All adults face tricky financial situations at some point in their lives. Whether it is falling into debt, being unable to pay for a pressing need, or even living paycheck to paycheck.
If you’re currently in a difficult financial situation you may be scrambling for the quickest way out of it. We have got you covered. Keep reading for our best financial tips on how to improve a bad financial situation.
1. Track Your Spending
If you find yourself in a hole, the first thing you must do is stop digging. Once you discover that you are in a bad financial situation, stop spending and investigate why you got into such a position. The first place to start is by tracking your previous spending.
If you pay for things by card, go through previous months’ spending by going through your credit card statements. In case you use cash, you will have to rely on your memory or by checking receipts. Moving forward, download a spending tracker app or start a spreadsheet where you document each cent spend.
Knowing where your money goes can help you curb wastage and unnecessary spending. All the money saved from better money management will help get you out of your financial situation. For instance, if you’re in debt, you can direct the extra savings towards paying down loans.
2. Create an Emergency Fund
Financial savvy people easily get out of tricky financial situations by dipping into their emergency fund. This is a special savings account that holds at least 3 months’ worth of expenses. In case they get an unexpected bill or medical emergency they can easily pay for it from their savings.
People that don’t have an emergency fund fall into debt whenever they face a financial emergency. Some of these debts are very hard to recover from. So, one of the financial rules we urge you to follow is to have a sizeable emergency fund.
Make this a priority by cutting all discretionary spending that was identified in the first tip above. Once you have at least 3 months’ worth of expenses you can relax and enjoy more of your monthly income.
3. Follow a Budget
For many people, budgets are a four-letter word that should never be uttered in polite company. Only about 49% of Canadians use budgets to manage their finances. The remaining 51% may be having bad finances because they don’t use this simple but useful financial tool.
A budget is a spending plan that allows you to strategically use your income to achieve your life goals. A budget gives purpose to your spending. Many people without a budget find that they live unfulfilled lives, paycheck to paycheck with nothing to show for their hard work.
With a budget, you can use your money to buy things and experiences that you care about and that bring you joy. A budget can also help you achieve long-term goals like retiring early or buying a home.
The best way to start a budget is to write down your financial goals. For example, you may want to pay off debt, buy a car, go on holiday, etc. You then need to check how much income you get each month. For some, this may just be your salary.
For others, you may have other sources of income such as dividends, interest, rental income, royalties, etc. Once you know your average monthly income you can plan how to spend it. There are several different budget templates and formulas you can use.
Do an online search and choose the format that works best for you. Essentially, a portion must go toward paying your fixed expenses such as a mortgage, rent, or utilities. The balance will be split up based on your financial situation and goals. For instance, you may need to pay down debt, save up for retirement, invest, or even donate to charity
4. Increase Your Earnings
Another great way to get out of a bad financial situation is to increase your income. Let’s say you are falling into debt because your current income isn’t enough to cover all your expenses. In such a case the logical solution would be to increase your income to exceed your expenses.
You can do this by asking for a pay rise at work, working a second job, or starting a side hustle. Having multiple sources of income has become necessary for anyone who wants to thrive in the current economy. In recent years, many people have fallen into financial ruin after losing their jobs or businesses.
They are victims of putting all their financial eggs in one basket. Having several sources of income not only gives you a higher income but also provides peace of mind that you can survive a financial crisis.
5. Educate Yourself
You can improve personal finances and prevent bad financial situations by educating yourself on proper financial management. There are plenty of free financial resources online and in libraries that can help you manage your money better.
Classic books like Rich Dad Poor Dad and The Millionaire Next Door can teach you the fundamentals of personal financial management. You can also follow financial advisors online on their podcasts and YouTube channels for money management information.
Some common financial pitfalls can be easily avoided by reading a book or listening to a podcast. For instance, let’s say there’s a young person that learns investment strategies in their teens. The portfolio they start can earn millions of dollars more than peers that never educated themselves financially.
Learn About Improving Your Financial Situation Now
If you find yourself in a difficult financial situation the first thing you must do is stop spending money on unnecessary items. Create a follow a budget that allows you to save enough money to pay yourself out of the financial situation.
Do your best to increase your earnings and sources of income to have enough money to prevent future financial shortages. If you’re looking for immediate help with improving your financial situation then reach out to us today for assistance.