This is a contributed post from Ellie Jo.
It’s tough to get a handle on your finances. There is always something in your life that requires money, and there never seems to be enough. It is estimated that over 50% of Americans live paycheck to paycheck.
Understanding how to manage your money has immense benefits for both your physical and mental health. Here is a step-by-step guide on overhauling your financial health using 10 simple steps that will give you a better understanding of how you spend your money, pay off debt, and save more.
Get Financial Advice
One of the first steps is to get professional advice. You can do this by speaking with a financial advisor, a CFP, a CFA, a CPA. They will help you create a budget and set up an emergency fund. But don’t stop there! Take advantage of free information available to you, such as retirement calculators and mortgage calculators. These will give you an idea of what you should be saving and spending on various investments and expenses.
Become Financially Literate
Becoming financially literate is the first step to overhauling your financial health. Becoming financially literate means understanding how to manage your money and knowing what you spend your money on. This includes everything from how much you spend on groceries, electricity, and gas to how much you spend on credit card debt, student loans, and mortgage payments. Becoming financially literate also means knowing the difference between good debt and bad debt.
Make A Budget
It is essential to understand how much money you’re bringing in and how much money you’re spending. You should start by making a budget and tracking your spending habits to know exactly where your money is going. Whether it’s a spreadsheet on Google Sheets or an app like Mint, tracking your finances will allow you to see if you can change any patterns in your expenses.
The first step to understanding your finances is to be committed. You must be committed to this process and willing to make sacrifices to put money away.
This means not buying clothes you don’t need, not eating out or ordering take-out, and cutting back on household expenses so you can save money.
Some people find it helpful to set small financial goals that they can accomplish every month—for example, setting a goal of socking away $15 each week into savings or paying off one credit card statement by the end of the month. This way, they’re always accomplishing something without feeling too overwhelmed by the bigger picture. This isn’t easy, but it’s necessary if you want to have a better life.
Define Your Financial Goals
Before you can make any progress, it’s essential to define your financial goals. Your goals will differ depending on the stage of life you are in. But some general financial goals have been identified as necessary for most people.
Track Your Spending
The first step to managing your money is knowing where it goes. Tracking your spending means knowing what you spend each day, week, and month. It can be as simple as writing down everything you spend on a piece of paper or using a budgeting app.
Tracking your spending helps you see where you stand financially to set goals and stick with them. It also allows you to feel more in control of your money because now you clearly understand how much money is coming in and going out.
Start An Emergency Fund
The first step in overhauling your financial health is to start an emergency fund. This will be the resource you use when something catastrophic happens, like a job loss or medical emergency. You should aim to have at least six months’ worth of living expenses saved up if you face any one of these emergencies.
To do this, create a high-interest savings account and set aside money monthly. Start with as little as $25 each month and try to increase that amount by 1% every year until you reach your desired goal. This way, you will see your money growing, which will make it easier to save more because it doesn’t feel like you are depriving yourself of anything.
Pay Off Debts
Debt is a significant concern for many people, and it can be challenging to pay off. You can start paying off debt by listing out all your debts and balances on paper. The next step would be to list how much you owe each creditor – either by monthly payment or total balance owed. If you owe money to the IRS, consult with an IRS tax attorney who can assist you in getting what you owe paid and cleared.
Then, take the total amount owed and compare it to what you make in a year. This will help you determine which debts should be paid first and how much of your monthly income should go towards debt repayment.
If you want to speed up the process, consider consolidating your debts into one lower monthly payment or reducing the interest rate through refinancing or negotiating with creditors.
Change Service Providers for Better Deals
One of the simplest ways to overhaul your finances is to change service providers. This may seem like an insignificant step, but it can significantly impact your finances. Researching and finding a new company that offers a better deal for a service you’re already using saves you money while giving you peace of mind.
A great example is cable providers. It’s estimated that Americans spend more than $100 billion annually on cable bills, but there are plenty of ways to get around this hefty price tag. You can use streaming services like Netflix or Hulu, which typically cost under $10 per month, or you can buy a smart TV and use streaming for free from the internet.
The same concept applies to cell phone plans – do your research and find a plan that offers more bang for your buck! You might be able to get unlimited texting and talking without a contract – which means no more monthly fees!
Stop Using Credit Cards
If you are living paycheck-to-paycheck, chances are you are using credit cards to finance your lifestyle. Credit cards are often easy to come by and can give you the feeling that it’s okay to spend money, but the reality is that they’re dangerous.
There is nothing wrong with using a credit card when you have the means to pay it off in full at the end of every month. However, if you use your card for everything and then end up paying for it with interest rates on top of it, there’s no real advantage to using a credit card. If anything, it will make things worse because now you owe more money than before.
Greg is a Chartered Financial Analyst (CFA) with 22+ years experience in Financial Services. He has held numerous FINRA Securities licenses (series 7, 63, 65, and 66), and is an expert on Investment Products and Financial Planning. Greg has 22+ years experience as a real estate investor and degrees in Psychology and Philosophy.
Greg has been quoted/interviewed in Yahoo Money, Yahoo Finance, USA Today, Authority Magazine, Realtor.com, Business Insider, and others.
Greg is an avid runner, and the father to identical twin girls and their awesome brother. His love of budgeting and his kids led him to join The Great Resignation in 2021.
Disclaimer: Any Financial Tips on ChaChingQueen are general and informational. Speak with a professional about your specific situation.