Your brain and body crave sleep, yet you’re wide awake, tossing and turning in bed instead. You can’t sleep because countless thoughts run through your mind, making you feel stressed and anxious. They’re different things, but many likely have a common denominator: your lack of finances.
Indeed, personal finances are among the most common reasons Americans feel financial stress. They also admit to being anxious and uncertain about handling money matters.
Such emotions and thoughts can affect your health. So, the sooner you learn how to start solving the money problem of not having enough of it, the better. And it all begins with reviewing and improving your saving and spending habits.
Read on, as we’ve shared tips to help you get started on improving your finances.
Determine Your Net Income
Your net income is your take-home pay (your total wage minus deductions). When creating a budget, use this instead of your gross income, which is your pre-tax pay. If you focus on your gross income, you could overspend because you may think you have more money than you do.
Taxes are the primary deductions from your income. Another is an employer-sponsored program you’ve enrolled in, such as health insurance or a retirement plan like a 401(k) or a 403(b).
Track Where Your Money Goes
Now that you know how much money comes in, the next step is to determine where it goes. This allows you to categorize and separate necessary expenses from discretionary spending. You can use a computer program (e.g., Microsoft Excel) or a budgeting mobile app to help with this.
Necessary Expenses
Necessary expenses are essential monthly bills or purchases you need to live or are your legal responsibilities. Examples of such expenditures are:
- Mortgage or rent payment
- Utilities, including electricity, water, and gas
- Essential groceries, such as food and personal hygiene products
- Insurance premiums
- Transportation costs
- Health care and medical expenses
- Necessary debt payments for student loans, auto loans, and credit cards
It will also help to categorize your expenditures based on whether they are variable or fixed. Variable expenses change monthly, such as your minimum credit card payment amounts. Fixed expenses typically don’t change (e.g., your monthly mortgage or rent payments).
Discretionary Expenses
Discretionary expenses aren’t necessary but can help make your life more enjoyable. Some examples include:
- Food away from home
- Personal hygiene and grooming services (e.g., haircuts and salon visits)
- Entertainment like online streaming, cable, and movies
- Holiday expenses
Most discretionary expenses are typically variable or change monthly. But others, like online streaming services, may have fixed monthly fees.
See Where You Can Cut Costs
The money problem of deficiency is often due to spending more than what one’s net income can accommodate. This is why it’s imperative to know where your money goes so you can see which areas you can cut costs on.
Your variable discretionary expenses are the best place to start.
Example 1: Food Away From Home
Food away from home includes restaurant meals, takeaways, and deliveries. The typical U.S. household spends thousands of dollars on this yearly. For example, the average amount spent on this was $3,639 in 2022.
Food is a necessary expense, but not if you must pay someone else to prepare and bring it to you. This is more of a convenience and luxury. For this reason, limiting your food away from home provides an opportunity to cut costs.
Example 2: Entertainment
Entertainment-related spending includes cable TV, video streaming, and music streaming services. If you have all three, you may want to cut ties with at least one to trim your expenses. If you can’t do that, consider downgrading them to a lower-tier, lower-cost package.
Example 3: Electricity Bills
While electricity is also essential, you may be spending more on it than necessary due to high bills. You can lower your electricity bills by turning off lights that are not in use and unplugging items on standby mode. Another trick is to clean and maintain your heating, ventilation, and air conditioning system.
Start an Emergency Fund
According to a recent survey, not even half of Americans have enough emergency savings. About one in five even have no savings at all. Only 48% have enough stowed away to help them cover expenses for at least three months.
Without an emergency fund, you’re at risk if something happens that can affect your finances. An example is an unprecedented job lay-off or a medical emergency. Not having a safety net to fall back on can force you to take on loans with exorbitant interest rates.
So, if you haven’t started saving for emergencies, it’s time to open a savings account for them ASAP. Your first goal should be to put in an amount equivalent to at least three months’ worth of necessary expenses. Once you reach this, aim for six months, then 12 months.
You should also consider automating bank transfers to your emergency savings account. For instance, whenever you get paid at work or on specific dates (e.g., every 16th and 30th or 31st of the month). This can help you stay on top of your goal of growing your emergency funds.
Deal With Your Credit Card Debt
Financial problems also often stem from poor debt management, such as paying only the minimum required amount on credit cards. While this keeps your accounts active and in good standing, it costs you more since interest charges add up. New charges on your accounts then go on top of your unpaid balances, increasing your overall debt.
The longer that goes on, the higher your monthly minimum required payments will be. Eventually, you may find this no longer affordable or within your budget.
Worse, your card issuer can charge hefty penalties if you can’t pay even the minimum required. This makes things even more expensive, exacerbating the money problem of deficiency.
Solution 1: Pay Balances in Full
As much as possible, always pay your entire balance to avoid interest charges.
If you can’t, you should at least make the highest payment you can and not only the minimum required. This way, your card issuer will only apply the interest rate on a smaller balance.
Solution 2: Prioritize High-Interest Accounts
If you have multiple credit card accounts, consider prioritizing the one with the highest interest charges.
For example, one of your cards has a 3% interest rate while the other has a 6% interest rate. In this case, you may want to clear off your debt on the account with the 6% rate first. Then, once you’ve paid it off, avoid using it for future purchases.
While clearing your balance on the higher-interest card, don’t forget to make at least the minimum payments required on the others. Otherwise, your credit score can suffer.
Take Advantage of Tax-Incentivized Shopping
Many states and local governments run annual sales tax holidays, tax-free weekends, or tax-free events. During these days, they remove the sales tax on eligible items.
States and cities typically run such programs in preparation for the back-to-school period. For example, you can buy notebooks, pens, and calculators worth $50 or less without paying the sales tax during a tax free weekend in Florida. The same applies to personal computers and accessories worth $1,500 or less.
Some states and cities also have tax-free events to help residents buy items for weather preparedness. An example is the Texas 2024 Emergency Preparation Supplies Sales Tax Holiday. Generators ($3,000 or less), emergency ladders ($300 or less), and items like first aid kits ($75 or under) are sales tax exempt.
If you live in one of the states and cities with such programs, take advantage of them. They can help you save or increase the buying power of your money.
Think Many Times Before You Shop
Whether you’re out grocery shopping or at home looking at online shops, pause for a minute before adding something to your cart. Then, ask yourself if it’s an essential purchase or for your pleasure or convenience. Consider whether you can live without it and if it will help you reach your financial goals.
Suppose you need a new laptop for work because your previous one broke and is no longer fixable. So, you shop around and find one with all the qualities that satisfy your needs for $500. However, you see another model with better specs, such as a higher RAM and disk storage, for $700.
Before going for the more expensive option, consider if the extra $200 is a helpful expense. It could be if the higher RAM and disk storage will help you be more productive and get more work done. But if you want to buy it for a better gaming experience, then it’s an unnecessary expense.
Increase Your Income
If you’ve done all the above but are still stuck in a financial pinch, the problem may be your income. It may simply not cover your needs, much less your wants.
Fortunately, there are ways to make more money, including the following tactics.
Ask for a Raise
If you’ve been an employee of the same company for a few years, now is an excellent time to review your job contract. Compare the duties and responsibilities stated there with what your employer asks you to do. If you’re doing more for them now, you should consider asking for a raise.
You should also monitor the average salary for your job title in your specific industry. Negotiate a raise with your employer if it’s higher than what they pay you.
You may have also acquired more skills that could be useful to your employer. Use these to your advantage when asking for a raise.
Find a Job With Better Compensation
If you can’t get a raise from your current employer, a new one may be willing to compensate you better.
Better compensation doesn’t always equate to a much higher salary. It may not be far more than your old one, but at the very least, your new job contract should have perks for necessary expenses. For example, some companies offer the following as part of their employee benefits package:
- Health care coverage
- Life insurance
- Food or grocery allowance
- Transportation or gas allowance
- Internet and phone service allowance
Even if your new salary won’t be much higher than the old one, you’ll still earn more because of its perks. You’ll have fewer expenses because your new employer will help cover some. As a result, you’ll also get to enjoy more potential savings.
Look for a Side Gig
Side gigs are excellent ways to increase income, so it’s no wonder about 50% of folks in the U.S. have one. It may also surprise you that some with a side hustle already make at least $100,000 yearly.
You can find side gigs online or in your community, many of which are part-time jobs or on a freelance basis. Depending on your schedule, you may be able to work a few extra hours every night or every weekend.
Regardless of which side hustle you pick, determine what you want to do with the extra income you’ll make.
Do you need the extra money to help pay off your debts? If so, ensure you make those payments as soon as you receive your pay.
Will you use your side gig pay to boost your emergency funds? If so, ask your client if they can deposit it directly into your emergency savings account.
As a final reminder, take the time to review your tax responsibilities before getting a side gig. Remember, you must report any income you earn from the gig economy worth at least $400 on your tax return. Failure to do so can result in heavy penalties from the IRS.
Start Solving the Money Problem of Being Deficient ASAP
Solving the money problem of insufficient funds can help you feel less stressed and anxious about your finances. You may even sleep better once you have fewer financial worries.
So, as early as now, review your finances, starting with your net income and expenses. Then, align your spending and saving habits with your means. Don’t forget about tax incentives, asking for a raise, or getting a side gig.
All those can help bring you closer to your financial goals.
For more practical tips like this, browse our other money-related guides!