By Marcus Houston and Glynis Smith
A 2021 report by Bankrate.com revealed that only 39 percent of Americans would be able to cover an unexpected $1,000 expense. Do you identify with this group of individuals? In celebration of National Financial Awareness Day, we’re sharing five practical tips to help you understand your financial situation and how to improve it.
Track spending habits
It’s become rare for people to pay in cash. That’s why it’s more important than ever to track your spending habits. With digital transactions, you’re not physically seeing the output of your money, which can lead some people to go into debt without knowing where their money has gone.
A good way to start tracking your spending habits is by pulling a credit report or tracing your expenses manually over a period of time. Once you have the numbers in front of you, determine how much of your income is going toward needs versus wants. Knowing how you spend your money is essential to building an appropriate budget.
Identify goals
Before you create a budget and start saving, you need to educate yourself on what you are working toward by identifying short-term, intermediate and long-term goals.
Short-term goals typically take around three to six months to save for. Examples include building an emergency fund, ensuring your next house or car payment is taken care of and saving up for a new cell phone.
Intermediate goals fall between short-term and long-term goals. If you are hoping to invest, you will want to build a certain amount of funding to ensure you have a cushion if something goes wrong.
Long-term goals are things that take much longer to save for, like a down payment on a house or a comfortable retirement. These goals can certainly be met, but they will require much more time and dedicated saving to reach the desired result.
Create a budget
Once you’ve tracked your expenses and identified your goals, the next step is to develop a budget customized to your needs and wants. It’s important to understand that budgeting takes time and help, and it may even reveal things you didn’t know about your spending habits.
Have you ever needed to borrow money before you were paid again? Rather than living paycheck to paycheck, use your budget to cut unnecessary costs, make conscious spending decisions and be sure you have enough funding set aside to cover actual expenses (needs) before you spend it on extras (wants).
Start saving
One fourth of Americans haven’t started saving for retirement, and most don’t have enough savings to cover an emergency.
One great way to start saving is to set up a direct deposit to your savings account. This money can be deducted from your paycheck, and because you never see it, you won’t miss it, either. Setting up an automatic deduction bypasses your need to remember to make the transfer and makes saving a habit that will help you meet your goals.
Invest in yourself and your community
Budgeting is important; however, the main asset in meeting your goals is yourself. If you aren’t taking care of yourself, your goals will fail even with the best budget. Reward your hard work with something enjoyable, like a vacation with family or friends.
As you invest in yourself, make sure to invest in your community as well. Fulfillment doesn’t come from your job alone. What is it that you love? Find a way to invest in that. Discovering what makes you tick will foster a life balance that can help you get through difficult times.
If you are ready to put yourself on the road to stability and fulfillment, the First Farmers team is here to walk alongside you on your journey.
