They teach you a lot of things in school, but one topic they don’t teach as a core requirement is financial management. How many people do you know who are struggling financially, are bad at managing money or are in debt? Recent statistics show the average American has $16,748 in credit card debt and an average total household debt (including mortgages) of $134,643. Those balances can take decades, if not a lifetime, to pay off. Financial issues are a major cause of stress and are absolutely a matter of health. We should be managing our money the same way we would manage our diet or fitness routine. Here are our tips for staying financially healthy.
Live Below Your Means
First and foremost, live below your means. Unless you have millions of dollars (liquid) sacked away, you are not “rich,” so don’t get too comfortable. Money has a tendency to disappear fast, so don’t get ahead of yourself just because you got a $20k bonus check. It’s always better to under-spend than to overspend. Find ways to keep your monthly overhead low and eliminate any unnecessary expenses. Which brings us to the next topic..
$50 for drinks, $25 on Seamless (twice a day), $100 on a pair of high heels (you don’t need) all adds up. Frivolous spending is never worth it. Know when to skip happy hour, cook at home as much as you can, and only buy shoes if you need them. Buying a bunch of unnecessary stuff when you could be saving your money for your future is always a bad idea in hindsight. This isn’t being cheap; this is being responsible.
Everyone knows carrying a balance on credit cards and getting in debt is one of the biggest ways we can get in trouble with money. It happens, but in order to get out, you need to stay on top of interest rates and charges on your credit card(s). It can be easy to look away and just pay the monthly minimum, but avoiding your balance and monthly interest charges (which often fluctuate) can keep you in debt longer. Instead, analyze your credit cards and interest rates and see if you can transfer balances or find a way to pay off higher interest cards first. Even getting a personal loan with a lower interest to pay off high rate cards is better than drowning in 20%+ interest every month. Also look into ways you can cut your expenses to pay down your balance. Whether that’s downsizing your living space or cutting out your morning latte from Starbucks.
We’re all going to get old and have to eventually retire. We know when you’re 20 or 30 something, that seems like eons away, but it creeps up much faster than you think. Starting a savings or retirement plan when you’re young can ensure you have the money you need to live comfortably when you’re older. How much you need to save can vary widely depending on your current investments, home equity, income, and expenses. Use this calculator to help you determine how much you need to save each year for a comfortable retirement.
Create Multiple Income Streams
Living off one income source is no longer the reliable way to stay on top of your finances. Lay offs, company closings, and job loss are a reality of the current employment environment. In other words, don’t rely on that steady paycheck because it might not be there one day. Instead find ways to expand your income streams. You can pick up a “side hustle,” invest your money, get a temporary second job or learn how to day trade. Whatever you do, find a way to create multiple income streams and make your money work for you. This is the best way to stay ahead of your finances and keep your bank account healthy.
Partner’s Debt/Financial Habits
This can be a tricky subject, especially if you’re early on in a relationship. However, it is a subject that needs to be breached eventually. Especially if you plan on marrying the person or notice their spending habits are less than desirable. If you find your partner is a frivolous spender, has a ton of debt and a history of money problems, it is absolutely a reason to be alarmed. Money habits, like other personality traits, are developed early and can be hard to break. Of course, many of us make dumb financial mistakes when we’re young, but if someone has a history of compulsive shopping or is always broke, it may be time to have a talk with them and reassess your relationship. Before you say, “that’s so superficial,” keep in mind that a large majority of divorces are caused by money problems, so yes, money matters in relationships. If your partner has a history of being a careless, impulsive spender, they are likely careless and impulsive in other ways, too. This is a red flag that should not be ignored.
For most of us, housing is our biggest monthly expense. As a rule, you shouldn’t be spending more than 30% of your monthly net income on your rent or mortgage payment. We know you really want that Soho loft or that McMansion, but at the end of the day a heavy housing payment can be financially crippling and can stress you out. What’s the point of having that big home if you’re too burdened to enjoy it? Instead, live below your means, save up, and when you can afford it, upgrade. It’s a much better plan than stressing yourself out on a place you can’t afford.
Credit Score & Report
Do you know your credit score and have you checked your credit report lately? You should -as it could be the difference between securing an apartment, getting lower interest rates or getting hired for that job you want. And as we said before, you can even scare off your future spouse by having an irresponsible financial history. Bottom line, a low FICO score and bad credit will cost you big time in the future. Luckily, it’s very easy to stay on top of both. Many sites such as Credit Sesame offer free credit reports and monitoring, so you can keep track on what’s going on with your credit. You can sign for free here.