1. Build your emergency fund.
An emergency fund is critical for keeping you out of debt when the unexpected happens. Whether it is a job loss, medical emergency, or something else, build up an emergency fund that has at least nine months worth of essential living expenses (what you need to survive, not entertainment or things like that).
In addition, start saving money for things that you expect to go wrong. If your roof is old or your HVAC is on it’s last legs, you should be saving money outside of your emergency fund to pay for these essential home repairs. Many people think these are emergencies, but most homeowners know that the only certainty with homeownership is that something is going to need to be fixed. Plan for that!
Also read:
Why You Need an Emergency Fund
Job Loss, Medical Costs, and Home Repairs: How to Be Prepared When Something Goes Wrong
2. Identify your money goals and values
Knowing what is important in your life is a critical first step because you need to know what you are saving for and which expenses are most important to you. If you lose your job, you’ll be able to more easily prioritize where your money goes. Creating a vision for your life helps you more rapidly make decisions on purchases and areas where you can cut expenses.
Click here to get the free values exercise that I use with my clients to help them get clear on their values and goals.
3. Evaluate your spending
Evaluating how you spend your money helps improve your finances by building awareness. Simply being aware of where your money goes can help you be more intentional. You’ll be able to assess how your spending fits into your values and life goals. Making decisions about what expenses are in fact important to you will make it easier to cut things that are not.
Although many people love to use apps like mint.com or YNAB (You Need a Budget), keeping track of your spending can be as simple as just writing it down. (Get my free expense tracker worksheet here.)
4. Review Your Credit Report
It’s a good idea to regularly review your credit report to make sure that all of the information is correct and that there is no unauthorized activity (identity theft). Your credit report shows you things like payment history and accounts that are open under your name. It is not the same thing as your credit score, although your credit score is calculated using the information from your credit report.
Get your free credit reports and learn more from the government website: annualcreditreport.org.
5. Continue paying off debt
Getting behind on debt is like falling into a hole so deep you can barely see the light at the top. If you’re in this situation, check out my debt payoff resources linked here.
If you’re on top of your debt payments, do everything you can to keep paying. Prioritize your mortgage since that affects your living situation. The Consumer Finance Protection Bureau offers up-to-date information on debt relief due and the pandemic. Talk to your lenders and make sure you fully understand what they offer and what the implications are. Even if you get a break on payments, you need to know what happens once the payments come due again. Because the ramifications of not paying can be serious, it is worth temporarily making some lifestyle changes to avoid default.
Paying your bills on time, even if it is just the minimum, is one of the best ways to maintain your credit score according to bankrate.com.
7. Start or continue saving for retirement
Saving for retirement is a critical step for improving your finances. It’s rank as #6 on this list should not undermine its importance. Investing steadily over time is the only way to secure your future. The first step is to make sure that you are taking advantage of any employer match in your employers 401(k), 403(b), or other retirement program. It’s free money. After that, contribute anything you can to your retirement plan through your employer, in an IRA, Roth IRA, or any of the special IRAs for the self employed. Ideally you will save 15-20% of your salary, but start with anything you can and don’t feel guilty. Any amount is a good place to start.
The biggest reason people struggle to improve their finances is that they feel like they have to deprive themselves of anything that is fun, enjoyable, or worthwhile. And while there are certainly reasons for cutting back on things, I’m not going to tell you to give up your lattes and avocado toast if that is something that makes your life just a little better.
Identifying your goals and values and tracking your expenses is important because you need to know what is important to you. Find the things that you don’t care about as much and cut those first. Focus on your long term goals and how you want your life to look in the future. If you can envision that, you can weigh current expenses against that goal and decide what is more important. By focusing on the things that help you live your best life now and in the future, you will feel more fulfilled. That will make all this a lot easier and set you up for success.
Want personalized, judgement free guidance to help you take control of your finances? Learn more about financial coaching!
