Financial stress can seep into nearly every facet of your daily life. If money is tight, your brain tends to focus on that and that alone. Soon, you’re distracted at work, at home, and even when you’re out with friends. Flip the script on your finances and take charge of your situation with these seven tips.
1. Know Your Credit Score and How to Improve It
Your credit score is the gatekeeper to many of life’s most significant financial opportunities. Don’t let a bad credit score leave you on the sidelines. If you don’t know your score, many financial institutions can provide this for you. Typically, your score is accompanied by a rating on whether your score is excellent, harmful, or somewhere between.
If you find that reading your score makes you feel a bit nauseous, have hope. There are things you can do to improve it in a matter of months. Most institutions report the factors that impact your score every 45 days, so your actions now can make an impact. Payment history, credit utilization, credit history, credit mix, and new credit are factors that impact your credit score.
Review your credit score and your credit report to see where you stand. Inspect areas that may be drawing your score down and consider improving them. Think about a credit builder card to enhance your credit presence if you need a credit boost. Many credit builder cards waive credit checks, so you stand a good chance of qualifying, even with a lower score.
2. Clarify Your Financial Goals
Think about what “improved finances” means to you before you get too far ahead in creating financial to-do’s; think about what “improved finances” means to you. Gone are the old-school financial standards of a house, two cars, and retirement age 65. No goal is off-limits, but your ability to accomplish them starts with gaining clarity.
What you envision for your life may be different than what’s been the norm. Make some space to dream and write down what excites you about your life ahead. Once you’ve done that, examine what financial moves you may need to turn dreams into reality.
To retire early, you’ll need to do things differently than someone who plans to work for the long haul. You may want to travel every month in your retirement. If so, you may need to lower your housing and daily living costs to afford you a more extensive travel budget. Ultimately, take the time to think before you act. You’ll have a better chance at achieving financial goals that nourish your unique goals and dreams.
3. Find a Budget Approach That Works for You
Budgeting — it’s a bummer. But without a budget, you may find that your money escapes you before you can cover the basics. The good news is several budgeting approaches can fit your financial style. Here are two to consider.
Folks who prefer a more detailed approach may find comfort in the boundaries that come with zero-balance budgeting. In a zero-balance budget, you assign a role to every dollar you have in your monthly income. Every penny is allocated to a bill or essential expense. You’ll trust money for savings, donations, and fun things you want to do. If you go over in one category, you reduce your expenses in another to course correct.
If the constraints of zero-balance budgeting have you overwhelmed, consider the 50/30/20 budget. This budget divides your monthly income into 50%, 30%, and 20% increments.
From there, you allocate 50% to needs, like rent, utilities, and groceries. The following 30% goes toward wants, while the remaining 20% goes to financial goals like savings and debt repayment. Without needing to focus on the details, you’re free to be flexible with your spending using these three buckets.
4. Set Up Automatic Transfers to Your Savings Accounts
You know how sometimes you’re driving to work and suddenly you’re there, without any idea of how you arrived? That’s your body going on autopilot. You got there safely, and your body knew how to get you there. Much like your commute, you’re headed toward retirement someday. Until then, you’ll have unexpected expenses and opportunities for travel that all require the assistance of a healthy savings account.
Don’t hinge your future on a dream — make progress by taking a cue from your autopilot commute. Go to your HR or accounting department and set up a paycheck allocation. The money will then be automatically withdrawn from your paycheck before it arrives in your checking account.
If you have one core savings account, the chosen percentage can be transferred there automatically. That way, you won’t miss the money, and you can slowly add to it as your behaviors adjust.
To help you segment your savings, consider opening up a few savings accounts and assigning them a purpose. If you regularly have home or car expenses, set aside money in an account specifically for regular and unexpected costs. The same concept works for vacation savings too. Assign one account to be your “rainy day” stash to give you a cushion in the event of an emergency.
5. Know How Much Debt You Have and Launch a Repayment Plan
It can be hard to come to terms with your debt balance. But if you hope to repay it one day, it’s a number you need to be familiar with. Request your full credit report to get a recent tally of your debt. During the COVID-19 pandemic, you can request your full credit report weekly at no cost. Once you have your information, review your list of lenders, the balances, and compare it to your monthly payments. If you have installment loans, chances are you’ll continue paying the monthly fee until the balance is repaid.
One exception to following the repayment plan is student loans. Many student loans have higher rates than other installment loans, and some rates are variable. Variable rates can be tricky — your payments can balloon when interest rates are high.
Prioritize what debts you’d like to pay off faster. Some types of debt to consider prioritizing are those without a saleable asset. For example, debts without help are student loans and credit cards. These are outstanding debts to attack first because you cannot sell the item(s) that created the debt.
6. Lower Your Bills
It may be easier said than done when it comes to lowering your expenses, but it’s not impossible. Make a practice of reviewing your variable expenses like groceries, dining out, and shopping against your budget. If it’s gotten out of hand, see if you can adjust your behavior to a more sustainable level.
Have you slowly accumulated several subscription accounts? Nowadays, it seems that the best programming is on the newest streaming network — the one you don’t have. Review your subscriptions every six months to see how often you’re using things like satellite radio, digital storage, and entertainment services. If you find that you’re not using them, consider canceling or downgrading your packages.
With the extra money you reclaim from monthly expenses, apply it toward debt repayment or savings. As your bills become smaller, you may be inspired to find more budget-conscious ways to have fun. Taking a hike at your local park or hosting your friends for brunch often is more fun than going out. You’ll be able to connect better with your friends and keep more of your hard-earned money. Talk about a win-win!
7. Save for Retirement
Saving for retirement is a long game. It requires discipline and patience, especially since it’s easy to put off doing it. Take the initiative today to review your current retirement savings strategy. If you don’t have one, today’s the day to change that.
If your employer offers retirement savings accounts, that’s a great place to start because many employers will match your savings. Typically, you’re allowed pre-and post-tax savings options. To determine what’s best for you, consult with a retirement advisor, often available at no charge through your employer’s provider.
Whether you do or do not have access to retirement savings from your employer, you can still save. You can open your own Roth IRA through several different financial institutions. Many are digital-first organizations, which makes signing up easy.
With a Roth IRA, you save post-tax money up to an annual limit determined by the Internal Revenue Service. Your money is invested based on your selections, and your earnings grow tax-free.
Just thinking about your financial big-picture can feel overwhelming. But you can breathe more manageable when you review your situation, think about your goals, and plot out a plan. As you take the steps toward your financial goals, you may impress yourself with the progress you’ve made. With your effort and commitment, you’ll feel more confident in your finances and future.