Financial health is important. Unfortunately, it is something that people tend to put off. Financial decisions directly impact your future and have a profound effect on your lifestyle. This is why it is critical to plan for expenses and save for the future.
While it can be a complicated process, it is well worth the effort to improve your financial outlook. The key to financial health is budgeting, planning and, last but not least, understanding compound interest. Some general rules can be helpful.
However, your finances are like your exercise program: You need a plan that is individually tailored for you.
Step 1: List All Expenses
The first step in establishing financial health is understanding your spending. All the money you pay out to cover the cost of living is an essential aspect of your financial well-being. It helps to have a handy list of where your money goes after you receive your paycheck and other income sources. Doing so makes it easier to make all the clear choices necessary to permanently get your finances in shape.
Your list should include payments toward credit cards, loans and personal debts with family or friends. It’s also essential to take note of education and health care costs, including prescription medicines and doctor visits. Insurance for vehicles and home or apartment, as well as housing expenses such as mortgage payments or rent, should also be noted.
The cost of transportation such as fuel and automobile maintenance in addition to train or bus fare is important to list, as is the cost of utilities like electricity and water bills. Food is always a necessary expense to note, but also be sure to include entertainment expenses such as dining out.
Step 2: Consolidate Debt
Consolidating debt is next on the list for ensuring financial health. If you’ve ever had to deal with more than one source of credit card debt, coupled with personal loans and other forms of debt, you know the struggle to keep all the necessary details of repayment organized and ongoing.
With consolidation, you have the chance to place all your debt under one roof and move forward with your day-to-day life. You can consolidate all forms of debt. To get started, you should first visit with your credit union and get a copy of your free credit report. They can sit down with you (for free!) and give you tips on how to improve your credit score.
The key is to get the lowest interest rate possible. If you are paying 18.00% interest on several credit cards, it may be wise to consolidate those to a personal loan with a lower interest rate. If you have a solid plan for paying back your debt, you can even look for 0% interest balance transfer specials to save you money.
Another great option is to use the equity built up in your home. A home equity loan is a great resource for consolidating debt. Because it is secured loan, the interest rates are lower than you would find on a personal loan. The terms can even be extended up to 20 years to give you a lower monthly payment to help you budget better.
Step 3: Cut Unnecessary Spending
Next, it’s time to address spending. Unnecessary spending can plague any financial health plan. That’s why it’s best to take an honest look at those extra expenses that you can eliminate to reach your financial goals.
Our modern times mean there are all sorts of new avenues for unnecessary spending, including eating out, music and movie subscriptions, luxury vehicles, hotel staycations, international vacations and more. These types of expenditures are discretionary and never necessary. This perspective keeps your financial plan flexible and efficient.
Step 4: Save
Finally, successful financial health requires an excellent savings plan. Whether you’re saving for retirement, travel or education, you’ll need to take the time to develop a plan with effective and sound financial strategies.
If you haven’t already, check with your employer about ways to save with your retirement contributions. Often, reorganizing your benefits plan can save a few more dollars each paycheck, which over time amounts to even bigger savings than expected.
At Gulf Coast Educators, we offer our members a My Savings Goal account. This account allows you to make monthly deposits while earning a higher dividend. It disperses the funds twice a year, in January and July.
Using coupons and even carpooling are just a few practical methods people use to save, and investing in financial instruments such as money market accounts that help earn compound interest often yields big savings over time with little effort.
All in all, it’s important to remember the key strategy for any successful savings plan – pay yourself first.
Get Your Finances In Shape
Financial stability is the ultimate goal whether you’re earning a lot or a little. To get there, put together a financial health plan that addresses all aspects of your current financial situation, including expenses, debt, spending and savings.
Although there is a wide range of financial advice available, strive to find a financial plan that works best for your unique way of approaching your short-term and long-term financial goals.