How to Improve Your Financial Situation Fast

A person’s relationship with money says a lot about their growth journey as an adult. And no, you don’t have to be the last unicorn entrepreneur or have a rich aunt to stabilize your financial situation and set it on an ascending path.

If you find yourself in a situation in which your finances have gone off the rails and you’re not sure where to turn, it’s important to know there are many ways to get back on track. While the thought of improving your financial situation may come after you face a problem, you should understand that it’s okay to not be financially adept in your early adult life. We all have to start somewhere and it’s great that you are taking this step. 

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Also, men and women are different in how they spend and save money. This difference starts right from childhood, as men are taught to focus on personal finance to prepare themselves to potentially be the sole wage earners of their family. Moreover, women are often faced with the challenge of balancing their personal and professional lives, which can make it difficult to set financial goals.

The good news is that no matter what your background is, most people will improve their financial situation pretty fast if they learn how to implement a few money-saving strategies and healthy financial habits. So, if you’re looking for a way out of debt or want to learn about money management, here are a few tips that can help.

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Set Your Financial Goals

This is the first step to being on top of your personal finances. You need to see the overall picture clearly if you want to meet (or even set) your financial goals. Of course, you can have a long-term financial goal, like buying a house. But you also need short term goals for the year.

The key to setting financial goals is to break them down into smaller, more manageable pieces. For example, a goal could be saving $500 in the next three months or paying off $1,000 in credit card debt over the next six months.

Short term goals can help you stay focused. Having these smaller goals will help you see the results of your financial management sooner and seeing positive results can really be encouraging.

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Learn to Make a Budget

Do you know how much you spend each month and on what? A large majority of people don’t keep accurate track of their spending. Plus, people who use credit cards or online shopping are less likely to budget because they don’t see the money exchanging hands (no cash transactions). 

A budget helps you keep track of your finances by setting up your monthly and yearly spends. The process of creating a budget can be overwhelming. It definitely won’t take 5 minutes, but with some simple steps, you’ll be able to make a budget suited to your lifestyle. The goal is to create a realistic budget that takes into account all your expenses, income, and savings.

To understand where you spend your hard-earned money, track all your expenses (write them down) in a spreadsheet for a few months. 

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Gather all the information you need for this process:

  1. The receipts for all of your expenses from the last month
  2. Your paycheck stubs from the last month
  3. Your bank account statements from the last month 

Once you have enough data, look for patterns in your expenses, such as rent/mortgage, food, cleaning supplies, car, entertainment, kids, pets, and so on. These are the main categories of your budget and are most likely to repeat each month. 

There are two types of expenses you’ll see if you read your bank account statements – fixed and variable. Fixed expenses are the same every month, like rent or loan payments. Variable expenses may vary every month, like dining or travel expenses. They may vary a little or a lot, for example, you may take a vacation only once a year, which may account for a lot of extra expenses in that month. So it’s always good to count for the extra expenses in your budget.

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Next, make a list of all your monthly expenses:

  1. Rent/Mortgage
  2. Utilities (cell phone bill, electricity bill etc.)
  3. Groceries (food)
  4. Transportation (bus pass, car payments, gas)
  5. Phone bill
  6. Loan payments
  7. Student loan payment
  8. Credit Card Payments 

Once you know this, subtract these categories from your monthly earnings. Are you left with anything? If so, is there enough left to add to a savings account? Once you become aware of your spending habits, look for ways to correct them by cutting down (where possible), eliminating unnecessary expenses, or reconsidering services.

50:20:30 Rule for Managing Your Personal Finances

The 50/30/20 rule was developed by Dave Ramsey and is a guideline on how to allocate your income. It suggests that you spend 50% of your income on necessities, 20% on discretionary items, and 30% on savings. This rule is not a hard and fast rule, but it can be a good starting point for people who are trying to get their finances in order. Of course, over time, as your earnings grow, you can increase the percentage of your savings.

Don’t be Lured by Deals and Discounts

Yes, shopping can be addictive and therapeutic, but you need to be more conscious of your purchase habits. Whenever you look at a deal or promotion, ask yourself if you have a legitimate real-world use of the products. Most often, we tend to purchase because we think we are getting a good deal, rather than its utility. Even when purchasing groceries, avoid buying in bulk as a lot of products get wasted in the end.

Read more: Smart Shopping Tips on What Not to Buy

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Consolidate Credit Card Debts

If you juggle several different loans, think about credit card debt consolidation. This move will combine your debt into one payment, which will make it a lot easier to track and ensure payments are made on time. Plus, you may get other benefits, such as a lower fixed interest rate.

Tip: Consult with a financial advisor before you make this move to make sure you understand what it implies and the overall costs. Also check if your credit card provider charges extra for this service.

Look Out for Lifestyle Inflation

Most people increase their spending as their income grows. In fact, this phenomenon is so common that financial specialists call it lifestyle inflation. As a result, even though you can pay your bills on time and buy everything you want, your ability to build wealth decreases over time. 

Of course, as your life and career change, there will be additional expenses. This is the normal evolution of life, but it’s important to keep in mind that even if your income seems stable, there’s no guarantee it will stay the same in the future. 

So always be cautious about your spending. When you update the monthly budget, see which expenses are necessary and which you can go without. Try to observe if you’ve increased your expenses over time that are not completely matching your pay raise over the same period.

Also check out: 15 Shopping Tips to Save Money That Every Girl Should Know

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Have a Well-Designed Investment Strategy

You shouldn’t look at investing as a “get rich fast” scenario. True investments that provide positive results are a long-term game. The great thing about this is that you don’t need large sums to start. 

Small contributions to well-selected investment accounts can help you use your money to generate more income. And, as the years pass by, your investments will grow without much effort on your side. So, as you grow older, you’ll be able to have one or multiple sources of passive income.

The ideal time to think about stabilizing your financial situation and investing is before starting a family, but you can continue even afterward if you have a good strategy. For instance, check if your employer offers 401(k) matching or consider opening a retirement account. You can also invest in other ways like stocks or bonds, but be sure to educate yourself before you consider riskier investments.

The best way to improve your financial situation is to observe and change your habits. Also, a rock-solid budget and good planning are some of the most useful tools when it comes to developing healthy financial habits.

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