While your finances may not cause night terrors, a lot of us are concerned about money. 77% of participants reported feeling anxious about their financial situation, according to a Mind over Money survey by Capital One and The Decision Lab. Furthermore, 68% of Americans worry about not having enough money to retire, 56% are concerned about keeping up with life’s costs, and 44% are worried about managing their debt.
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In addition, 58% of respondents said finances control their lives. And, 52% of respondents find it challenging to control their money worries.
How to Figure Out Finances
Despite these concerns, just how precarious are your specific personal finances? Well, here’s how you can figure out your finances courtesy of Investor.gov.
Ensure that you have an accurate understanding of your financial position. In short, this is what you own and what you owe. To make this easier, create a “net worth statement,” which is all of your assets on one side of a page. Then, on the other side, take note of what you own, aka your liabilities and debts.
Next, take your liabilities and subtract them from your assets. You’ll have a “positive” net worth if your assets exceed your liabilities. But, if your liabilities are more significant than your assets, you’ll have a “negative” net worth.
Keeping track of your net worth requires you to update your statement every year. You can turn a negative net worth into a positive net worth by following a financial plan. Your net worth is negative if your liabilities outweigh your assets.
Following that, you should keep a record of your income and expenses. Include a category for savings and investments, as well as what you earn and spend each month. Cut back on your expenses if you spend all your income, and never have any money to save or invest.
When you pay attention to where you spend your money, you will be shocked at how much you can spend on everyday expenses. Paying yourself first is an excellent habit to get into that encourages saving and investing. Investing or saving money is a perfect way to take advantage of this. If you have a bank account that automatically deposits your paycheck, you can do this as painlessly and quickly as possible.
7 Ways to Take Control of Your Finances
So, your personal finances aren’t looking too well. Instead of being frozen by fear, take the following seven tips to take back control of your finances.
1. You need a budget.
There’s a lot of people who include the word budget in George Carlin’s seven dirty words. Why? Well, the answer varies from person to person. But, some reasons would be that it’s too time-consuming, complicated, restrictive, or depriving.
In reality, budget isn’t a filthy word. After all, a budget keeps your spending in check, eliminates unnecessary expenses, and helps you reach your financial goals. In addition, sticking to a budget can also strengthen relationships and improve your health since you have less stress.
Additionally, there are several different budgeting methods you can try that fits your style, such as;
- 50/30/20 Rule. All your monthly expenses and savings are broken down into three categories: needs (50%), wants (30%), and savings (20%).
- 60% Solution. During this time, 60% of your income goes toward essentials such as housing. For the rest, there are three categories: 10% for retirement, 10% for short-term expenses, and 10% for long-term savings.
- Reverse Budgeting Method. With this method, your savings serve as your starting point. Next, you tackle your savings, then your essentials, and finally your non-essentials. By prioritizing savings without neglecting essentials, this is basically “paying yourself.”
- The Envelope Method. Those new to this method might want to try making an envelope (physical or digital) for all their monthly expenditures. In the next step, you fill it up with your set-aside expenditure money. If it’s empty, your limit has been reached. This is a budget you set and then forget about.
2. Build an emergency fund.
Do you have enough money to repair your car’s engine? What about replacing your washer or dryer? How would you pay for a medical expense like a broken arm or root canal?
Life is full of unexpected circumstances. And, if you don’t have a financial cushion, this adds to your stress levels and makes your fiances even more precarious. That’s why having at least 3-6 months of expenses set aside in a separate savings account. If that’s too rich for your blood, start with a smaller emergency fund like $1,000.
3. Be honest with yourself.
“After making a budget and starting an emergency fund, it’s time to face up to some hard truths,” states Kiara Taylor for HBR. “If you’re affected by financial stress, you’re probably in debt, which means (a) you’re spending more than you’re earning or (b) you’re facing additional stresses, like supporting family members or other people in your life.?
“The good news is that it’s much easier to earn extra income today than it was in the past, largely due to the increase of online freelancing opportunities,” Taylor writes. Taking on a few extra hours each week is an effective way for many people to bring in more money and reduce their debt. Typically, freelancers make $50 per hour on average in the United States.
However, in the short to medium term, she adds that it will be easier to change your spending than your income. Among the obvious ways to reduce costs is to avoid impulsive purchases, and to skip expensive nights out with friends. But there are some less apparent options as well.
One example would be moving into a more affordable apartment. “This may sound like a drastic change, but for most people, rent is by far their biggest monthly expense,” Taylor says. This makes up almost 30% of monthly outgoings. “If you can afford the large, one-time cost of a move, rest assured that over the course of six months living in a cheaper space saves you thousands of dollars — not just in rent, but in reducing interest payments on your debt.”
This strategy can be used for other major monthly expenses, such as finding lower-cost health insurance options or vehicles that require fewer car payments.
4. Have the right insurance.
With the right amount of insurance, you can protect your finances. Auto and renter’s or homeowner’s insurance are give-ins. But, don’t overlook health and life insurance as well.
Despite the temptation to cut corners, remember that insurance protects you and your dependants from devastating events.
5. Make the most out of your employee benefits.
Does your employer offer 401(k) matching or insurance plans like health, dental, disability, or life? If so, you need to take advantage of these employee benefits.
While you may not be thrilled that this eats into your paycheck, these perks can protect you from financial pitfalls and achieve long-term goals, like comfortably retiring or leaving a legacy.
6. Consider outside help.
The Federal Trade Commission and the National Foundation for Credit Counseling are trustworthy resources that may be helpful you’re in financial trouble or not satisfied with the progress of your debt reduction. You can also work with a financial advisor if you want to set long-term goals, such as saving for your retirement or children’s college.
As a final option, your friends and family may be able to provide some level of financial support. For example, you could borrow $1,000 from them to pay off the balance on a high-interest credit card. However, make sure to set clear expectations and boundaries to keep the relationship intact.
7. Monitor your credit.
“Keep in mind that having a good credit score can be instrumental when it comes to controlling your finances,” writes Natalie Issa for Credit.com. For example, when you buy a home or car or apply for another loan, you’ll be able to qualify for the best interest rate possible. That can save you a lot of money. In addition, you can easily control your budget with lower monthly payments because of the lower interest rates.
Best of all? You can easily access your credit report for free, thanks to sites like Credit.com.
Alternatively, if you don’t know where to start with monitoring, repairing, or protecting your credit, consider starting with the free credit report card, adds Issa. It gives you a quick snapshot of how your credit is performing in significant categories every 14 days. Taking this approach will help you determine precisely what areas of your personal finances need improvement.
Final words of advice.
While your personal finances may be strained, all hope is not lost. If you monitor your progress, make adjustments as your spending and goals change, and seek help, you may be able to turn your situation around for the better.