For many people, it can be difficult to manage personal finances. There are often times when unexpected costs arise in daily life, which require a significant amount of expenditure to rectify. Your car may break down and needs to be fixed so that the normal commute to work and family activities can resume. Occasionally your home may need repairs or maintenance, and problems such as broken pipes or water leaks can happen with little in the way of prior warning.
Today, there is a growing culture and acceptance of having significant levels of personal debt. It is estimated that 80% of all Americans hold some level of debt. This can range from outstanding credit balances to substantial monthly payments on a new car. Often being in debt is a cause for stress and worry.
It can lead to sleepless nights and increased anxiety, especially if your financial situation is dire and it is starting to impact your disposable income levels. Thankfully, there are a wide range of ways in which you can improve your financial health and plan more effectively for the future.
In this article, four key ways to improve your personal financial situation will be explored in detail.
Table of Contents
1. Save an emergency fund
While many expenses can be predicted and planned for, sometimes money is required quickly to rectify a problem that has occurred. Many homeowners will have experienced flooding in their houses as the result of a broken pipe or faulty household appliances such as a washing machine. It is estimated that the average cost of calling out a plumber to fix common leaks and pipe problems is $300.
While this is not a huge sum of money, it can often be enough to cause financial problems when people have no personal savings or their budgets are extremely tight. Therefore, it is paramount that every adult attempts to save an emergency fund for such unexpected problems. Older generations called this process “saving for a rainy day” in recognition that unexpected costs can and do happen over a typical lifetime.
Saving an emergency fund can be remarkably easy to achieve. Even if you can afford to save $20 or $30 a month, it will soon accumulate over the course of a year and can dramatically improve a situation when quick cash is required. Consider setting up a direct debit from your main bank account into a smaller savings account, and you will barely notice the impact it has on your monthly finances.
2. Look to consolidate existing loans
Millions of people hold significant amounts of debt in the modern consumer world. This can take the form of a range of loans or credit agreements that have been put in place to fund larger purchases such as vehicles or expensive household appliances. Some forms of credit, such as car loans, can have high-interest rates and can have a crippling effect on monthly finances.
If you hold a range of medium or long-term debts, it can be beneficial to consider taking out a refinance loan. This type of loan is commonly used to consolidate several existing loans into one monthly payment. It can be hugely beneficial if the refinance loan is at a lower rate of interest than some of the separate loans.
If you are considering this form of loan, it is important to check your credit score and look for ways to improve it so that you are more likely to qualify for such a loan.
3. Learn to budget
Learning to budget effectively from month to month can be difficult at first for people who struggle with their finances. However, it is a vital skill to learn, and effective budgeting can help you enjoy life without worrying about living beyond your means or taking on high levels of credit.
Start by considering your total net income levels if you have one for you and your partner. Next, consider all your essential monthly expenditures. The value you are left with represents your monthly budget. To improve your budget, think about items that you commonly buy that you could comfortably live without and look to reduce or cease buying these products or services completely.
Many people find that they have a range of small direct debits for services that are rarely used, and these can be stopped for instant financial improvements.
4. Second income streams
As a final point, it is worth considering that many adults (especially the millennial generation) regard it as vital to have secondary income streams that are separate from their main employment. Examples of these could include making and selling craft or handmade items on sites such as Etsy.com or generating income by setting up a small drop shipping company to sell the products of other suppliers.
Second income streams can help generate meaningful levels of additional income without taking up huge amounts of time. In short, think of a hobby or skill you possess and consider if you can monetize this to generate additional income.