7 Ways to Improve Your Finances Right Now
The need to improve your finances isn't new. Americans for a long time have been unprepared to deal with a financial crisis. According to the Federal Reserve, 40% of people in 2018 would not be able to pay for an unexpected $400 expense. The crisis has worsened as tens of millions lost their jobs this past spring due to coronavirus. Although the economy is slowly reopening, we have no way of knowing what will happen as we have new waves of infection. If you are someone who is not in dire circumstances, here are some steps you can take to improve your finances and prepare for the future
1. Build up your cash savings.
Having extra money sitting around is critical at all times, but it is even more of a priority during a financial crisis. Times like these show how necessary it is to have at least nine months to a year of accessible money saved for emergencies. If you lose your job, three months worth of expenses isn’t going to last long. Now is a good time for all of us to build up savings, no matter how secure you think your job might be.
2. Identify your money goals and values
Knowing what is important in your life is a critical first step because you need to know what you are saving for and which expenses are most important to you. If you lose your job, you’ll be able to more easily prioritize where your money goes. Creating a vision for your life helps you more rapidly make decisions on purchases and areas where you can cut expenses.
Click here to get the free values exercise that I use with my clients to help them get clear on their values and goals.
3. Evaluate your spending
Evaluating how you spend your money helps improve your finances by building awareness. Simply being aware of where your money goes can help you be more intentional. You’ll be able to assess how your spending fits into your values and life goals. Making decisions about what expenses are in fact important to you will make it easier to cut things that are not.
Although many people love to use apps like mint.com or YNAB (You Need a Budget), keeping track of your spending can be as simple as just writing it down.
4. Lower your interest rates.
Interest rates are much lower than normal right now, so refinancing your debt or trying to negotiate for a lower rate from your lender is a good use of your time right now (especially since time is one of the few things we have in abundance at this time). Lowering your interest rate will free up some money for your emergency fund or allow you to pay off your debt faster.
5. Continue paying off debt
Getting behind on debt is like falling into a hole so deep you can barely see the light at the top. If you’re in this situation, check out my debt payoff resources linked here.
If you’re on top of your debt payments, do everything you can to keep paying. Prioritize your mortgage since that affects your living situation. The Consumer Finance Protection Bureau offers up-to-date information on debt relief due and the pandemic. Talk to your lenders and make sure you fully understand what they offer and what the implications are. Even if you get a break on payments, you need to know what happens once the payments come due again. Because the ramifications of not paying can be serious, it is worth temporarily making some lifestyle changes to avoid default.
Paying your bills on time, even if it is just the minimum, is one of the best ways to maintain your credit score according to bankrate.com.
7. Start or continue saving for retirement
Saving for retirement is a critical step for improving your finances. It’s rank as #6 on this list should not undermine its importance. Investing steadily over time is the only way to secure your future. The first step is to make sure that you are taking advantage of any employer match in your employers 401(k), 403(b), or other retirement program. It’s free money. After that, contribute anything you can to your retirement plan through your employer, in an IRA, Roth IRA, or any of the special IRAs for the self employed. Ideally you will save 15-20% of your salary, but start with anything you can and don’t feel guilty. Any amount is a good place to start.
8. Save for other goals
Once you’ve covered all the bases above, it is time to start saving for other goals, such as buying or remodeling a home, college education, travel, or a major lifestyle/job change.
Improve Your Finances Mindset
The biggest reason people struggle to improve their finances is that they feel like they have to deprive themselves of anything that is fun, enjoyable, or worthwhile. And while there are certainly reasons for cutting back on things, I’m not going to tell you to give up your lattes and avocado toast if that is something that makes your life just a little better. Identifying your goals and values and tracking your expenses is important because you need to know what is important to you. Find the things that you don’t care about as much and cut those first. Focus on your long term goals and how you want your life to look in the future. If you can envision that, you can weigh current expenses against that goal and decide what is more important. By focusing on the things that help you live your best life now and in the future, you will feel more fulfilled. That will make all this a lot easier and set you up for success.
