Financial well-being defines all the intricacies of your money management. It goes beyond your income and credit score. It’s about your relationship with money—how you behave with money and how you spend money. Regardless of how large your income, if you are spending everything you make you are not getting wealthier, just living a higher lifestyle.
We talked about the Consumer Financial Protection Bureau’s (CFPB) financial well-being report in our blog here. This may have given you an idea of where you stand with your financial well-being, but for further assessment you can take the CFPB’s quick financial health quiz here. Knowing where you currently stand is the first step to improving your financial well-being.
Knowing where your money is going is necessary for financial well-being and gaining wealth. Simple starting points are to track your income and track your spending. Track each source of income—work wages, child support checks, side hustles, etc. Know how much and how often it occurs. From there you can work to create a budget, as basic or complex as you like. For budgeting, it’s important to find a system that works best for you and your family. A simple idea is to write bill due dates on a calendar each month or use a budget app like Mint or EveryDollar. If there are weeks or pay periods when money is tighter than others, you can request different due dates for your bills.
Another important step to increase financial well-being is saving for emergencies. Financial security takes away much of the stress money can cause. Start with whatever you can spare and build from there. A great starter emergency fund has enough to cover common emergencies like car repairs and medical bills. Define the rules for an emergency fund to prevent you from using it on non-emergencies. If you struggle with setting aside money for savings, many employers and banks offer options to automatically transfer money into your savings on a weekly or monthly basis. Another tip to build your savings is to put extra in when you get extra opportunities such as yard sales, Christmas bonuses, and tax refunds.
Reducing debt is another step you can take to improve your finances. Before making a plan, list out all of your debts including debtor, amount owed, and interest rate. Two common debt reduction strategies are the snowball method or the highest interest rate method. The snowball method starts with smallest amount owed first.
Moving forward, changing your habits and behaviors is the biggest way to ensure success and change your story for the better. Limiting the lines of credit you apply for to only ones you need is a good way to keep your credit score in good shape. When considering a loan, it is recommended to get quotes from at least three lenders to compare terms and fees.
If you’re struggling with your finances, it’s important to remember that even the smallest changes make a huge difference. You’re laying a foundation and building better behaviors that will build wealth no matter your income. CFPB offers multiple tools to help you with these changes. For more tips and information visit the CFPB’s Get Money Smart blog.