All of us could use a little more wiggle room when it comes to our finances. Unfortunately, current education on financial literacy is subpar at best. According to the Milken Institute, only 57% of adults in the U.S. are financially literate. That means just over half of adults understand how to make a budget, plan for long-term goals, and have savings for emergencies.
While there are a lot of factors that go into your financial situation, there are some things everyone can do to improve your finances. Let’s take a look at some of these tips.
1. Ask yourself why you want to improve your finances
Motivation is fickle. When things get tough, or we want something outside of our budget, plans can go out the window. That’s why you should take some time and really think about why you want to be better with your money.
The most common reasons are buying a house, saving for your kid’s college tuition, or having more money to spend on hobbies or travel. Whatever it is, it has to be personal to you, and something you want more than anything. Write it down somewhere you can easily see it.
When you start to feel down about money being tight or chipping away at your debt feels pointless so you should use your credit cards more, remember why you started in the first place. Look at your reason and promise yourself you’ll stick to it, because the end goal is what’s most important.
2. Track your spending
Most banks have an app now that you can check your bank account. You can also log in online. Make it a habit to log in every day and take a look at where your money is going.
Some banks have a neat feature where it’ll show you a pie chart breaking down what sectors your money goes to, but the most accurate assessment will come from you looking at your charges.
People are often shocked to realize how much they spend on eating out, recurring charges for streaming services they never use, or gym memberships that have been collecting dust.
Ideally, you would cancel anything that you are obviously not using as you find them, but you can also way until you’ve made your budget before doing so.
3. Make a budget
This is probably the most difficult to stick to but the most necessary. You’ll want to account for every source of income so you know exactly how much you have to work with.
Next, look at your spending for essentials. This includes:
- Rent/mortgage payments
- Groceries (NOT fast food)
Average out how much you’re spending for each and then budget that into your expenses.
Now it may already look scary to you at this point; money is tight for many American households. That’s okay because just by creating this budget you have made a priority list of where your paycheck should be going.
So what about everything else that isn’t a necessity? And should you keep your credit card payments at a minimum? Read on to find out.
4. Cut out unnecessary expenses
This is where, hopefully, you’ll see the biggest change in your finances.
All of those streaming services you saw you were still subscribed to earlier? Cancel them. Eating out four times a week? Cut that down to once.
Anything that you don’t necessarily need should either be cut down or eliminated entirely. If you cut say, your fast food down by $40 a week, that’s $160 a month that can go into savings. It doesn’t necessarily need to be eating out, it can be any sort of expense that isn’t needed for your day-to-day life.
Now I’m not saying to never go see a movie in the theaters again, or always have a date night at home. Just make sure you’re not spending an exorbitant amount on any one thing.
5. Pay down your highest-interest debt first
Every credit card and loan has an interest rate attached to it. This interest rate is how banks make money, and how they keep you in debt longer than you think you should be.
When you’re making your budget, write down your interest rates next to the attached debt. Whichever interest rate is the highest is the one you’ll want to allot the most funds to. Keep the rest of your payments at the minimum required, and any excess goes to the high-interest account.
This is called the “avalanche method.” This will help cut the amount of interest you’re paying to the bank. Once the debt is gone, put all that money you originally spent on its payment to your next highest interest account.
At the end of it, all that interest goes right back into your pocket.
6. Create an emergency fund
An emergency fund is something we all know we should have but don’t. If money and debt are especially tight for you, it might feel or be impossible to put anything towards a rainy day. But, for the most part, you can, even if the amount might seem minuscule at first.
If you finish your budget and find you only have $10 left to put away for emergencies, put it away. As you start paying off your debt, more and more money will be freed up, and you can start building a real emergency fund.
Now, what happens if an emergency happens and the account doesn’t have enough funds to cover it? Most institutions can work with you to get a payment plan that fits your needs, so don’t be afraid to ask.
It’s worth it to plan ahead
These tips are just the beginning of your journey to financial literacy. Every step you take will bring you closer to the financial freedom you want and deserve. It doesn’t matter if you’re living paycheck to paycheck, there’s always something you can do to make things a little easier on your wallet.
For more, check out Allthingsfrugal.com!
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And check out our white paper: “Strategies for Increasing Financial Literacy Rates Among High School and College Students”
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