Are you afraid to log in to your online banking and check your account balance?
If you are looking to improve your finances, you have probably been there at some point.
Stepping up to the cash register… You aren’t 100% sure how much money you have available in your checking account right now, and let’s face it, you aren’t sure you want to know.
So you just pull out your credit card and hand it over to the cashier. You will be getting paid soon anyway. You promise yourself that you’ll make a substantial payment on your credit card balance after you pay your rent and take care of some other bills.
Moments later, you’re walking out of the store with a shopping bag full of new clothing items.
You’re not alone if you have money troubles
If you’re waiting for a sudden inheritance windfall from a family member to change your financial future, don’t hold your breath.
A surprising 73% of Americans are dying with debt. Not only does this mean that you’re unlikely to cash out when your great-uncle kicks the bucket (and shame on you for trying!), but it is also a symptom of a larger problem: the majority of us are terrible with money.
Want to increase your odds of filing for bankruptcy? Try winning the Powerball. Lottery winners see their bankruptcy rates soar as they are unable to control their spending and engage in risky investment behavior.
What does this mean for you? If you want to improve your finances, you will probably need to look at money differently from your family members, friends, or coworkers.
How to improve your financial situation
As the popular adage goes, “admitting you have a problem” is the first step toward financial recovery.
Learning new information about finances and making better decisions may seem daunting. You may feel that you’ve dug yourself into a hole that you can’t climb out of.
No matter your current situation, there are many different strategies and tactics you can put into action to improve your finances.
- Believe that a better financial future is possible. You are responsible for your own personal finances. While changing behavior isn’t always easy, it is possible. It may take time, but it’s never too late to be financially-stable and build wealth.
- Take inventory of your current situation. This could be done using an online tool like Mint or with an old-fashioned pen and paper approach. Create a balance sheet by writing down your “assets” and “liabilities,” such as a mortgage, car payment, student loans, etc.
- Create a budget for your monthly expenses. Determine your monthly take-home pay after taxes and deductions. Look at your past spending history. Do you spend more money than you earn on a monthly basis? Set goals for improvement so you can pay off your debts and save for retirement.
- Tell others about your financial goals. Share your financial goals with family members, friends, and coworkers, and encourage them to help keep you accountable for creating better financial habits. Become part of a community who shares your same values and goals, and find mentors who can provide guidance and support.
- Establish a routine for monitoring your finances. Don’t allow yourself to procrastinate checking your credit card balances because you’re afraid of what you might see. Set aside a time each week to review your transactions, compare your spending with your budget, and make sure your bills are all paid on time.
- Continue learning how to improve your finances. No matter where you are in your personal finance journey, make a commitment to continue learning. Start with the basic principles, and continue to add new understanding and tactics to your personal finances over time.
Don’t wait until tomorrow to improve your finances
Compounding: it’s one of the most basic and powerful principles in finance and mathematics.
When you invest money, you receive interest on your original contribution but also all of the interest you’ve previously earned (or vice-versa for debt).
“Compound interest is the eighth wonder of the world. He who understands it… earns it. He who doesn’t… pays it.” – Albert Einstein
It’s important to start paying down your debt or building your investment portfolio today to start taking advantage of the powerful impact that time can have on your money.
Just as important, however, is building the right personal finance habits will develop with time as well.
Create a budget and stick to it. Prioritize and eliminate your debt. Set aside a percentage of your money for long-term investments. Negotiate a raise to increase your salary. Have a plan for retirement.
Imagining your financial future
“To begin with the end in mind means to start with a clear understanding of your destination. It means to know where you’re going so that you better understand where you are now and so that the steps you take are always in the right direction.” – Stephen Covey
For most of us, our personal finance journey will be a long one. No matter your goals, it takes time – typically decades – to reach our destination. While the journey may be a long one, that shouldn’t discourage you from starting down the path.
Developing the right personal finance knowledge and habits will help you enjoy:
- Peace of mind when faced with a possible financial emergency
- Confidence in your ability to make decisions and follow a plan
- Freedom from knowing that your money works for you, not the other way around
Ready to make this financial future a reality? Start today.