Let’s talk about money. Everyone wants it, but when they get it, not everyone knows how to care for it.
There are specific rules to follow to improve your financial health and keep more of your money in your pocket long term. Are these hard set rules? Well, every situation differs slightly, but these rules apply to everyone for the most part.
Learn them and follow them, and you’ll see your financial standing start to look a lot better.
1. Bust Out Your Calculator
Before a doctor can figure out what is wrong with a patient, they must first do a full body checkup. Similarly, before you can know how to fix your finances, you need to calculate what you have to work with.
This involves more than just knowing what comes in and what comes out, but that’s a good starting point.
First, figure out your net worth. This means knowing all your assets or things you own and how much money you have, comparing that to your liabilities, or what you owe.
Your net worth is how much you have left after you pay back all that you owe. This is a great way to see how financially healthy you are. If you don’t like the numbers, there’s something you can do about that.
By creating a budget, you take charge of your money. It might sound complicated, but it’s simple. All you need to do is make a list of your monthly expenses and your monthly income.
You can even use an app to help you with this process.
Your income includes what you make from your regular job, side hustles, or any other regular payments that you receive. Think of all the money that comes to you each month.
Your expenses include your monthly bills like your:
- Rent or mortgage
- Car payment
- Credit card statements
Don’t forget to include your needs in your expenses. You need food to eat, gas in your car, and there may be times when you need a new pair of shoes or a jacket when it gets cold.
Once you know how much money is coming in and how much goes out, you can see what you have left at the end of the month.
If that number is lower than you want, you might try to merge some debt, find a cheaper carrier for some of your bills, or downsize something.
2. Emergency, Retirement, and Miscellaneous Spending
With the money left over after paying the bills, the first thing you should do is set some aside to build an emergency fund. This emergency fund will keep you out of desperate measures when disaster strikes.
When trying to build savings, the best approach is to start right away. Don’t expect to make a significant contribution each month; just keep adding to it little by little.
Keep each savings account separate, so you can easily keep track of how you are doing in each one. Build your emergency fund up first. Then start a personal savings account and next work on building a retirement fund.
Retirement can be a 401k, traditional and Roth IRAs, or a pension plan.
3. Spend with Needs and Wants in Mind
When spending, or when building your budget expenses list, it’s essential to recognize the difference between a need and a want.
You might want a new car, but you need to change the oil in your current vehicle. You need to go to the doctor, but you want a vacation. (See what we’re getting at here?)
Sometimes you can have a need that will turn into a want. Say you need a new pair of shoes. Your old shoes are falling apart. Which shoes you choose to buy can be a want.
You need shoes, but you don’t need the most expensive pair in the store. Being practical with your purchases falls into this habit of identifying needs versus wants.
When at all possible, limit the amount of money you are spending on your wants. This will leave you with more money for your needs, especially the unexpected ones that pop up.
4. Don’t Practice Lifestyle Inflation to Your Detriment
Just because you make more doesn’t mean you should spend more. This habit is called lifestyle inflation. When you get a raise, your expenses shouldn’t rise with it, or you’ll never improve your financial health.
Sure, you can afford some more expensive things, but make sure you add more to savings and retirement too.
The point is to build wealth, not keep up with the Joneses. To gain more money than you spend, don’t fall into the lifestyle inflation trap.
5. Never Buy a Want on Credit
There may be times when you have a need and you have to use credit to cover it. Of course, if you’ve built up enough emergency funds, you may not ever need to use credit.
If you don’t have enough saved up emergency money, this would be the right time to use a credit card or loan to cover this need. Make a plan to pay this off as soon as you can, and you’ll be back to good financial standing.
You should never, however, use credit to pay for an impulse buy or a want. It would be best if you only bought wishful items out of your surplus. If not, you’ll risk getting into more debt than you can handle.
Credit card debt is one of the biggest reasons for financial stress that Americans face. This is due to putting unnecessary purchases on credit.
Financial health, just like physical health, should be something you check in on regularly to make sure that all is going well. A yearly financial checkup to see how you are spending and saving can help ensure you are on the right path to financial success.
You may need to enlist a professional’s help to get on the right track if you aren’t good with numbers. Fortunately, plenty of apps and articles like this can help you DIY your financial health.
From Greenville, NC, and East Carolina University Alum. Cat mom of two. Been with The Grove since July 2019. Fell in love with Auburn and the SEC life!