7 Things You Can Do to Completely Change Your Financial Situation
Near the top of everyone’s to-do list is getting in a better financial situation. Yet, with each passing year, more and more Americans fall deeper than ever in to debt, foregoing investments, and watching as their net worth remains stagnant – or worse yet – falls. It’s time to change all that.
Here are 7 things you can do in the next 365 days to be in much better financial shape this time next year.
Create a budget.
This is first on the list, as it’s something that’s so simple, yet it’s completely overlooked by most of us. Having a budget allows us to accurately, and predictably know how much money we have going out each month. When paired with consistent income, this makes the personal finance journey a bit more predictable. You’ll know what’s going on, what’s coming in, and where you can make cuts as well as being able to decide an appropriate amount to save each month.
Pay down debt
Consumer debt is expensive. The average interest rate on credit cards is 14.58%. You car loans are probably sitting in the 8-10% range, and your mortgage is likely costing you 4-5% as well. The lifetime cost of carrying this sort of debt is staggering.
Repair your credit
Sometimes consumer debt is necessary, but if you must take it on, take it on with good credit. This should come as a surprise to no one, but as of 2013, the average credit score in the U.S. was sitting around the mid-600’s. This puts you firmly into the “fair” category by most standards.
On a personal note, I recently underwent the arduous task of repairing my credit. I opted to use the service CreditRepair.com due to its great testimonials and reviews. Essentially, it’s a service that removes incorrect or dated financial information, and it certainly worked for me. Do your homework and decide the best course of action for you and your family.
Start an emergency fund
Fewer than one in three U.S. families has an emergency fund that would last them the recommend six months. Having funds set aside for medical emergencies that require a lengthy absence from work or losing a job are essential to maintaining healthy personal finances.
Make use of your 401k.
Once your household finances are in order, it’s time to set aside a bit of savings for retirement. Make use of employee matches and try to deposit as much as your employer will match each year. With compounding interest, this adds up quickly, and you’d be amazed at how much money you’re losing for your retirement with each passing year if you aren’t taking advantage of your 401k.
Get health insurance.
With a simple emergency room visit often costing thousands of dollars, it’s no wonder that most of us avoid medical care unless it’s absolutely necessary. One emergency room visit a year will cost you more than your yearly health insurance premium in some cases.
Diseases like cancer (which 4 in 10 people will get at some point in their life) are often enough to completely shatter any financial well-being you may have had previously. Finding it early can save you money, as well as your life, yet most people don’t even get yearly exams due to the prohibitive cost.
Reduce your expenses.
Now it’s time to really start saving. Reducing your expenses allows you tuck away a little extra money each month so that once you have filled your emergency fund, you can use the additional savings for investments or family vacations. Do you really need a country club membership when you play golf once or twice a month? How about the gym membership that you always “plan” on using?
Once you have the basics mastered, you can really increase your net worth by doing some homework on investing. However, let’s not get ahead of ourselves. Getting your home in order before you look elsewhere for additional monetary gain is often the best course of action. Stay disciplined, and one year from today you’ll be in a far better financial situation than you are now. Imagine where you’ll be in two or three years?
Photo courtesy of StockMonkeys.com