Building a strong financial foundation is key to long-term success. At The Family Credit Union, we believe economic stability rests on four essential pillars: Spend, Save, Borrow, Plan.
Spend
The overall goal of the spend pillar is simple: spend less than you earn. To do this, however, requires creating a budget that both accomplishes this goal and is realistic. Budgeting for gas only works if your number is realistic. Make sure it will cover your commute for the entire month.
Follow these simple steps to create a budget that supports your goals and builds financial stability:
- Gather Information: Use bank statements and credit card bills for the past two months to get a better understanding of how much you are spending and saving in a given month.
- Organize the Information: Group expenses by category: housing, groceries, dining out, gas, entertainment, clothing, medication, etc.
- Set a Realistic Spending Goal: While it is admirable to want to be able to save a lot, especially if you have a specific goal in mind, creating a budget that does that on paper does you no good if you aren’t going to be able to meet the spending goals.
- Look for areas of potential savings: Some might jump off the page. Do you have gym membership you use once a month? A streaming service you subscribed to for one show that has since been canceled? Others might require moderating spending in certain areas, like dining out two nights a week instead of five.
- Set a Budget that is Realistic: Budgeting isn’t about cutting out all fun spending or seeing how little you can spend. It’s about creating a realistic spending plan to help you reach your financial goals. If you cut out all the things you love doing, the chances of you actually sticking to the budget long-term drop.
- Pay Your Bills on Time:> While some surprises can pop up, many bills come regularly, be it weekly, annually or somewhere in between. Make sure in your spending plan that you account for when these bills are due so you have enough funds to pay all of them on time.
- Follow Through: While the process of budgeting has its own rewards (knowing how much you are spending and where), the biggest benefits are seen when you stick to the spending plan.
Save
If you spend less than you earn, that leads into the second pillar, saving.
While it sounds simple, there are ways to become more successful at saving.
- Establish a Purpose: What are you saving for? A vacation? An emergency fund? Paying off a debt faster? Regardless, having a clear purpose for your saving makes it easier to hold yourself accountable and stick with your goals.
- Define a Goal and a Timeline: How much do you want to save and by when? In some cases, such as a planned vacation, the timeline might be clear. In other cases, though, the timeline might be there to ensure you are hitting benchmarks on your way to longer term goals.
- Start Small and Gradually Increase Your Target: Starting too large can be daunting. By hitting smaller targets you can build momentum and set yourself on the path to hitting larger ones.
Read more tips, including how best to use savings account tools to reach your goals.
Borrow
Establishing good credit is important. It can help you with everything from getting a credit card to securing a car loan or mortgage.
It’s difficult, however, to build or rebuild good credit if you do not have credit.
That is why it is important to borrow, even if it is just on a credit card that you pay back every month. This can help you improve your credit score to increase your chances of being accepted for or getting better rates on a loan for a larger purchase later.
If you don’t have credit or have poor credit and can’t get a typical credit card, a secured credit card could be a good option. You make a deposit and then that becomes your credit limit. Payments on it are reported to the credit bureaus, allowing you to gradually build your credit to the point where you can get an unsecured card.
The key to borrowing, however, is to do it wisely. Try to pay off your credit cards monthly rather than carrying a balance and don’t take out loans that it will be difficult to pay off. Borrowing the right way can help you achieve your long term financial goals. Borrowing the wrong way will only cause problems long term.
Read more tips about borrowing.
Plan
Having a long term financial plan is important. It can help you achieve your goals and remove one source of stress if life throws you a curveball.
The key is working toward financial freedom. That means things like:
- Having an emergency fund so unexpected expenses or job loss don’t derail your financial security.
- Personalizing your financial goals to focus on things that are important to your life.
- Having insurance to prevent major expenses from derailing your savings.
More than anything, planning is about setting goals to help you achieve the financial future that you desire.
Read more tips about financial planning.
Want Help Achieving Your Financial Goals to Reach Economic Stability?
If you’re looking for guidance on becoming financially healthy, reach out to TFCU. We are happy to help reach economic stability by helping you set credit or savings goals, manage debt, or build a better budget.
