As the price of everyday goods and food continues to crimp the finances of households, budgeting can become challenging. Tech companies also are laying off workers, further constricting financial stability. Even before inflationary prices took hold, many families required every cent from each paycheck to sustain them. CNBC reported that more than 60 percent of Americans depend on each pay period.
Living paycheck-to-paycheck can leave individuals feeling financially fearful. It’s never too late to take control of the budget, though. Use these 10 tips to gain financial stability, help get the budget in order and, ideally, stress less over money:
- Assess your finances
- Make a budget
- Cut out unnecessary expenses
- Make a debt payment plan
- Find a way to save
- Shop smarter
- Research major purchases
- Understand interest rates
- Take control of your credit
- Take a class on financial literacy
Assess Your Finances
Before making a budget, individuals may want to assess their finances to better understand the overall status and health of their bank account. When assessing the finances, gather all the bills for the previous month. Also, review the bank account (or pay stubs) to find all the monthly deposits (for payroll) and add up monthly income.
Some bills can fluctuate each month. For example, electricity usage might be higher and cost more during warmer or colder months than during mild seasons. However, consumers may need to look at their previous month’s bill to get a sense of how much they pay for their utilities. Water and natural gas might fluctuate, too.
Reviewing the finances also requires individuals to account for random spending that doesn’t necessarily fit into a specific category (note these expenses as miscellaneous). Make a column in a spreadsheet for every expenditure type (like electricity, phone costs, housing, insurance, car payments, etc.); be sure to include expenditures for food and entertainment. It’s important to accurately assess monthly spending habits, and this requires that individuals account for everything.
When all expenses are compiled, add up the total. Then, compare the total to the amount of income received during the month. Income could exceed expenses, or the opposite might be true. In some households, income and expenses might nearly zero out. Now they can have a bigger picture that they can use to create a monthly budget.
How to Make a Budget
Some expenses can be static and remain the same monthly; fixed mortgages (or monthly rent payments) and car payments are static. Insurance costs for the car and home may likely remain the same each month. Health insurance might be deducted from a paycheck, which might not be included in the bills.
Budgeting requires individuals to estimate the costs of some of their monthly bills. Aim for higher estimates to give a bit of a cushion. Utility companies sometimes offer a fixed bill to keep payments the same throughout the year. Monthly payments can be determined by figuring out average use; however, the last month of the billing cycle might be higher or lower depending on whether the household increased or decreased its usage. These fixed bills could help simplify the budget process.
Cut Unnecessary Expenses
When estimating other monthly expenses to create their budget, individuals might be shocked at how much they paid for certain experiences or luxuries. For example, eating out might have added hundreds of dollars to the expenses.
Review weekly grocery expenses to understand food costs each week and budget a reasonable amount for food for the household. However, if eating out is causing individuals to break their budget, it might be an expense that needs to be cut.
When creating a budget, the goal is to find out how to eliminate money waste. If income is less than expenses, individuals may need to look at their expenses to cut from their spending. Expenses that might be easy to remove from the budget include streaming services, beauty appointments (like nail services), eating at restaurants, gym memberships, etc.
Make a Plan to Tackle Debt
According to data from Experian, Americans have an average of $5,589 in credit card debt. Unfortunately, this debt usually has high interest rates–sometimes more than 25 percent. Debt with higher interest rates costs consumers more money in the long run.
While many individuals have credit card debt, many also have a mortgage, car payment, and/or student loan debts that eat into their monthly income. One way individuals can work to become financially stable is to make a plan to tackle their debt.
Some prefer the debt avalanche method of paying off debt. Investopedia explains that this method is when an individual makes the minimum payment on their debt and allocates any leftover funds to the debt that has the highest interest rate.
The debt snowball method works a bit differently. With this method, Investopedia notes that the individual uses any additional funds (after making minimum payments) to fully pay off or chip away at the smallest debt.
Regardless of how an individual wants to pay off their debt, making a plan to start lowering debt can help individuals feel more in control of their finances and less stressed.
Find a Way to Save
Saving money in a savings account or even just a change jar can create a small cushion in the event of an emergency. While saving money might seem like a challenge if the budget is tight, individuals can make a savings goal that’s feasible for them. Even $5 a month can help grow a savings fund. Review the budget and finances and set a goal for saving money and starting an emergency fund.
Shop Smarter
Bad habits can be costly. There are a few ways to rein in spending when grocery shopping or running errands. Always make a shopping list. This ensures individuals only buy what they need. It also can help decrease the odds of forgetting an important item and going back to the store (and possibly spending more money).
When grocery shopping, eat before heading to the store. Shopping hungry might lead to impulse purchases because everything looks appetizing.
To further decrease costs, opt for store brands, and don’t forget to clip coupons!
Research Major Purchases
Before making a major purchase, research all the options. Major purchases can include a new vehicle, a home, and appliances. These can seriously impact the budget–especially a home or a car.
Review finances to determine how much to budget for the purchase. When shopping for a home, you can use mortgage calculators to factor in monthly payments. Don’t forget to include home insurance costs and property taxes.
When shopping for a new appliance, shop around for the best prices. Some stores might have a sale or a promotion. Others may offer open-box appliances at a lower cost.
Understand Interest Rates
Credit cards, mortgages, car loans, student loans, and other debts include interest payments. The interest rate for these debts impacts the monthly cost of these expenses. When considering a loan or a new credit card, understand the interest rates and their impact on the monthly payment.
An individual’s credit score plays a role in the interest rates they receive, though. It’s also important to monitor credit and understand credit health.
Take Control of Your Credit
Sites like Credit Karma let individuals review their credit scores for free. The scores might not precisely mirror the scores viewed by lenders, but they should be close.
Reviewing credit scores can help consumers understand the interest rates they might receive if they need to buy a home or a car. In addition, monitoring credit health also can help individuals be proactive in caring for their credit. Numerous factors make up the credit score; these factors include paying on time, credit history, mix of credit, account balances, and new credit. However, payment history accounts for 35 percent of the score; this is why paying debts and bills on time is so important to credit health.
Take a Class on Financial Literacy
Some individuals can learn bad money habits from their parents. In addition, many schools might not teach financial literacy, and young adults might not know how to manage their finances.
When budgeting and financial management are causing stress, a class on financial literacy could be helpful. Free classes are available online, but local classes may also be available. Taking a class could help individuals take control of their budget and learn ways to become financially stable.
Other Ways to Gain Financial Stability
Some individuals might look at other opportunities to earn more income to pay off their debts or to simply improve their financial outlook. A weekend job or even a freelance gig could provide additional income.
Others might decide that they will move back home with their parents or rent a different apartment that is more affordable. Making changes to increase income and decrease expenses might look different for each individual.
Financial stability also might not happen quickly. However, reviewing the finances, changing bad spending habits, and creating a budget can help individuals better understand the big picture of their finances and take small steps toward a financially stable future.
