Are you confident in your finances? Or do you agree yours could use work? If you’re in the latter category, you’re in good company.
As of 2021’s fourth quarter, only 34% of Americans identified themselves as being very financially healthy, according to the 2022 Personal Capital Wealth and Wellness Index. If you feel similarly, here are some key moves to make.
1. Build an emergency fund
It’s easy to feel financially vulnerable when your next unplanned bill could be an automatic source of debt. If you don’t have much or any money in your savings account for emergency situations (like the loss of your job) or unexpected expenses, your first priority should be to boost your cash reserves. You can do so by cutting back on spending or boosting your income with a second job.
How much emergency savings should you aim for? A good three months’ worth of essential bills is a solid starting point. For added protection, though, you may want to aim for up to six months’ worth of bills. If you were to lose your job and be forced onto unemployment, those benefits wouldn’t come close to replacing your paycheck in full. That’s a scary thing to contemplate, but having adequate cash reserves could buy you a lot of peace of mind.
2. Chip away at unhealthy debt
If you have a mortgage you’re keeping up with, that shouldn’t really cause you to get down on your finances. But a nagging credit card balance is a different story.
Though mortgages are considered a healthy type of debt to have, credit cards are the opposite. Not only do they charge large amounts of interest that can trap you in a seemingly endless debt cycle, but too high a credit card balance could cause damage to your credit score, making it harder to borrow money in a pinch.
Once you’ve established a full emergency fund, work on eliminating your credit card debt. You may want to look at doing a balance transfer if that allows you to snag a 0% introductory interest rate on your debt for a period of time, as that will make your debt less costly to pay off.
3. Set up a budget
You might feel shaky, financially speaking, because you’re simply not all that well-informed about where your money goes month after month. And if you feel that way, the solution is simple — put yourself on a budget.
Having your different expenses mapped out for you could help you make solid choices that free up cash and help you target the objectives above — building savings and knocking out unhealthy debt. And the best part is you don’t need to be a numbers wiz to put a budget together. You can create a basic one on a spreadsheet or find a budgeting app that works for you.
If you’re not feeling good about your finances, it’s important to take steps to break that cycle. It could really work wonders for your outlook on a whole.
