Saving money is hard, and it’s something most Americans struggle with. A study from The Associated Press-NORC Center for Public Affairs Research revealed that 66% of Americans would have a hard time finding $1,000 in an emergency and 31% have less than $500 in emergency savings, including 20% who have $0 saved to cover an emergency expense. It’s no surprise that half of Americans report being “concerned, anxious or fearful about their current financial well-being.”
For many low-income Americans, financial health, or even financial stability, can seem like an unattainable goal. Between rent or mortgage payments, utility bills, food, and expenses like childcare and transportation, there’s not much wiggle room to accommodate unforeseen costs. Add that to the fact that most people don’t learn financial literacy in school, and it’s no wonder why managing money is such a universal challenge, especially for people living paycheck to paycheck.
Getting on top of your finances can feel overwhelming, but fortunately, small changes can go a long way. It’s possible for anyone to improve their financial position by adhering to a few simple best practices.
Create A Budget
Creating a budget is financial health 101. It’s one of those pieces of advice that lots of people know about, but only 41% of people actually create one. Here’s the thing, though—budgets are easy to make and they work. Sitting down to create a budget is a remarkably effective way to take stock of how much money you have coming in and how much money you have going out. Budgeting helps identify areas where you can cut back and understand exactly how much you need to earn to stay afloat. It’s also an opportunity to set financial goals and track your progress towards achieving them.
When looking for places to cut back, consider both small and big changes. For instance, bringing lunch to work rather than eating out is a small tweak that can add up to more cash in your pocket over time. But moving to a more affordable apartment is a big change that will have a significant impact. Of course, not everyone is able to move and moving can be expensive, but the key is not to take anything for granted.
A good budget encompasses different categories. Once you have the non-negotiables, like accommodation, utility bills, and loan payments, mapped out, there is a more clear answer of how much disposable income is left over for entertainment, shopping, and luxuries. If you know you are almost at the end of your allotted “fun” spending for the month, it’s probably a good idea to decline that dinner invitation. That said, it’s important to find room in your budget, if possible, to spend on things that make you happy. Budgeting is like dieting in this sense—it’s not sustainable if there’s no room for joy and occasional splurges.
Set Reasonable Savings Goals
Saving is a critical part of financial health, especially when you feel like you don’t have money to save. Without savings, an unforeseen cost or emergency can derail your entire budget. Whether it’s a health bill, car repair, or a $35 overdraft fee on a Netflix account, you need money available to cover these costs. Make sure to allot a specific amount of money for savings each month when creating a budget.
In addition to building a financial cushion, set short and long-term savings goals, such as buying a new car or money for a vacation. Knowing exactly what you are saving for can motivate you to stay on track. It’s also important to save for retirement. This may all sound like a lot of saving, but a good mantra to follow is “save first and then spend.”
Create A Support System
None of this is easy, at least not at first, but the good news is there are tons of apps and tools out there to help improve your financial position. Try out different products to see what works best. For example, some budgeting apps, like You Need A Budget, are fairly involved by design, while others, like Wally, prioritize simplicity. Go with what you find the most useful. There are also tools like Acorn and Digit that automatically take small amounts out of your checking account and put them into savings, as well as Robinhood, which makes investing in stocks accessible. Earnin, is a mobile app that shows people how much they’ve earned as they work and gives them access to that money before payday without fees or interest, so they can cover costs as they arise without going into debt or borrowing from friends and family.
Creating a support system also means getting friends and family involved. If you let people know you are prioritizing your financial health, they can offer tips and support. Maybe they will recommend a financial app they love or suggest watching a movie at home, rather than going out. Friends and family can also help keep you be accountable. If you share household finances with someone, it’s important that you are both on the same page.
Getting on track with a budget can take a couple of months, so be patient and don’t get disappointed if you don’t see results right away. Financial health is all about trial and error and figuring out what works best for you. If saving 7% of your income on retirement and another 20% on savings is not working, scale back and adapt. Whatever your financial goals are, remember they are achievable. No goal is too small.
