August GO Challenge:
Make peace with your finances.
Living paycheck to paycheck. Not making enough to cover expenses. Going into debt. Any of these money worries can put a strain on your lifestyle and standard of living. But did you know that financial stress can also be detrimental to your health?
Research shows that people with a high level of financial stress are more likely to have:
- Heart attacks
- Ulcers or digestive problems
- Headaches or migraines
- Muscle tension or lower back pain
In addition, financial problems can cause existing physical illnesses to get worse for those who can’t afford regular medical care or don’t seek treatment due to unpaid medical bills.
The good news is, you can make peace with your finances. Studies prove that people who take an active role in learning about their finances and planning for the future are less stressed and more confident in their financial dealings. It’s certainly worth a try! And once you get a firmer grip on your money, don’t be surprised if the rest of your life starts flowing more smoothly, too.
4 ways to ease your money worries.
Even if you’re not feeling a financial pinch right now, it doesn’t mean you’re safe from worry. Studies show that 4 out of 5 adult Americans will face economic troubles at some point in their lives. That’s why we all need to master the basics of handling money responsibly. Here are 4 simple steps for getting (and keeping) your finances under control.
- Track your spending. Wonder where your money is going each month? Look at your bank statement or online banking. Every purchase is listed for you, including fixed expenses like rent, utilities and car payments, variable expenses like groceries and gas, and even cash withdrawals. Once you have a tally for the month, you can compare your expenses to your income to see whether you’re in positive or negative territory.
- Create a budget. Now that you know where your money is going, especially if you’re spending more than you make, it’s time to create a budget. Don’t worry — this step is easier than you think. In fact, here’s a printable budget form that can help.
- Cut unnecessary expenses. If over-spending is putting you in the hole, consider ways to cut back. Here’s where your itemized budget will come in handy. Look for any expenses that fall under the category of “wants” rather than “needs.” For example, do you really need to buy lunch every day? Try brown-bagging it 4 days a week and going out on Fridays.
- Create an emergency fund. Sooner or later, we’re all faced with unexpected expenses — car repairs, medical bills, a new furnace, etc. So be sure to set some money aside for a rainy day. Ideally, aim for 3-6 months’ salary or, at the very least, $1,000 in an easy-access savings account. If you can’t afford that, set aside $10-15 a week. Add it to your budget!
7 tips for getting out of debt (and staying there).
Now that you’ve created a budget, you should be feeling better about your financial situation. But what if you still have lingering debt (e.g., college loans, credit card bills, etc.)? Here are some helpful tips for digging out of that hole and avoiding future debt.
- Stick to your budget. If you want to pay down debt, start by living within your means. Follow your monthly budget, updating it periodically as needed. Don’t buy things you don’t need. Don’t let your checking account get overdrawn. And make sure you’ve factored all debt payments into your budget (more on that in point 3).
- Throw your credit cards in a drawer. Better yet, cut them up. You can’t get out of debt if you’re continuing to accumulate more debt. And you know you can’t afford the exorbitant interest rates. But wait — what if an emergency comes up? Won’t you need those credit cards? That’s what your emergency fund is for (see Week 2).
- Create a debt snowball. Prioritize your debts by deciding which order to pay them in: smallest to largest debt, or highest to lowest interest rate. Once you’ve decided, pay the minimum on everything except your highest priority debt (pay more on that one). Once that debt is paid off, take the money you were paying toward it and apply it to your next highest priority debt, and so on, until all debts are paid off. It’s like watching a snowball roll down a hill as more and more payments are made!
- Put bonus money toward your debt. Anytime you find yourself with extra cash (e.g., a job bonus, tax return, windfall), apply it toward your highest priority debt. If you’re really serious about accelerating your pay-offs, have a garage sale, sell something online, or take a second job to generate extra cash for payments.
- Say yes to medical insurance. You may think you can’t afford it. But in the event of a medical emergency or unexpected illness, living without medical insurance can quickly lead to financial disaster. Even a low-cost policy with a high deductible is better than no coverage at all. And yes, even young, healthy people need medical insurance.
- Say no to impulse buying. This is a good rule of thumb, whether you’re struggling with debt or not. If you see an item you hadn’t intended to buy, don’t buy it yet. Take a day to think it over. Do you really need it? Can you afford it? Do you already have something similar? Once you’ve had a chance to think calmly and rationally, you’re less likely to return to buy it.
- Beware of sale items. Don’t purchase an item just because it’s on sale. Especially if you don’t need it to begin with! When you buy a $200 dress that’s marked down to $150, you aren’t saving $50. You’re spending $150 that you may not have. And with all the sales hype on the retail scene, it’s hard to know if you’re actually getting a true discount or just falling victim to another marketing ploy.
Here’s one last money-saving tip to keep in mind:
Find creative ways NOT to spend money. Whenever a situation arises in which you’re typically expected to buy something, find a fun alternative. Instead of buying a friend a birthday gift, treat them to a fun day at the beach. Rather than meeting someone at a restaurant, suggest a walk in the park. Think in terms of experiences rather than material things.