So, putting student loans and mortgages aside, consumer debt is caused by purchasing things you can’t otherwise afford. And, in doing so, you end up paying more than the item was initially worth, and in some cases, getting stuck in the debilitating effect of accumulating interest. It’s not uncommon for people with credit card debt to repay more in interest than the amount initially borrowed. (Yikes!)
I have nothing against credit cards. Personally, I use them for all purchases I make, because of the cash-back perks they offer. However, I’ve never carried a balance on a credit card, and instead treat it like a debit card—I only get to spend what I have.
Though some financial experts disagree (Dave Ramsey says to cut up all of your credit cards and pay cash for everything so you feel the money leaving your wallet), I think credit cards are financially beneficial if you are 100% sure you will be able to pay the balance in full each month.
And, yes, it’s quite easy to justify over-spending with “Oh, I’ll find a way to pay this off / I think I’ll be getting a nice bonus check / I’ll just save more next month,” etc. But here’s the thing: most people knee-deep in credit card debt did not intend to get there. Entering into debt is a slippery slope that can spiral out of control quickly.
The point here is to live within our means and avoid consumer debt at all costs. If you’re not able to afford a discretionary purchase, that’s likely a sign you shouldn’t be making it. Credit cards may allow living above our means in the short term… but at a much greater cost down the road.
6. Pay off all debt
Okay, so avoiding debt is key! But if you already have it (and most American adults do 😔), the next step, of course, is to pay it off.
I mentioned I’ve never had a car loan or credit card debt. But I did have a student loan from grad school, which I paid back within a year of graduating.
Nothing fancy, I wasn’t making a giant salary at the time, but I had been accustomed to living on a budget as a student, so just stayed on it a bit longer in order to get my student debt out of the way. Even though I could have made small payments for 10 years, in paying it off quickly I saved thousands of dollars in interest over the lifetime of the loan. (And, for anyone wondering, not having that “good debt” longer didn’t harm my credit score—it helped it.)
I realize this is a bit of an unusual experience with debt repayment—but I share it to bring up the point that just because you’re required to make a certain minimum monthly payment doesn’t mean that’s all you can pay. It’s generally most beneficial to pay off debt as early as you’re able.
For more strategies on this, I’ll refer to Dave Ramsey—the guru of getting out of debt. He uses the “Debt Snowball Method” to prioritize debt repayment and has helped millions of people become debt-free and improve their financial health (yay!).
7. Invest (early!) in your retirement
As a millennial whose early- to mid-20s were spent as an AmeriCorps volunteer, grad student, and non-profit employee, it was pretty annoying to have my father aggressively reminding me to save money for retirement. Besides the fact that my early career was not particularly lucrative, most people starting their careers and financial independence are just trying to get our sea legs with that—we’re not ready to start thinking about retirement 40 years early.
But, the earlier you can start investing in retirement accounts, the better. It’s more helpful to invest smaller amounts of money sooner than it is to invest larger amounts later. That’s the “time value of money” good ol’ dad was always referring to!
There are a few different types of retirement accounts, each of which has different regulations and tax implications. Here’s an overview of the different types of retirement plans, and how to choose the best account(s) for your needs.
It’s a good idea, no matter how far away you think you are from retirement, to get a sense of what you’d need to save to live comfortably when you’re no longer working. This Retirement Calculator allows you to play around with numbers to get a sense of what you’d need to save monthly, what age you could retire at, etc.
Again, the more you can save as early as possible, the more that money will grow for you before retirement—which means you’ll actually be contributing less overall than you’d need to if you didn’t start saving until later.
8. Reduce or eliminate unnecessary expenses
Ah, this seems so simple, but it’s worth saying: One of the easiest ways to create more space in your monthly budget is to reduce or eliminate unnecessary expenses. Small, seemingly negligible expenses do add up over time and scale.
Some of the questions my husband and I have asked ourselves: Do we need all these different streaming platforms (Netflix, Hulu, Amazon Prime, YouTube Premium, etc.) or could we get rid of some? Do we really enjoy fancy dining that much, or could we stick to more casual, affordable restaurants for date nights? Are we actually using our yoga/meditation apps, or nah?
Some other common questions that might apply: Do you definitely need your nails/hair/etc. done professionally, or could you do them yourself until you reach your financial goal? Are you using your gym membership for what it’s worth, or could you get just as much out of at-home workouts? Do you have a spending plan for new clothing or those random Target shopping trips?
I really don’t believe in depriving ourselves of little luxuries we enjoy (more on that in the next two items!), but sometimes we have recurring expenses we kind of forgot about that, upon closer review, we don’t really use / need / or find much value in. And those are some simple ways to free up cash to put to other uses.
Here are 17 ways to save money by shopping smart, bundling services, canceling subscriptions, and more.
9. Get creative about income
Sometimes, our income minus our needs and wants doesn’t quite work out. The options here are to reduce expenses (whether fixed expenses like housing payments, memberships, etc. or variable discretionary expenses, like how much we choose to spend on new clothing or dining out)… or to increase income.
Reducing expenses is often a bit easier, especially if you have some existing unnecessary discretionary spending you could cut out, and/or if you work a job that doesn’t have variable income (i.e. you make a certain salary, and that’s that).
However, sometimes we really want (or perhaps need) those extra line items in the budget and it’s necessary to increase income to get there.
Even if you have a full-time job that you can’t directly increase your income from, there are other ways to make additional money on the side. Here’s a helpful list of 25 ways to make money online and offline. I also share resources for starting your own health coaching or wellness business (if that’s your thing), and over on Five Design Co. (my web design company), I share more tips and resources for growing online businesses—both side hustles and full-time gigs—in other industries as well.
Often, people assume their income is fixed (“I make what my job pays me, nothing I can do about that”). However, there are many ways to get creative and add additional income streams to your household if you’d like.
10. Cultivate a healthy money mindset
One of the most significant lessons I’ve personally learned about money is to cultivate a healthy money mindset.
Many people I know, including myself, were raised with or somehow developed unhealthy money mindsets—whether that’s a deficit mindset that there’s never enough (and therefore spending is innately a bad thing), or it’s an overly optimistic “everything will work out” mindset that leads to irresponsible spending and a small mountain of debt. Though these are opposite ends of the spectrum, they’re both unhealthy mindsets to frame financial management.
First, money and wealth are not fixed—there is much that can affect and change them over time. How you begin, or where you’re at now is not necessarily how you end. Some people grow up in poverty and later become multi-millionaires. Some people are born into wealth, make bad investments and end up broke. Those are extreme examples, but most of us do have many different ways of influencing our income and expenses, and it’s helpful to keep that in mind, rather than assuming that things must always be the way they currently are.
And secondly, we chatted through this in the section on debt, but trusting “it will all work out—I’m not sure how, but I have faith” is a lovely sentiment… but doesn’t tend to work out too well as a financial strategy.
A healthy money mindset involves respecting money: recognizing its power, its benefits, its risks, the responsibilities you have regarding it, etc. Yet that does not mean revering it (obsessing over wealth accumulation), nor fearing it (feeling guilty for earning or spending).
Over time, I’ve found that it’s possible to be financially responsible (e.g. stick to a budget, save, contribute to retirement plans) and also develop the flexibility to spend guilt-free on things you enjoy. Of course, the specifics of this will look different for different people with different income and expense levels, but the point is:
A healthy money mindset is a balance of responsibility & enjoyment.
With a healthy money mindset and an understanding of your household finances and financial goals, you can create a clear plan that allows the best combination of living well both now and in the future.
10 Simple Ways to Improve Your Financial Health // Four Wellness Co. is written by Melissa Norton for fourwellness.co