How do I improve my financial situation?

To improve your financial situation, first assess where your finances currently stand to get an idea of what areas you should focus on. Then, you should create a budget and stick to it, find ways to cut back on unnecessary spending, build an emergency fund, pay down debt, and save for long-term financial goals.   

Whether the issue is too much debt, not enough income, or reduced spending power due to inflation, there are things you can do to improve your current financial situation. We’ll walk you through the steps below.

How to Improve Your Financial Situation

Assess Your Current Financial Situation

Before you can try to improve your financial situation, you must know where your finances stand. To understand your current financial situation, review things like your income, debt, and spending, to see what needs improvement. Once you know what needs to be improved, you can come up with a plan.

Set Financial Goals

Set goals for what you want to improve about your current finances. Whether it is cutting back on spending, paying off debt, or increasing your savings, setting specific and measurable goals for what you want to change can help you work out a plan to get there. For example, if you want to increase your savings, decide on an amount you want to save and a realistic target date for when you should have it all, based on your income and current expenses.

Create a Budget

Creating a budget allows you to use your income more efficiently, giving you a clear plan for how to allocate limited resources among your expenses and goals. This can also improve your finances by helping you identify areas where you can cut back to free up money for other things, like paying off debt or saving for the future.

One of the most important parts of having a budget is making sure you stick to it. To that end,  you should track your spending, avoid impulse purchases, and review your budget weekly or monthly to make sure you’re not spending more than you earn. You may also want to enlist the help of a friend or family member who is not afraid to call you out on your spending habits.

Reduce Unnecessary Spending

Overspending on non-essential items can make it difficult to afford must-haves. It may also lead to debt accumulation if you are spending more than what you can afford to pay back. To cut back on your spending, review your expenses and identify non-essential items that you can either reduce or eliminate entirely. You can also use a budget app, like the WalletHub app, which can analyze your expenses and recommend things you can do to reduce spending.

Build an Emergency Fund

Being hit with an unexpected expense, such as a major medical bill or car repairs, could put you in a bad financial situation. If you do not have the money to pay for the unexpected cost, you may have to rely on taking on debt.

However, by having an emergency fund, you can reduce the chance of needing to take on debt and prevent yourself from getting into financial trouble. An emergency fund is money you set aside to cover unexpected expenses. Financial experts recommend having three to six months’ worth of expenses in your emergency fund.

Pay Down Debt

Debt can limit how much money you have available to save for the future. It can also significantly affect your credit score if the amount becomes too much for you to manage. To improve your debt situation, you need to first make sure you are current on all your bills by paying any past-due amounts.

Once you are caught up, you can focus extra payments on the debt with the highest interest rate while still making the minimum payments on your other debts. When you have paid that debt off, you can move on to the debt with the next highest interest rate. Paying back your debt allows you to use the money previously allocated for debt payments to increase your savings and improve your overall financial situation. 

Save for the Future

Not having any money saved can make it difficult to plan for future events, such as getting married, having kids, or retiring. That is why creating a plan to increase your savings can improve your financial situation and make you feel more confident about the future. To boost your savings, put money into your savings account every time you get your paycheck, before you pay any of your expenses. This is called the pay-yourself-first method. You can also automate the transfer so you don’t forget to do it every paycheck.

In addition, contributing to a retirement fund allows you to save for your expenses when you are no longer working. You may also want to consider getting an investment account, if you don’t already have one. Investing lets your money work harder for you since you can grow your savings faster compared to keeping your money in a traditional savings account. 

Try to Increase Your Income

When you don’t have enough income, it can be hard to cover your basic needs. But looking for ways to increase your income can help get you out of the financial situation you are in. To increase your income, consider asking your employer for a raise, working overtime, getting a part-time job, or switching to a job with higher pay.

Use a Money-Management App

An app, like the WalletHub app, can analyze your finances and provide steps you can take to improve them. WalletHub, in particular, provides you with your WalletScore, which is a score that determines how financially healthy you are by looking at your spending, your credit, how prepared you are for emergencies, and whether you are on the right track to retire at a reasonable age with sufficient funds. You can use the score as a guideline to see what aspects of your financial life need to be improved, and you can use the feedback WalletHub provides you to come up with a plan.

WalletHub also allows you to choose between multiple different strategies to make a budget so you can pick a method that fits your financial situation. In addition, you can track your spending and get a personalized debt pay off plan.  

Adjust Your Money Mindset

Your money mindset is your set of beliefs about money and how difficult you think it is to obtain funds and find financial opportunities. If you have a negative money mindset, you may feel like it is impossible to get out of the financial situation you are currently in. However, if you try to adopt a more positive outlook, you may be more open to advice from others and opportunities that can improve your situation.

Talk to a Professional

If you have tried everything you can think of and your financial situation has not improved, you may want to talk to a professional. A budget coach or a financial advisor can work with you to develop an effective plan to improve your finances. If you cannot afford their fee, you can look for non-profits, such as the National Foundation for Credit Counseling (NFCC) or the Financial Planning Association (FPA), that can help you for free. 

To learn more, check out WalletHub’s guide on how to organize your finances.