Spring Cleaning: Finances Edition
Personal finance is not a common dinner table topic. In fact, most people find it “taboo” and never bring it up. While they don’t like to talk about it, a recent survey showed that 77% of Americans report feeling anxious about their financial situation.
Are you thinking, “that sounds like me, but what can I do to stabilize my personal financial situation?” Start here!
Evaluate.
It’s hard to create a budget without knowing where your money is already going. You may be able to get an idea of this by reviewing transactions from your credit/debit cards and bank account(s) for the last few months.
If you don’t know where to begin reviewing your spending, consider a money management app. Some of these apps include:
PocketGuard – This app aims to help simplify your finances. The free version allows you to connect two financial accounts, track recurring bills and create spending categories.
Honeydue – If you’re managing money with a partner, consider Honeydue. This free app categorizes spending and allows you to set limits. You can also connect your accounts and set up bill reminders to help avoid late fees.
Although other paid options exist, start with a free one to avoid getting roped into another monthly expense.
Prioritize.
Once you have a picture of your spending, you may notice a lot of “leaks.” Many people think of large purchases like homes as the biggest drain on their finances, but the small things add up.
Are you purchasing a $5 cup of coffee in a drive-thru every morning? That’s $1,300 per year if you do it five times each week!
How many subscriptions or memberships do you have? Are you getting your money’s worth for all of them?
Do you have any auto-renewals you may need to reconsider? For example, if your car insurance renews automatically, you can’t be sure you’re getting the best rate. You may want to shop around to see if you can find a better deal.
Do you have any unnecessary or avoidable expenses? This would include things like late fees tacked on to a utility bill if it isn’t paid by the due date.
Learn.
Before you can get to the “planning” stage of creating a budget, familiarize yourself with basic personal finance. You can do this by learning from someone else – like United Housing’s Financial Coaching Services or by joining the Homebuyer Education program.
Understanding key financial topics is a must if you hope to plan for the future. For example, it may seem like a good idea to make payments on everything from furniture to Christmas gifts so you can pay just a little every month. But, credit cards and other types of loans charge interest – extra fees when you don’t pay in full every month – meaning those purchases cost more in the long run.
Plan.
Once you have a basic understanding of where your money goes, decide what you need. What expenses can’t change? Which ones can go down or go away? And as you free up money by cutting expenses, what should you do with it?
Plan where they’ll go. Free budgeting apps like EveryDollar or Goodbudget can help you with “zero dollar” planning. With this method, you’ll assign every dollar you bring in for a specific purpose – like paying down debt, covering expenses, putting into savings and more.
While you’re planning, consider paying down your debt a top priority. First, target debts with the highest interest rates (like payday loans or credit cards). Once those expenses are gone, focus on the next-highest. This strategy will slowly reduce your expenses over time, allowing you to put more money into savings or planning large expenses like a home purchase.
Still have questions? Look no further than United Housing’s education and counseling programs. We’re happy to help!