5 Things You Can Do To Improve Your Finances

There is always room for improvement, especially when it comes to our finances. Maintaining healthy finances puts you in a better position to achieve your goals. Learn how to improve your finances with these tips.

1. Only Spend What You Have

Before you go on your next spending spree, think about what’s available in your checking account and what bills you have left for the month. Each month, you earn an income. Once you receive your income, either weekly or bi-weekly, it will begin to split apart. A sum will go towards bills, a sum will go towards groceries and gas, and a sum might go towards miscellaneous expenses.

The key to understanding your spending is maintaining a monthly budget. A monthly budget will contain:

Your income
Fixed expenses – such as rent/mortgage payment, car payment, streaming subscriptions, etc.
Variable expenses – such as utilities, groceries, gas, and other miscellaneous items

Learn more on how to create a budget here.

Once you have your budget, it’s very important that you live below your means. That means if you make $3,000 a month but have $4,000 in total expenses, your account will be negative by a thousand dollars each month. When this happens, oftentimes the negative balance incurs overdraft fees on your checking account, or it is paid with a credit card, accruing unnecessary interest.

The first step to a healthy financial life is to look for ways to save and spend less than what you make each month.

2. Evaluate Your Money Habits

Poor money habits are easy to fall into and harder to get out of. It’s better to get ahead than to get behind. Healthy money habits include:

Paying bills on time. When a bill isn’t paid on time, it can be reported to a credit reporting agency and hurt your credit score. When your credit score goes down, it becomes difficult to get loans and creditlines through financial institutions later. If it looks like you will not be able to pay a bill, be proactive. Call your bill servicer and try asking for some grace. Most places will work with you as long as they get paid at some point.
Only open credit lines that make sense. You do not need to take advantage of every credit card offer that comes your way. Credit cards give you an excuse to pay for things using money you don’t currently have and accrue interest – owing more than the original retail price in the long run. Even opening a credit card at a retail store to get a promotion can potentially hurt your credit score if you plan to close it immediately. Only apply for credit cards that work for you by giving you rewards and cashback for purchases, easy to use, easy to make payments, or whatever feature fits your life.
Be aware of the available balance in your checking account. Try not to keep so little in your checking account that you risk incurring overdraft fees, but also don’t keep too much to where it entices you to spend more. Also, try to be aware of what’s actually available in your checking account. Sometimes finances include taking a look at the bigger picture and remembering some checks haven’t been processed yet or you need to keep enough in your account to pay bills in a few days.

Once you get into the habit of spending and saving wisely, you will be able to make the most of your money.

3. Make A Plan To Tackle Debt

A mountain of debt can be scary to take on. Through hard work, dedication, and a game plan you can make it more manageable. A debt management strategy like the snowball or avalanche method helps pay off your debt efficiently. For example, imagine you have the following debt:

• Student Loans -> $30,000 at 5% interest
• Car Loan -> $40,000 at 7.25% interest
• Mortgage -> $160,000 at 7% interest
• Credit Card -> $5,000 at 6% interest

Based on the example, you have a total of $235,000 in debt. That’s overwhelming and leaves little room for extra expenses and savings in your budget. To pay off your debt the fastest and pay less interest, you should follow the avalanche method.

The avalanche method asks you to pay the minimum payment on all your loans except for the one with the highest interest rate. Whatever extra money you can put towards your debt should be dedicated to this loan. In this example, your extra money would go towards your car loan, despite being the second highest loan. Paying down interest saves you time and money in the long run.

The snowball method puts more money on the lowest loan amount to pay it off quickly. By doing so, it creates a snowball effect to pay off the next lowest loan. Paying off debt is hard, and without making accomplishments along the way, it can feel really defeating. This method gives you instant gratification (compared to the avalanche method) and encourages you to keep paying off your debt.

Both require targeting a specific loan and putting extra money into the payment. Once you pay a loan off, you can take that amount and move to the next highest interest loan or lowest loan amount. Whatever method you choose, stay on track to pay off your debt!

4. Save, Save, Save

Savings are important. Savings help cover pop-up emergencies and general repairs. Savings help lower your loan amount for cars and houses. Savings also help with long-term goals such as retirement. While you might be doing everything you can to pay off debt, make sure you still are putting some money aside into a savings account. To get the most out of your savings, try to:

Set up automatic transfers from your paycheck to your savings account. This ensures you are “paying yourself” before you spend your paycheck on other things.
Create an emergency fund and set rules for it. An emergency fund helps pay for unexpected expenses like storm damage. Once you create this fund, don’t forget to use it. Have rules in place that determine an “emergency” by your standards.
Put aside extra. Every once in a while, we get an extra paycheck in a month. This extra paycheck can give your checking account extra wiggle room, or it can be set aside for long-term goals by being deposited into your savings account.

Once you have saving habits like this, you can build your wealth and save for long-term goals like retirement.

5. Learn From Past Mistakes

Life happens. Sometimes it’s easier to put something on the credit card in the moment than to check your checking account. Sometimes disaster strikes twice before you have built up your emergency fund. If you have ever found yourself overspending, look for ways to cut back on unnecessary purchases. Perhaps, you can dine in instead of out for a month? Or, you’ve fallen into a nasty habit of forgetting to pay your bills and have tanked your credit score. Start writing due dates in your planner or update your phone’s calendar and set reminders. Whatever your financial situation, there’s always a way to ease the burden by practicing healthy financial choices.