As with most lifestyle changes, making healthy financial choices can take discipline. However, once you put your mind to it and create a plan, you’ll be on your way to achieving your financial goals.
As you embark on this path, keep in mind that you’re bound to fall off the wagon and go back to your old ways, like overspending. We’re here to help you stick to your goals. So, the next time you find yourself in a tricky situation and need help making healthy financial choices, take a look at the following common scenarios.
Scenario 1: You want to buy all the things at Target
Ever have one of these days? You know, those moments when you have the impulse to spend because you think it’ll make you feel better.
This experience is totally normal. However, overspending comes with long-term implications. You’ll likely experience guilt and may even find yourself in credit card debt if you’re not careful. If you find yourself in this situation, be sure to ask yourself the following questions:
- Are your emotions in check? Identifying your “triggers” will help you find ways to address your stressors – before you go on that spending binge. For example, are you hungry, angry, lonely or even tired?
- Can you do something more productive instead of spending? Perhaps you can run a bath or go workout to relieve stress. Once you’re finished, you may forget about the temptation to blow your budget.
- When was the last time you treated yourself? Confession time: during the first six months of my journey to debt freedom, I became so restrictive that I didn’t allow myself to spend money on anything outside of the necessities. This meant no eating out, no clothes shopping and no Starbucks. After a while, though, I reached a breaking point and ended up going on a major shopping spree. I almost went back into debt. So, make sure you don’t deprive yourself and treat yourself every once in a while. Just remember, you don’t need to spend a huge amount and it’s a good idea to add a line item to your budget that’s earmarked as “fun money”.
Scenario 2: You want to make a big-ticket purchase
For me, the definition of “big ticket” is an item that costs between one to three months of my income. Although what you consider “big ticket” may be different, think of it this way: making a big purchase impacts your finances significantly, so instead of jumping in head first, ask yourself the following questions:
- Do you really need it? A year ago, my husband and I bought a second car that we don’t use as much as we expected. Had we asked this question before making the purchase, perhaps we would have continued to share one car and put that money toward another goal.
- Can you hold off on the purchase? If you are fine without the item now, you can probably refrain from buying it – at least for a while longer. By delaying your purchase, you may find a cheaper alternative or perhaps you can take advantage of seasonal discounts.
- Can you sink before you swim? Using a sinking fund has become a huge game-changer for me. In a nutshell, a sinking fund allows you to anticipate expenses ahead of time and allocate money to these expenses in each paycheck. I’ve got a sinking fund for holiday shopping, vacation and even one for my future kids! For me, these funds remove some of the guesswork from my financial decisions as the money is allocated and available.
Scenario 3: You’re ready to save for future goals but don’t know where to start
You may have already accomplished a major step in financial adulting: moving out of your parents’ house. Now that you’re living on your own, it’s time to consider other goals to create the lifestyle of your dreams. My goal is to become financially independent by age 40 and this includes being able to retire early if I want to.
Whatever your end goal is, the following healthy financial choices will help you get there:
- Create an emergency fund ASAP. A good rule of thumb is to save three to six months of living expenses in your emergency fund. Your fund should be kept separate from your regular checking and savings accounts.
- Pay down debt quickly. If you’ve got student loans and/or credit cards, create a plan to free up your income sooner rather than later. With the debt snowball method, as soon as your smallest debt is paid off, you can use the freed up money to tackle your next debt faster. Alternatively, you could choose the debt avalanche approach where you focus on paying off the highest interest-bearing debt first. While you pay down your debt, stay focused by envisioning a life with zero payments whatsoever.
- Start building wealth. Even if you just graduated college, a great way to invest in your future is to contribute to a 401(k) retirement plan – especially if your employer offers a matching contribution. Financial experts recommend contributing the maximum amount to your 401(k), if possible. The max limit is $18,000 in 2017 and $18,500 in 2018.
- Start a side hustle. Did you know that the average American watches more than 30 hours of TV per week? This is a good time to conduct an honest audit to see how you spend your spare time. If you’ve got oodles of extra hours on your hands, perhaps you can start making money instead of watching TV. My friend currently tutors on the side for five hours a week at a rate of $30/hour. That’s $600 per month or $7,200 annually. She’s using the money to build up a sizeable emergency fund. Not interested in tutoring? There are plenty of other side hustles out there to choose from.
- Bank with an institution that has your back. If you’re fed up with big banks that charge hidden fees, why not consider opening an online bank account like Chime. Chime offers an innovative approach to banking that actually encourages saving and makes it easier for you to sock money away seamlessly, without fees. If you open a Chime bank account and select Automatic Savings, Chime will automatically transfer 10% of every paycheck directly into your savings account. Another awesome Chime benefit is that you can save every time you spend. Chime actually rounds up each transaction made with your Chime card to the nearest dollar and transfers the round-up from your Spending account into your Chime Savings account.
Are you ready to make a healthy financial move?
Remember: with a little discipline, you can stick to your goals and make smart money moves starting right now. And, if you need some help, refer to this resource for inspiration and guidance. Here’s to a financially healthy new year!