The stock market continues to set records, yet the majority of American households are struggling financially. According to the Financial Health Network, only 28% of people in America are considered financially healthy, and Pew reports that 54% of Americans spend more than they earn every month. Financial health is anything but a sure thing for the typical American family.
Financial stress affects nearly everyone, regardless of income, and it’s important to know that you are not alone in feeling this way. If you find yourself worrying about money, here are five things that you can do to improve your overall financial health.
1. Track Your Spending
Look through recent account statements – credit cards, checking, and anywhere else that you may direct debit from – and figure out what you are spending money on. While you’re going through your transactions, categorize them as granularly as you would like. Then group your expenses so you can determine what your fixed expenses are (mortgage, rent, utilities, auto payments, other debt, insurance, etc.) versus your variable expenses. Not only will you figure out what you have to pay every month, but this will make it easier to determine any unnecessary recurring expenses, as well as places where you may want to cut back just a little bit.
2. Pay Off Any Credit Card Debt
If you are carrying a balance on your credit card, you are not alone. In fact, the average U.S. household has $5,700 in credit card debt, and balance-carrying households have an average balance of $9,333.
Come up with a plan to pay off your credit card debt. With an average rate of 17.76%, any effort that you put into longer-term savings will be muted by the interest compounding on unpaid, high-interest debt.
3. Set Up Savings Goals
The easiest way to start saving is to set up goals across a variety of time horizons. If you want to set up a long-term goal that is years in the future, also set medium-term goals (how much do you want to have saved over the course of this year?), as well as short-term goals (how much do you need to save every week or month?). Breaking down a long-term goal into shorter, achievable milestones, makes it feel much more attainable, as well as giving you milestones to measure your progress.
4. Set Up Your Safety Nets
If you do not have a savings safety net, you’re not alone. In fact, according to the Federal Reserve, 39% of Americans cannot cover a $400 emergency expense with savings.
The first step to take is setting a goal for a rainy day fund that will help you ensure that unexpected expenses do not turn into financial hardship. The next best step is to set up automatic deposits into a specific account. If you went through the exercise of identifying unnecessary expenses, take the cash that would have gone towards those expenses and automatically send it to a savings account. $20 per month will get you $240 (plus interest) at the end of one year – more than halfway to the $400 threshold.
Your safety net doesn’t stop with a rainy day fund. Once you’ve met your rainy day goal, start saving towards an emergency fund, which you can ideally grow to cover three to six months’ worth of expenses.
5. Commit to Yourself
Just like going to the gym to become physically healthier can be an uphill battle, it takes time, energy, and discipline to change your financial health too. There will be ups and downs along the journey, and every day will not be a win, but provided you are committed to improving your financial health in the long run, you will get there!
Ryan Brennan is the Founder & CEO of Financial Life, a fintech company committed to reducing financial stress and improving the financial health of everyday people.
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