Financially Conservative: Americans carry a staggering amount of debt. According to the Federal Reserve, the average American household owes $137,916 in loans and bills. If you’re one of those households, then you know how critical it is to change your spending habits to get out from under all that debt. But where should you start? Here are four areas where you can start changing your spending habits to be more conservative so that you can reign in debt and get a hold of your financial future.
Avoid getting further into debt
If you’re already in debt, then you know how much it can weigh on your mind every day. There’s never a better time than today to decide you’ll become debt-free as quickly as possible. Once you make that commitment, you’ll need to change your spending habits to be more conservative so that you don’t add on additional debt that makes it more challenging to get out from under your credit cards or loans.
Next, you’ll need to make a plan for how you’ll get rid of your outstanding debt. Learning how to consolidate credit card debt can help you develop an actionable plan to efficiently streamline paying off your old debt. Still, you won’t succeed if you can’t stop overspending. Know that your financial future is worth the work and commit to never spending one more dollar over what you make now.
Have as healthy an emergency fund as you can
One of the most important steps on your financial journey is to set up an emergency fund. Many people don’t understand how important it is to have one, but it’s more of a necessity than you may think. An emergency fund provides you with necessary funds for unexpected events, like losing your job or sudden medical bills. The amount you should have in your emergency savings depends on your comfort level, but it’s always best to save more than you plan to need.
Start with a goal of having $1,000 in your emergency fund. After that, shoot for anywhere from three to six months or even a year’s worth of bills set aside. Once you have more than one year’s worth, consider diversifying the rest into other savings accounts that are still somewhat accessible but earn a better return the longer they sit untouched like CDs or retirement accounts.
Don’t make it easy to impulse buy
Impulse buying is the term used for making purchases that weren’t pre-planned. Typically, impulse purchases are made when there’s an unexpected sale or as retail therapy (shopping to cheer ourselves up during a bad time). Here and there, impulse purchases aren’t harmful, but they can quickly create a slippery slope where your spending gets out of control due to a lack of discipline.
To avoid developing a habit of impulse buying, you’ll need to make it more difficult to spend money quickly. Remove your stored payment methods on e-commerce sites, log out of accounts, and put your credit cards in a box that’s stored in a room you don’t use often. Setting up these roadblocks to prevent you from impulse buying will take you out of the situation where you’re overspending and give you some space to reassess whether your upcoming purchase is something you really need or want.
Keep your day job
The idea of quitting your day job might sound tempting, but it can be pretty risky. If you don’t have multiple income streams set up before leaving your current job, you could quickly find yourself in a stressful financial situation. Whether you’re hunting for a better job or are thinking about launching your own business, stay put at your current job. At the same time, create new opportunities to earn enough money to replace your current income so that you’ll be able to transition out of your current role easily without wondering how you’ll make ends meet.
The bottom line
Being conservative with your finances will help you maintain financial freedom, save up for retirement, and improve your credit score. If you need help, use these four areas as a place to focus your effort on becoming financially stable and permanently debt-free.