Things you must organize to improve your financial health
Statistics tell us that, in these fast-paced and competitive times, almost half of all Americans are struggling to even make it from paycheck to paycheck! While we may experience stress in almost every aspect of our lives, financial stress has the unique quality of adversely affecting not only your health and emotional well-being, but also your family’s well being by extension.
However, before you do anything drastic, you should know there are measures you can take. Today we will go over some tips on how to improve your financial health. These will not only improve your financial standing, but it will also help you build a future for you and your family.
Your first step should be to assess your current financial position and figure out where your money is going. Go over your financials for the last few months and track your spending habits. There isn’t much you can do to change the amount you spend on essentials such as groceries, rent, utilities, other bills etc. However, you can make adjustments for everything else as the remaining amount is your surplus. You’d be surprised how much you can end up saving if you’re mindful about how much you’re spending.
Once you’ve figured out where your money goes, you’ll need to sit down and make a budget. While your essentials, car payments and mortgage can’t change, you can set limits on discretionary spending for entertainment and recreation. Once you have a formal spending plan, saving and investment becomes a lot easier too. You can even look to pay off a loan faster than expected and reduce the stress in your life. One of the most commonly followed spending plans is the 50/30/20 rule. Half of your salary should be used for essentials, bills, and loan repayments, whereas 30% of it can be kept aside for all your entertainment and recreation spending. The remaining 20% of your salary should ideally be going into some form of savings.
If things are serious and your liabilities are on the higher side, your spending plan might have to include some drastic steps. You may have to switch to a smaller car or apartment to save on money and even look into a debt consolidation loan (more on that below) to help you manage your numerous loan payments. While taking such steps may be difficult and can even leave a lasting impact, in the long run you’re bound to be less stressed and better equipped to deal with the situation and resolve it faster as a consequence. If things are drastic to the point where there’s a billing emergency and you’re at risk of losing your car or your home, then it might be a good idea to sell some household items through a yard sale or get a second job. Again, it won’t be easy, but you need the breathing room, and tough decisions will have to be made for the long run. In fact, having a second job will allow you to build a small pocket of cash in a short amount of time, which you can use for a future emergency. In today’s economic times, it’s a good idea to have a small emergency fund of $1000 to help out with any unexpected medical bills or other personal emergency.
As explained above, 20% of your salary should be going into some form of savings. This doesn’t include the $1000 emergency fund, and you should also maintain a formal savings account. While the emergency fund will help with a one off incident, a proper savings account will provide coverage for unexpected long term situations or even help pay for your family’s holiday or your child’s college tuition. Also, since the money will compound over time, you’ll be earning more, which isn’t the case with your emergency fund which will depreciate over time. So once you have your emergency fund set up, look into different savings account options for your family and, if possible, for your retirement as well. You can look into automated savings or, if you work for such an entity, invest in the company’s retirement account and add money to your 401k.
One of the biggest errors we make in improving our financial health is the lack of regard we give to debts. While we’re aware of the consequences of falling behind on our payments, we don’t give as much attention to managing our debts in a structured manner. This is what contributes to further debt more than anything. With credit card payments, student loans, car leases, and mortgages, it’s no wonder that half of the country spends more than 30% of their salary on just paying debt. If managing debt is becoming a problem, you should consider looking into a debt consolidation loan, whereby a lender agrees to pay off all your existing liabilities and you end up with having to only pay one lender a fixed monthly installment. This allows you to easily keep track of your finances, manage your payments and plan your budget all at the same time.
If you’re going to opt for a debt consolidation loan, then make sure you assess your financial situation and your credit rating before speaking to a lender. There are a lot of scams out there and you need to be careful. Ask all the questions you can think of to understand the arrangement clearly and read all the terms and conditions of the contract. Chances are that, due to your credit history and number of loans, the mark-up and interest rate won’t be to your liking, but at the very least managing your debts will become a lot easier.
Even if you don’t have to take any desperate measures and sell household items or get a second job or another loan, the above steps will be a massive help! After you’ve made a budget and implemented your revised spending plan, you’ll notice a marked improvement in your financial health.