Northwestern Mutual recently reported what by many accounts appears to be good news on the financial front for average Americans.
The company’s 2019 Planning & Progress Study, which focuses on Americans’ attitudes about money and financial decision-making, as well as their opinions about the “attainability of the American dream,” found that 71% of Americans feel financially secure today versus 47% when the study was first conducted a decade ago.
Those figures represent a deep change in the attitudes and outlook of Americans since 2009 when the Great Recession ended, according to the study’s authors.
But what if you’re one of the people who still doesn’t feel financially secure and isn’t experiencing the current wave of optimism and prosperity?
What can be done to change that reality and help establish financial security — or at least set you on the path toward achieving that goal? We asked financial experts to share some of their top tips and suggestions.
Tip 1: Put a Practical Budget in Place
Your first step toward achieving financial security is to establish a monthly budget that you’ll be able to live with, said Brian Walsh, manager of financial planning at SoFi.
“By creating a plan that you can stick to, you’ll feel more confident and be better able to save for the future,” explained Walsh. “We recommend the 50/30/20 rule for budgeting. You should be spending 50% on essential expenses, 30% on discretionary expenses, and allocating 20% towards your (savings) goals.”
Tip 2: Create an Emergency Fund
Once you’ve developed a manageable budget, your next step should be establishing a savings account that can be used for emergencies, SoFi’s Walsh said.
“Having enough cash on hand to cover unexpected expenses is one of the quickest ways to reduce financial stress and feel more secure,” he explained. “Conventional financial wisdom suggests having about three to six months of your living expenses saved for an emergency. Sometimes that number scares people, so start with at least one-month worth of expenses. This money should be readily accessible should anything happen.”
Personal finance experts recommend putting about 10% of your monthly income into such an account, adds Katie Ross, education and development manager for American Consumer Credit Counseling (ACCC).
“If money is tight and you aren’t in a position to put the recommended 10% of your net income into savings, then start small. Even $10 or $20 a month will add up after a while,” Ross said.
It’s also a good idea to look for a high-interest account for your emergency fund, which can help you accumulate money more quickly.
Online savings accounts often offer higher interest than brick-and-mortar banks, with rates ranging from 2.15% to as much as 2.52%. Some of the top high-yield choices, according to Bankrate, include Marcus by Goldman Sachs, State Farm Bank and TIAA Bank.
Tip 3: Consolidate Debt
If you’re working toward eliminating debt but have those debts spread out amongst a variety of high-interest loans or credit cards, consider debt consolidation.
Consolidating high-interest rate accounts via a single personal loan, which often allows you to lock in a lower fixed interest rate, can save you money over the course of the loan, said Walsh.
Want to further speed up debt reduction (or savings accumulation for that matter)? Take a look at your belongings and identify items you’re willing to get rid of and begin selling them to earn some extra cash, suggests Deacon Hayes, founder of WellKeptWallet.com.
“Several years ago, my wife and I came to the realization that our finances were a wreck and we definitely did not feel financially secure, said Hayes. “There are several steps we took to turn our finances around. We sold tons of our personal belongings and assets. From our brand-new car to lots of other household items, you name it, we sold it and used the money to pay off debt. You can do the same thing to reduce your debt and become more financially free.”
Tip 4: Eliminate Emotional Spending
Emotional spending is the money you fritter away on your wants and desires rather than your needs. In other words, it’s the type of spending that’s not typically budgeted and can get you into financial trouble.
“Whenever you spend money, ask yourself whether you want it or you need it and you will get a clear answer,” explained Rishit Shah, who runs the online financial education platform Tally School.
The main goal, said Shah, is to reduce spending on wants because they’re almost always liabilities that increase your bills over the long term.
To help with this effort, Chris Smith, founder of the personal finance site I Am Net Worthy, suggests allocating a specific amount of money each month for limited discretionary spending, and don’t go beyond that amount.
“After separating your bills, savings and other additional costs, make sure to have a specific amount of spending money that you allow yourself to use on things you’d like for your personal preference,” Smith said.
Tip 5: Find Ways to Increase Your Income
To speed up the financial overhaul in their household Hayes of WellKeptWallet.com, took a second job to bring in extra money and pay off debt.
“While delivering pizzas wasn’t the most glamorous job, it gave us the extra money we needed to reach our goal of becoming financially secure,” Hayes said.
Are you a good writer, photographer or graphic designer? Perhaps pick up some freelance gigs on the side to boost income. These are just a few examples. Identify your skills and use them to bring in extra cash through a side hustle.
“Focus on how you can increase your earnings and you’ll become financially secure faster,” said Shah.
Tip 6: Start Your Retirement Planning
If your employer offers a 401(k) match and you aren’t contributing to your retirement account, that’s free money you’re missing out on, ACCC’s Ross said.
“Many Americans do not feel prepared for retirement, but contributing to a 401(k) is an easy way to get started,” she explained. “If your employer doesn’t have a 401(k) plan, consider opening a Roth IRA and putting away a little money each month.”
Even if retirement is still decades away, now is the time to start contributing to a retirement savings account so that your money has time to grow. Creating such a fund will help establish long-term financial security, added Ross.
Tip 7: Stay on Track by Setting Goals
Finally, to keep yourself on the right path, identify annual financial goals, including savings targets, that will help you stay motivated. But make sure the goals you set are reasonable based on calculations you’ve made, said Walsh.
“Use your successes to fuel further successes,” Walsh added, but also recognize that, at times, unexpected expenses may pop up that are out of your control.
“When that happens, don’t beat yourself up,” he said. “Accept them as a normal part of life and be glad they’ve come up after you’ve created an emergency savings account to address them.
The post 7 Tips to Achieve Financial Security appeared first on The Simple Dollar.
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