Many people and families have been thrown into financial turmoil in the last few years. Whether it was an illness, job loss, car accident, or something else, these tough situations can leave people feeling stressed and hopeless. This article will give you information and ways to recover from a financial pitfall.
Face the problem
Facing the issues as they stand will be more beneficial in the long run. Distracting yourself from financial problems doesn’t actually manage stress well. In fact, it increases stress because the exact details are not in black and white. This in turn inhibits finding the right plan to get out of the rut. Managing personal finances on a regular basis actually provides more freedom because you take back control.
Cut spending now
The easiest way to stop a financial hemorrhage is to cut down on monthly expenses. Cutting out luxuries can allow more money to go to the immediate need of paying down debt. This might mean cutting out the name brand coffee runs every morning, or taking lunch to work instead of eating out every day. Also, many people have subscriptions to phone apps that aren’t being used. Cutting these expenses back might seem like a small amount of money, but it adds up month after month.
Savings, checking or money market accounts could be used to pay down mounting debt. If available, turn to these resources first because this money can be used any time without incurring fees or penalties. Retirement accounts, and stocks and bonds can be used as well however, there may be steep fees, taxes and early withdrawal penalties.
Make a budget
Budgeting can sound like a total drag, however, if the money going out is more than the money coming in, there will be financial issues at some point. Getting a handle on how much money is being spent will give you a clear picture of the situation. Prioritizing needs over wants at this time is paramount. A need would be housing, food, transportation and clothing.
- Rent or mortgage should be 24-35% of your total income.
- Utilities 5-10%
- Food 5-15%
- Transportation 10-15%
- Clothing 2-7%
- Health care 5-10%
Stop using credit cards
These revolving accounts can be useful, but high interest rates can often keep you paying on the balance for years with very little progress. If credit card debt is taking up a significant portion of income, then a budget should be investigated. Shopping for a lower interest rate could help bring down the high credit card balances. By transferring the balance from the higher interest to the lower interest card, you can save money every month in interest fees.
Once the small spending habits are under control, possible assets liquidated, a budget has been set, and credit card spending is reduced, you are on your way to a healthier financial future. It is important to track progress at least on a monthly timetable if not twice a month. Sit down with your pay stubs, credit card statements, bank statements and any other spending receipt and make sure to follow the percentage rule mentioned above. This way, you can adjust any area of spending quickly that is not following the new plan set in place. One last tip: Everyone needs fun and relaxation so search for free local events. This way, you can still enjoy time with family and friends stress free.