1. Live within your means and track spending
Start by making a commitment to living within your means. Write down everything you spend, or download an app to track your daily financial inflows and outflows, so you can see exactly where your money is going.
Reviewing your spending regularly and seeing the numbers in black and white can help you confront your own bad money habits. The kinds of habits that perpetuate cycles of financial stress like living paycheck to paycheck, struggling to build savings and digging deeper into debt.
Tracking your spending may help break these cycles and can show you serious issues, like spending more than you make. You’ll see whether your actual spending is aligned with your goals and priorities. And you’ll identify where you are spending on stuff that you don’t really care about, need or use.
It’s far easier to make changes and realign your spending with your goals when you can pinpoint exactly what’s keeping you from reaching them. And it’s easier to stay accountable to those priorities when you make tracking your financial activities a daily practice.
2. Avoid impulse buying
Once you have a tracker set up, you can check it before buying that new outfit or booking a spontaneous getaway. That way you pause to assess whether the expense you’re considering fits in your budget or will push you further from your big picture financial goals. And, you can still find how ways to have fun without spending money.
If overspending has already put you on course to compounding debt and insufficient savings, you’re not alone. According to the Federal Reserve’s annual report on the economic well-being of U.S. households, nearly 40 percent of U.S. consumers could have difficulty covering an unexpected $400 emergency expense with existing savings. This may have contributed to record-high levels of U.S. household debt, which totals more than $16.15 trillion, as people used credit cards and other loans to cover emergencies.
So, pause before you buy and be sure to check your budget.
3. Debt reduction
To avoid record-high debts of your own and stay on track with your personal savings, you need to grow the gap between your income and expenses. And you also need to make sure you’re maximizing that difference by purposefully directing funds toward your debt reduction and savings account growth.
You can optimize those efforts by:
- Considering debt consolidation to combine multiple debts from credit cards, high-interest loans and other bills into one monthly payment
- Utilizing a personal loan can help you streamline your debt payoff efforts
- Automating savings contributions to make saving money a habit.
Remember, you don’t own your income. You only own the part of your income that you keep. A commitment to living within your means, paying off your debt and increasing your savings will enable you to build meaningful wealth and sustain your financial health for the long run, no matter how much money you’re making.
Is a Discover® personal loan right for you? See if you qualify and start consolidating your debt.