Here’s how to improve your outlook and your financial situation.
- Rising inflation has impacted many people’s finances.
- In a recent survey, many young consumers in particular feel like they’re not in a good place.
For many months, inflation has been wreaking havoc on consumers, forcing them to spend more on everything from gas to groceries to utilities. Not surprisingly, that’s causing a lot of people to have a more negative attitude toward their finances.
This especially holds true for younger Americans. In a recent BMO Harris Bank survey, only 65% of consumers between the ages of 18 and 24 say they feel confident about their financial situations. That’s down from 75% during the last quarter of 2021.
If your personal financial outlook is less than rosy, there are steps you can take to improve your picture. Here are three essential ones to start with.
1. Build a solid emergency fund
If you don’t have money in savings, you may be one unplanned bill away from financial ruin. On the other hand, if you make an effort to sock away money for unforeseen expenses, that alone should buy you more peace of mind. It pays to make building an emergency fund a priority.
At the very least, you should aim to have enough money in the bank to cover three months of essential bills. For better protection, aim for six months’ worth of living expenses.
Even if you decide to stick to the lower end of that range, it’s not a goal you should expect to hit overnight. It will take time to build an emergency fund, and that’s okay. But once you begin to make progress, you should start to feel better about your financial picture.
2. Pay off high-interest debt
It’s hard to feel good about your finances when you’re racking up more and more credit card interest by the day. Rather than dig yourself further into a hole, map out a plan to pay off your high-interest debt. Once you shed it, you’ll have one less expense to worry about.
You may want to consider getting a side job temporarily to come up with the money to chip away at your debt (incidentally, you can also use those earnings to build your emergency fund more quickly). It also pays to look at ways to make your debt more affordable. That could mean doing a balance transfer or consolidating your debt into a lower-cost personal loan.
3. Get started with retirement savings
You may be concerned about not having enough money to live on in the future. Once your emergency fund is solid and you’re free of credit card debt, divert any extra money you have to an IRA or 401(k) plan. Even better: Automate the process so you can stay on track with your long-term savings goals.
As a general rule, it’s smart to set aside 15% of your earnings or more for retirement savings purposes. But don’t panic if you can’t meet that threshold just yet. If you’re young, it means you have many decades ahead of you to build a retirement nest egg, so do your best to fund your IRA or 401(k) for now with the goal of ramping up your savings rate over time.
It’s not surprising to hear so many young Americans lack confidence in their finances, but it’s upsetting nonetheless. If you’re not feeling good about your financial situation, take the above steps to set yourself on a more positive path.
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