Financial struggles can happen to anyone. When you lose control of the wheel, it can feel like an impossible setback. But no matter what situation you find yourself in, there are practical steps you can take to get back on the path to financial wellness. Here are seven strategies to consider.
1. Set a realistic, personalized budget.
A budget is a great tool to help you take control of your finances from the present moment onward. Before you deal with any of the fallout of recent financial struggles, setting a budget will keep you from digging yourself into a deeper hole.
Consider using a Budget Calculator to account for various expenses and create a plan to start saving and to repay any debt you owe.
2. Determine whether an additional source of income is required.
Once you’ve set a budget, determine whether your current income is sufficient to meet your needs and get you on track. If you need additional funds to cover debts and begin working toward your major financial goals, it might be time to consider a second job or a side gig.
Estimate your total weekly, monthly, and yearly earnings with and without a second source of income to see how quickly the additional money could help you pay down debts or build up your savings. A timeline is a helpful tool that can guide your financial recovery.
3. Consolidate debt, if necessary.
If you’re dealing with large credit card balances or other debt generating large sums of interest, consolidation may be a better alternative to letting those accounts sit and accrue a balance. Consider consolidating these debts into a single personal loan that offers a much lower interest rate.
You might also prefer transferring balances to a credit card offering a promotional 0 percent APR, which will buy you time to pay off the balance interest free. If you aren’t sure which option makes the most financial sense for your situation, our team is here to help.
4. Reduce monthly bills where possible.
No matter your financial situation, lowering your total monthly expenses is an immediate way to make your paycheck go further. This could be as small as cutting out Netflix or Hulu for a month, or it could mean requesting a deferment of student loan payments for a few months to help you build your finances back up.
Even if you don’t want to make these changes permanent, cutting down costs for just a month or two can free up funds that you can use to take control of your finances.
5. Build a buffer.
Having a financial buffer can help you weather challenges that arise in the future. The best place to start? Build an emergency fund. Start by saving $100, then $500, then $1,000, and eventually enough to cover a minimum of 4-6 months of living expenses.
With an emergency fund set aside in a separate savings account, you’ll have greater peace of mind knowing that you have the financial flexibility to handle unexpected expenses.
6. Avoid impulse buys and save up for big purchases.
As you rebuild your finances, big purchases should be kept to a minimum. But if you’re going to spend on big-ticket items, consider saving up incrementally to afford those purchases without taking a huge bite out of your monthly budget or turning to a credit card.
7. Practice good credit hygiene.
A low credit score can put you in a tough financial spot even after you’ve balanced your checkbook and built up savings. This number doesn’t just impact mortgage rates and credit card applications; your credit score could also affect your ability to rent an apartment, or it could bring about additional costs from utilities and other service providers who want a deposit to secure your account.
Your credit score won’t change overnight, but consistent fiscal responsibility can raise this score and increase your access to credit and low interest rates. Keep credit card balances low, pay your bills on time, keep old accounts open, and limit your requests for new credit. Eventually, that number will start to rise.
Financial setbacks can happen to anyone. If you’re feeling stuck, try the strategies above and stay committed to your weekly and monthly financial goals. Every small win adds up!