By Steven M. Hughes
I’m a freshman in college, hungry for food and new experiences as I’m walking across the library bridge. From one end to the other are tables filled with coupons for free pizza, subs and credit cards (one of these things are not like the others).
Shortly after all the food coupons were cashed in and devoured, the credit cards that I applied for arrived. Like 14% of Americans, I had no idea what a credit score was or how to properly manage multiple credit cards so I swiped them…And swiped…and swiped…and swiped until I hit the limit.
Some cards received the much needed attention in the form of a monthly payment and the others sat in my top drawer looking lonely, used, and maxed out. I wasn’t worried about the emails or phone calls. My art of dodging unknown numbers became strong.
Through my college career, my savings account usually read $0. As I got older, I increased my spending + I didn’t know where my money was going. I would hit an emergency, like a car repair, and be without wheels for 4 months at a time. All this contributed to being financially unhealthy.
I ran my financial life like a fast food diet. I spent money quickly and it sustained me for a short time and more than half of the country is in the same boat. 57% of Americans are struggling financially according to the Center for Financial Services Innovation. It doesn’t take long for bad money management habits to effect your living expenses. I got evicted. My car got repossessed. My payments were late or nonexistent. The burning question: How do I turn it all around?
GETTING FINANCIALLY FIT
Whether or not you’ve made all of my early financial mistakes, most people are striving to better their financial situation. Here are some ways to make a strong financial foundation:
- Figure Out Where Your Money’s Going — The first step to going from no money to Know Money is addressing where your dollars are heading when they leave your pocket and account. We’re often so focused on paying our bills each month and hope to be able to see some money in the bank account when the month ends. Track your spending with a pen and paper for a month If you’re looking for the tech alternative, use an app like Toshl that gives you the opportunity to add cash purchases too. Get the number it takes to run your household.
- Plan For Emergencies — A car repair/emergency sent my finances into a downward spiral. While many financial experts will caution you to put 3–6 months of your expenses away. While that’s a great number for cash reserves, you should put $2,000 aside for emergencies like car and house repairs and unexpected expenses. 100% of people financially striving plan for large, irregular expenses. Check out Magnify Money for a high yield savings account that you can start saving in today. Having trouble building your savings muscle? Use Digit, an app that will help you save incrementally.
- Save Early And Often — I frequently used my savings account like another checking account. Whenever there was money there, I made weekend plans for it. Starting with my first job out of college, my (proper) savings habits finally got kicked into high gear. After you get your emergency savings account funded, you should turn your focus to your retirement and investments. For the obvious reason, saving now will help you retire more comfortably, but saving early and often will give you the peace of mind and more confidence when analyzing an opportunity that comes your way. It helps you increase your risk tolerance for future investments.
- Track Your Consumer Debt — Student loans are bogging many young professionals down, but the other elephant in the room is consumer debt. Carrying balances and just paying the minimum was the only plan I had when it came to dealing with credit cards in the past. Sometimes I would pay on time and other times I would call and ask them to waive the late fee after being absent minded about my upcoming due date. 35% of your credit score is determined by your payment history and 30% is credit utilization, meaning the total amount of credit you’re using (Ex. If your balance is $800 on a $1,000 credit card, your utilization is 80%). Take each of your credit cards and record the credit limit, credit balance, minimum payment, interest rate and the monthly due date. Now use the stack method to knock out your consumer debt.
Like your physical health, financial health takes planning and preparation. While I would love to have a six pack of abs, being financially fit has more benefits for every household. What are some things you’re doing to improve your financial health? Leave them below.
This blog post originally appeared June 29, 2016 on Know Money. It was one of the winners of a national #FinHealthMatters Day essay contest created by Financial Health Network. MetLife Foundation is a major sponsor of Financial Health Network’s ongoing consumer financial health work. To learn more about FinHealthMatters from Financial Health Network, sign up here.