7 Steps to Improve your Financial Situation
Displaying a sound understanding of financial literacy is key to managing debt, saving for future expenses and avoiding financial hazards like bankruptcy, defaults or foreclosures. Unfortunately, according to the Urban Institute, 35 percent of adults have a debt in collection reported in their credit files, which shows that handling finances responsibly can be easier said than done.
Following are seven steps you can take to start improving your financial situation today.
- Set goals. It’s crucial to know what you want to achieve financially. Whether it’s saving a specific amount for a specific purchase, whittling down debt or simply building your long-term savings, you have to know what you want before you can create a plan to get there.
- Create a budget. Speaking of a plan … your budget is the roadmap that will help you achieve your goals. It not only tells you the exact amount you’re spending on bills each month, it tells you what you have left over to put into savings and to spend on things you enjoy.
- Use credit cards sparingly. Credit cards are great tools if used responsibly. They allow you to pay for unexpected expenses that don’t fit into your budget, while also building credit history, but they can also get you into trouble. It’s important to not charge more on credit than you are able to pay off each month and make monthly payments on time.
- Save early and automatically. According to the Associated Press-NORC Center for Public Affairs Research, two-thirds of Americans would struggle to come up with $1,000 to cover an emergency. It is crucial to include paying yourself as part of your budget. Set aside a specific amount to automatically go into savings, then don’t touch it unless you have no other choice. Even saving $100 to $200 per month can add up quickly.
- Pay down debts when you are able. If debts are weighing you down, make a plan to pay them down. After putting your budget together, try the snowball method. The snowball method is a debt strategy in which you make the minimum payment on all of your debts. Once the smallest debt is paid, you roll that monthly payment into the next smallest debt, repeating that action until all your debts are paid. Increasing the amount you’re paying on each debt helps you pay off debt more quickly, so you can start saving to achieve your other financial goals.
- Review your credit report annually. Visit www.annualcreditreport.com to order a free credit report each year. It will help ensure that there are no mistakes in your credit history and protect you from identity theft.
- Treat yourself (on occasion). Just because you are working to improve your financial situation, it doesn’t mean you have to lock yourself in a room to stop yourself from spending money. Take time out to occasionally spend money on yourself, whether it’s a shopping trip, a concert or something else you enjoy. Just make sure to include that expense in your budget.