4 Easy Ways to Repair Your Finances

These are uncertain times. You, like many other Americans, may be in debt and out of work. If you’re self-employed, you may be worried about your company’s future.

Now is the perfect time to give your finances a tune-up. But, just as you wouldn’t throw out your car’s engine over a dirty air filter, you shouldn’t upend your economic situation entirely. The key to repairing your finances is to start small, keep what works, and build on your momentum. 

Thankfully, there are simple steps you can take to fix up your financial position. Here’s where to start:

Get a better view of your budget

The first step toward improving your financial picture is knowing where you currently stand. Most digital banking services make this easy by logging your transactions. If you use a credit or a Chime debit card, download the app to see your monthly spending at a glance. 

In a dashboard, you should see the amount of money you have in your accounts, as well as pending and completed transactions, upcoming deposits, and more. Look for an analysis tool that breaks down how much you’re spending in common categories, such as restaurants and utilities.

Do the same for your income. If you work a salaried job, this is relatively easy. If not, add up your deposits over the past year, and divide by that number of months to get a monthly average. Ensure your monthly spending is less than your monthly income — ideally, by 10% or more, enabling you to save and invest for retirement. 

If your bank account doesn’t come with digital features, or if the features are not as robust as you would like, third-party apps can help. Many provide personalized recommendations to help you identify areas for improvement or alert you if you’re overspending in a certain category.

Limit your use of credit

Your credit score plays a huge role in your financial well-being. Your credit score is a composite of many factors, including your loan and payment history, income, age of accounts, and more. 

An excellent score — 800 or better — can help you get better rates on loans and qualify for more desirable credit cards. A poor one — anything below 600 — can make it tough to get credit when you find yourself in a pinch.

If you’re in debt, improving your credit score can feel impossible. Half the battle, however, is simply understanding how to utilize credit. The rest is practicing smart habits over the long term. 

You might assume, for example, that the best course of action is to close your credit accounts. However, having no credit can actually hurt your score rather than help it. You’re better off paying off your debt and limiting the amount of credit you take in the future. 

Something you can start doing immediately? Reduce your credit utilization, which measures the total amount of credit you have borrowed versus the total amount that is available to you. Try to keep your credit utilization to 30% or less across all of your lines of credit. This signals to lenders that you’re able to borrow and pay back the money over time, which will eventually improve your score. 

If you are struggling with this ratio and must close a credit line, always choose to keep your oldest credit account open. Your oldest line of credit is the best proof you have that you’re a trustworthy borrower.

Reduce or replace unnecessary bills

It’s easy to say that cutting unnecessary bills will help your financial situation. However, it’s hard to say which bills are actually “unnecessary” especially during these times. 

Take cable television, which tops $100 per month for most U.S. customers. Although you technically do not need cable TV to live, having sources of entertainment is important for your and your family members’ self-care.  

Therefore, instead of cutting out cable entirely, you could opt for a streaming service like Hulu, Netflix, or YouTube TV. All of these platforms cost less than traditional cable while ensuring that you’ll have a little slice of entertainment to get you through the stressors of social distancing. 

Another bill you could cut is your gym membership. You could opt for free workouts, such as calisthenics and running, or get a subscription to a digital service. Often, these services come with challenges and communities to help you stay motivated and accountable, just like a physical gym. “Swap out” options can help you reduce your bills while keeping your quality of life where it’s at.

Build your savings slowly

Once you’ve reduced your monthly spending, you might have a few extra dollars that you can invest in your savings. Whether you’re looking to fluff up your emergency savings or have something specific in mind, like a vacation once the pandemic has passed, any money you put into savings will make life easier down the line.

The key is to start off slowly. If you try to live so austerely that you don’t enjoy yourself, you’ll quickly snap back to your old ways. Do what you can, and remember that the money will add up over time. 

If you want your savings to add up faster, shop around. Many online banks offer interest rates that are three or five times higher than traditional brick-and-mortar banks, which have a lot more overhead costs. 

As your savings balance adds up, one obstacle you’ll face is the temptation to dip into it. For that reason, you may choose to invest your savings for specific goals into an investment account with an early-access penalty, such as an IRA. Government bonds are another solution: Because they come with a specific maturity date, you’ll be less tempted to cash them in early. 

Your financial situation is unique, and so are the steps you need to take to repair it. But getting to a better place with your money doesn’t have to be as daunting as it might seem. Start small, make cuts where you can, and save what’s comfortable for you. That’s all there is to it.