Chances are you've got a few financial skeletons in your closet—and they might be haunting you. That can cause a lot of stress and hold you back from living the life you want. Whether it feels like there's never enough money to go around or you're being strangled by debt, there are plenty of money-related frights out there. Here are some of the most common ones, along with ways to prevent your financial life from turning into a horror story.
1. Running Out of Money
Roughly 70% of Americans are stressed about their finances, according to a recent poll conducted by CNBC and Momentive. Running out of money might be a real money fear, especially for folks who are living paycheck to paycheck.
The following tips can help break the cycle:
- Revisit your budget. A budget is simply a plan for managing your income and expenses. If yours needs a reboot, the 50/30/20 rule, zero-based budget and 50/15/5 rule can provide helpful guidelines. Budgeting apps are another option. No matter what method you choose, budgeting can keep your finances from spooking you.
- Plan for non-monthly expenses. Some bills are due at odd times of the year. Biannual insurance premiums or your child's summer camp bill are good examples. Planning ahead for non-monthly expenses can keep your budget intact and prevent financial scares down the road. To do so, divide the total cost by 12 months and set aside the needed amount each month so you can pay from savings when the expense comes due.
- Track your spending. This can hold you accountable to your spending plan and help you spot sneaky expenses that may be cramping your budget. Set aside a few minutes once a week for a quick money check-in. Use this time to review your budget and make adjustments as needed. If you share money with your partner, you may want to invite them into the conversation.
2. Facing High-Interest Debt
Debt that has an interest rate of 8% or higher is usually considered high-interest debt—and it can be a wealth killer if you carry a balance from month to month. The average credit card annual percentage rate (APR) currently exceeds 21%, according to the Federal Reserve. It's dangerously easy to get caught in a debt cycle. Breaking free can strengthen your financial health and improve your credit.
Here are some tips for getting there:
- Take stock of what you owe. The first step is getting clear on your debt situation. Jot down all of your account balances, interest rates and minimum payments. You can find this information by logging in to your online accounts or calling your creditors.
- Choose a debt payoff strategy. There are multiple ways to pay off debt. The debt snowball method prioritizes the account with the lowest balance, while the debt avalanche focuses on paying off your highest-interest debt first. Whichever route you choose, you'll make minimum payments on your other accounts and put as much extra as you can toward the prioritized account. As you pay off each balance, you take the money you were putting toward that account and apply it to the next one on your list.
- Consider debt consolidation. A debt consolidation loan can bring multiple accounts together under one new balance. You'll then have a single monthly payment going forward. You can save money in the long run if your new loan has a lower interest rate than your previous debts. Another option is to move high-interest debt to an introductory 0% APR balance transfer credit card. These cards give you up to 21 months to pay off balances at zero interest. Just be sure to pay the balance before the intro period ends, otherwise you'll be charged the card's standard rate on any remaining amount.
3. Always Having to Borrow Money
A financial surprise can give your budget a good scare. If you don't have cash on hand to cover it, you may have to borrow money from family or friends or accumulate new debt.
Below are some ways to avoid that:
- Build a strong emergency fund. Aim to set aside three to six months' worth of expenses in a high-yield savings account. That can help you manage financial emergencies big and small—and earn interest on your savings.
- Create a budget that includes saving. Choose a monthly savings target that feels right for you, then make it a regular line item on your budget. The 50/30/20 rule and 50/15/5 rule both carve out space for short-term saving.
- Automate your savings. Reaching your target probably won't happen overnight. What matters most is getting into the habit of saving. Setting up automatic transfers to your savings account can help you stay consistent.
The Bottom Line
Financial monsters come in all shapes and sizes, but conquering them may be easier than you think. It begins with facing your financial fears and making a plan for dealing with them. Experian's free credit resources can help make the journey a little easier. Checking your credit score and credit report is a good place to start.