can represent savings of up to 20% (in addition to spending more awareness).
3. Track Your Spending
The fastest way to end up in debt is not knowing how much you spend each month and on what. Understanding what happens to your money lets you control your spending and cut out unnecessary costs.
The most practical way to keep track is to ask everyone in your household to record their spending for the next 30 days. By the end of the month, you’ll have a more accurate picture of exactly where you can cut costs. Make a spreadsheet and write down all monthly expenses in:
- Mortgage/rent
- Taxes
- Debt installments
- Car insurance
- Health plan
- Student loans
- Food and other needs
- Gasoline
- Internet/phone
3. Create a Budget
Once you start writing down your monthly expenses, it will be much easier to create a budget – a plan for how to spend your money each month, based on your income for the same period. You need to set a realistic amount: subtract expenses from income to determine your average monthly spend, and from there, set how much you can spend over the 30 days without compromising your finances.
Keep track of your expenses throughout the month, and especially at the end, to determine if you’ve managed to stay within budget. If you didn’t, you might have to consider cutting out extra expenses: cancel cable TV or streaming, avoid eating out regularly, etc.
There are a lot of personal finance blogs out there to help find the right kind of budget for you. There are also free apps available to help set and keep track of your budget.
4. Find a Side Hustle
If your accounts are still in the red, even with planning and spending only on essentials, the best way to get more money is to make more money. Unfortunately, getting a new job with a higher salary is not an option for most people. But you might consider taking a second job or do some freelance work on the side to supplement your monthly income.
The good news is that there are a lot of freelance sites available. If you have the necessary skills, it can be easy to get secondary jobs like creating websites, writing articles, or even offering manual services (maintenance, repairs, etc.) outside your regular business hours.
Renting out some space in your property (a spare bedroom or an unused garage) and selling clothes or accessories that you no longer use can also secure some extra cash at the end of the month.
5. Create a Rainy Day Fund
Rainy day fund is the nickname of an emergency savings fund to help you with all those big expenses and costs that come up unexpectedly. When you don’t have savings set aside for these cases, it’s easy to end up in debt in the face of unforeseen events – repairing your car or personal computer, treating an illness, etc.
The goal for a rainy day fund is to have 3-6 months of living expenses saved in case of emergency. Start by setting aside, say, $50 monthly for the fund. If you don’t make it in one month, save whatever amount you can and try to make it up next month. After some time, you’ll have significant savings set aside for an unforeseen event. You hope you’ll never need it, but you’ll be glad you have it if you do.
6. Monitor Credit Score
There are ways to check your credit score without messing it up. Bigger numbers are better, and your score reflects your record as a good payer (or not). Therefore the more debt you pay off, the higher your credit score will be. Always prefer to make payments with a credit card that you can immediately pay off. Paying bills on time is the best way to build good credit. Another practice to improve your score is not to open too many new accounts in a short period of time.
Keep Your Money in your Pocket
One of the most stressful things in daily life is starting a month, not knowing if you will have the money to pay all your bills and needs when the month is over. Get rid of these uncertainties by adopting more positive practices with your finances.
In addition to those mentioned, you can adopt several other simple practices to keep your finances up to date and, above all, become a more conscientious consumer. You must re-examine your budget every month to adjust it to your needs and regularly track your debts until you finally get rid of them.
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