No one wants to have financial struggles, but knowing how to avoid them does not come naturally to everyone. Some people are gifted with numbers and managing money. Still others studied finances and banking in college. But most of us have had to learn through some hard life lessons and could really benefit from some fundamental teaching and financial coaching.
There is a short list of simple but critical habits that most financial wizards practice. Incorporate these into your own money-management plans and you will soon be well on your way to stronger personal finances.
Five Habits You Can Start Today to Improve Your Financial Situation
Start with a budget
If you are one of the majority of Americans who live in a financial free fall, which is to say, you are not living by a budget, then establishing one now is a critical first step. Money can get tight from time to time and if you don’t keep track of your spending, you may not understand why your wallet always seems empty. Having a plan for how and why you are spending your money helps you feel secure and in control, even when you’re financially stretched.
Remember that making a budget doesn’t need to be complicated. You just need a straightforward, easy-to-follow system for tracking your income, spending, and savings. Consider one of our favorite plans: The 50/20/30 Rule, where you calculate your after-tax income and then divide it into three basic categories: 50% for necessities like housing, food, car payments, and utilities; 20% for savings, retirement, and debts; and 30% for discretionary spending on vacations, entertainment, and treats.
Track your spending
Armed with your new budget, you are ready to keep tabs on where your money is going. If your income is plenty for you and your family and things are rarely tenuous or tight, then you needn’t worry about tracking every impulse buy and visit to the drive-thru. And if sticking to the three broad categories laid out in the 50/20/30 Rule we reference above comes pretty easily for you, then that amount of tracking is probably sufficient
Beef up your emergency savings
Part of the vicious cycle that makes it hard to live within your budget is the unexpected events that happen to all of us. Nobody ever plans for their water heater to blow, but these things happen — to all of us. It feels terrible to be stuck with a bill you have to pay that you can’t afford and didn’t see coming. This is the importance of an emergency fund. When these things happen (and it is a when, not an if), you can handle it without throwing off your budget or going into debt. In fact, most experts would say that putting aside at least $1,000 should be your first priority, ahead of all other improvements to your financial health. It may take you a while to reach this goal, but as long as you are getting closer every week, you can take comfort in knowing you are making progress.
Long term, aim to have at least three months of expenses set aside. Die hards like Dave Ramsey encourage you to go for saving up six months of income. For most people that can take some time, but it’s an important goal to work toward.
Tackle that debt
Debt free is the new rich. Have you heard that said before? There’s a lot of wisdom in that maxim. Today, Americans are relying on credit cards more than ever, with a total of $931 billion in credit card debt nationwide. That kind of debt comes with a certain amount of stress, not to mention the cost of high interest rates. We can be pretty sure no one ever regretted getting out of debt. It is a great goal.
If you can only manage your minimum payments each month, so be it. But understand that paying only the minimum will get you out of debt at a snail’s pace and cost you more in interest. Challenge yourself to pay more than the minimum each month, even if it is only a few dollars extra. Do the same for other loans like your mortgage, car loan, and student loans. Over time, you really see the difference in your shrinking debt. Once you are debt free, you will love the freedom and security it affords you. There are various strategies for getting yourself debt free, including a low-interest personal loan for debt consolidation. A service specialist at Spero is here to help you devise a strategy when you’re ready.
Develop a savings plan that includes retirement
There is an old Chinese proverb that says the best time to plant a tree was 20 years ago — but the second-best time is today. Few of us have saved as much as we “should” or wish we had, but don’t let that fact shame you into not investing in your future starting right now. Some financial experts insist that you be debt-free before you concern yourself with savings, and a Spero service specialist is happy to help you look at your particular situation and help you initiate a savings plan that fits your needs and goals. We recommend having a savings account for short-term goals like vacations and home remodels.
Also, it is never too soon to start saving for retirement, but it is never too late either. Whatever you can do to start making your money work for you (instead of the other way around) is worth doing. Many employers not only offer you the opportunity to contribute to a retirement account but will actually match your contribution up to a certain amount. If this is the case, make sure you are taking advantage of this. Not doing so means that you’re leaving money on the table with every paycheck. If your employer doesn’t help with financing your retirement, Spero can help you find a retirement account to meet your needs.
One of the most important things about saving is making a habit of it. Plan and schedule it regularly. Consider ordering bi-monthly transfers from your checking into your savings. You’ll be surprised how even $25 every couple weeks adds up. Another great tool is an app for saving and investing your extra dollars. Check out Acorns, an app that puts your pocket change to work for you. The service is free to college students and only $1 per month for the rest of us.
Today is a fine day to get to work on practicing these key personal finance principles. If you are not sure where to begin, or you are ready to open a savings or retirement account, give Spero a call and make an appointment with a service specialist. We are here with you for the long haul, supporting you as you build and improve your long-term financial health.