If you’re like a majority of Americans, you’re living paycheck to paycheck and have very little savings to fall back on if something were to go wrong. While we at the PennyHoarder can offer plenty of ways to make extra money, we also think it’s important for you to get your finances in order. After all, when you get your stuff together, you can actually get more out of the extra money you make.
Below are three things that you need to do to get your stuff together, and improve your financial outlook.
Make a Budget
Creating a budget can be difficult because it forces you to be honest with yourself about your spending, but it’s really important that you have a record of how much you spend each month versus how much you earn. A budget not only gives you a clear picture of where your money is going, it can also help you figure out ways to save.
For example, if you notice that you spend a lot of money eating out, you could take steps to reduce those expenses and free up some of your finances.
You can create a simple budget on a spreadsheet, or even by hand in a paper ledger, but budgeting software is really the best way to track your finances. Budgeting software not only tracks the expenses you record, you can also set it up to track bank account activity and help you find hidden and unconscious spending – like bank fees or cash withdrawals that you might forget to log.
Clean Up Your Credit
Even if you have been paying all of your bills on time and are in good standing with your creditors, Eliminating some or all of your debt can make your life a lot easier in a lot of different ways.
Paying off any outstanding balances means fewer monthly bills and more money in your pocket.
If you can’t pay off your balances, consider transferring them to a low interest card so that you only have one payment each month. Once you do the balance transfer, only use the cleared cards for emergencies, and avoid using the card to which you have transferred the balance at all. If you must use one of the cleared cards, pay off the balance as quickly as possible.
If you are currently behind on any payments, get them current as soon as possible. If necessary, contact your creditors to make arrangements to get your accounts up-to-date.
Periodically check your credit report for any errors or bad entries, and address them as soon as possible.
If you can’t transfer your balances, or if you are in serious trouble with your creditors, consider getting professional help in cleaning up your credit. A professional can also give you an idea of how long it will take to get everything in order.
Start Saving Now
One of the biggest reasons people don’t start saving is because they don’t believe they make enough money, or have too many financial obligations. This makes sense, especially considering the number of people who are scraping by from one paycheck to the next. The thing is, building your savings doesn’t have to be a big production, and you don’t necessarily have to take large chunks of money out of your earnings.
One easy way to save is by doing the 52-week Money Challenge with modifications. Under the original challenge, you would save one dollar one week, two dollars the next, then three dollars and so on. At the end of the challenge you would have saved up $1,378. Under the modified version, you would save one dollar, and increase by one dollar each week until you can no longer set aside the full weekly amount, at which point you deposit what you can and build from there.
For example: Let’s say you manage to set aside money up to week 30, but can’t set aside the full amount on week 31. However, you do have $10 to spare. You should deposit the $10, and then deposit $11 the following week and so on. Each time you reach an impasse, start over and deposit what you can even if it’s only one dollar.
You might not save more than $1,000 over the course of 52 weeks, but you will have saved a lot more than if you hadn’t set anything aside at all.
One resource recommends that you should do the challenge in reverse – start with $52 and work your way backward – which will start you off with more money in your savings. This could work, provided saving the larger amounts up front won’t pose an undue hardship; because even if the money is in a savings account, a hardship could have you using that money instead of saving it. Building your savings shouldn’t be painful or stressful.
Another option is to take whatever surplus you have, after bills and expenses, and deposit it into your savings account. Again, you won’t necessarily end up with a huge sum of money at the end of the year, but it will get you into the habit of setting money aside. Additionally, once you reduce your monthly bills, you will have more money to put aside.