By Katie Ross, Education & Development Manager, American Consumer Credit Counseling, Inc.
Many Americans are struggling financially – compounded by poor financial habits that are leading to more debt and limiting their ability to save.
Just 40 percent of adults in the U.S. keep a budget and track their spending, according to the NFCC. Just as troubling, at least 20 percent of Americans spend more than they make, while 54 percent don’t have any sort of rainy day fund, according to WalletHub.
Below are four financial tips to help you evaluate your finances, avoid unnecessary debt, and achieve a strong financial future.
- Create and Maintain a Budget: Know your monthly income and expenses. Create a Budgeting Worksheet to customize a spending plan based on income and needs. Break individual expenses into categories to determine how much is being spent in each area, such as rent, groceries, bills, etc.
- Understand Your Credit Report: Credit scores and credit reports are often misunderstood, as is the impact it can have on a consumer’s overall financial health. Consumers can get one free credit report annually from each reporting agency, which includes Trans Union, Experian and Equifax. The most common scoring system when calculating a credit score is called the FICO score. The credit score ranges anywhere from 300 to 850. Based on this scoring system, the higher the score the lower the risk and vice versa. According to Experian, the average credit score in the United States is 687.
- Don’t get Bogged Down in Debt: While consumers can’t always control the amount of money they earn, they can control what they spend. One smart strategy: carry cash instead of a debit or credit card. Consumers should limit credit card spending to only what they can afford to pay off at the end of the month. According to Pew, 80 percent of households hold some sort of debt. The most common form of debt is a mortgage (44 percent), unpaid credit cards (39 percent), car loans (37 percent) and student loans (21 percent).
- Prepare for Retirement Early: While retirement may seem far off, it’s essential to start preparing now. Not only will income be more limited, many costs will likely increase – such as medical expenses and the cost of care. Consumers should be checking to ensure all legal documents are in place, especially any medical insurance benefits and the amount of money needed for a secure retirement. Just as important is to start saving toward retirement now through an employer-sponsored 401(k) plan. In a survey by ACCC, 73 percent of respondents admitted they don’t feel financially prepared to retire. In addition, about 62 percent said their biggest concern is having enough money to live on each month.
The Personal Financial Workbook is a tool that can be used to organize finances and help consumers eliminate debt and better understand how they are spending their money.
A strong financial future begins with a solid understanding of your individual financial situation. Budgeting, saving and planning for the future are the keys to financial success.