Financial struggles, while uncomfortable, are nothing to be ashamed of. If you’re like most people, you most likely never received a formal financial education. Instead, you’ve had to learn as you go, likely making a few mistakes along the way.
Maybe you racked up credit card debt without understanding the impact of interest rates or have waited to save for retirement. Maybe you don’t have an emergency fund or sometimes spend more than you earn.
The good news is, regardless of where you are now, it’s never too late to start improving your situation. Little steps can really make a difference in your financial life.
1. Understand Your Financial Commitments
Overcoming financial hurdles starts with understanding your current situation, including financial commitments like monthly expenses and debt payments.
Start by reviewing your bank statements to find out how much money you spend each month. If you don’t already use a budget, take the time to create one and categorize your expenses so you can understand where your money goes.
Use the following broad categories to keep things simple:
- Essential expenses: Rent or mortgage, utilities, groceries, insurance, etc.
- Discretionary expenses: Travel, dining out, entertainment, etc.
- Debt: Credit card payments, loan payments, etc.
Calculate how much money you put toward these categories every month. If you spend more than you earn, consider where you can cut back.
Essential expenses are just that — essential — but it doesn’t mean you can’t spend less. You may be able to negotiate bills, downsize your house or spend less on groceries.
Debt payments are another important financial commitment. Falling behind on payments can have serious consequences for your credit. So do whatever you can to stay on top of them.
Your discretionary spending is where you have the most room to make changes. If your financial commitments — your essential expenses and debt payments — are eating up the majority of your income, you may need to temporarily cut back on discretionary spending to save more.
2. Prepare for the Unexpected
Once you have a pulse on your finances, it’s important to prepare for the unexpected. This means setting money aside for things like surprise home repairs, medical bills,or a job loss.
Experts suggest saving at least three months worth of essential expenses in your emergency fund. Start by saving $1,000 and build from there. Work toward the goal of contributing 10% of your income to your fund.
3. Set Achievable Goals
Once you know where your money goes each month and have emergency savings set aside, it’s time to think beyond the day-to-day. What financial goals do you have?
For example, maybe you want to:
- Pay off your high-interest debt.
- Max out your 401(k).
- Take your family on vacation.
- Buy a house or car.
- Contribute to your child’s college education.
You may have several goals, and that’s OK. For now, pick the one that’s most important or urgent.
Next, review your budget. How much can you afford to put toward your goal each month? Pick an amount that’s large enough to be motivating but small enough to be manageable. If your current spending doesn’t leave room for any savings, try cutting back on discretionary spending, or brainstorming ways to earn more each month. It doesn’t have to be much — anything you put toward your goal is progress.
Once you’ve broken down your goal into a monthly savings target, automate it. Sign in to your accounts and set up an automatic transfer from your checking to your savings account. You can always increase or decrease the amount you save each month. But consistent monthly savings,no matter how small, ensure you’re moving in the right direction.
4. Get Help When You Need It
As you assess your financial commitments, plan for emergencies and save for your goals, don't shy away from getting help along the way. Depending on the financial hurdles you’re facing, you may benefit from individualized help from a financial professional or counselors at GreenPath Financial Wellness.
You can succeed on your own, but a little help can go a long way. If you get stuck, getting some support can keep you accountable and speed up your progress.