How to Put More Money Back in Your Pocket
Updated: Mar 18, 2020
Step 1: Budgeting
So I'm sure you've considered the benefits of budgeting before, but we'd highly recommend you give our strategy a try. From planning for an emergency, to preventing you from spending money that you don't have, budgets can help keep you on track.
Think of the last time you had an emergency. Did you have enough money saved away to be able to handle it without putting more debt on your credit cards? If the answer is "no", it might be a good time to revisit the idea of a creating a budget.
The first part of building a budget is looking at your expenses over the last few months and compiling a list of your personal fixed and variable expenses. This will help you to figure out where you could be "leaky", in other words, areas where you might be spending more money than you thought you were.
Below is a list of examples of fixed and variable expenses:
Fixed: the amount doesn't change each month
Variable: the amount can be different each month
Hair care and/or personal grooming
These examples aren't comprehensive lists of all of your expenses, but they should give you a good idea of what to look for when building a budget.
The next step to building a sustainable budget is figuring out what kind of format you want to use. We recommend choosing one of these two basic formats:
The first is the 50/30/20, which means you spend 50% of your money on your needs ( mostly fixed plus some variable expenses), 30% on your wants (other less vital variable expenses such as new clothes/shoes, hair care, etc.), and 20% gets put into savings. This can be a good format if you make enough money to take care of your basic needs and are trying to save toward a larger goal (i.e. buying a house, car, saving for retirement).
Another option is the income-based plan. This is most useful for those who are living paycheck to paycheck. First, you calculate your total income. Then, you calculate your expenses. Lastly, you'll want to set your savings and debt-payoff goals. The most important part of this plan is to record all of your spending and track your progress. You might be putting different amounts into savings each month, depending on your variable expenses. Some months you may not be able to put any money into savings, and that's okay too. Just remember to keep track so that you can make up for it at some point in the future.
One of the most important things to remember throughout this process is to always build "fun" into your budget. Setting aside even the smallest amount each month to do something fun with the people you love can go a long way to ensuring that you continue to experience happiness, while also focusing on being more financially responsible. We're all for reducing your spending, but don't sacrifice the things you love the most!
Step 2: Plan for Emergencies
Now that you've built your budget, how do things look? Do you feel comfortable starting to plan for emergencies?
Creating the plan
The first step of planning for emergencies is setting a monthly savings goal, which you already did in the last section, so you can check that one off your list!
Keep the change
There's a number of apps out there that keep the change from any transaction you make with your debit card and deposit it into a savings account. You'd be surprised how quickly all of that can add up. Here are a couple apps to try out that can help you save:
If there's no money leftover to put into your savings, try to cut expenses where you can. This can mean anything from getting a roommate to help pay for rent, to cooking at home and buying generic brands at the grocery store. Do you really need to be paying for Netflix, Hulu, Amazon Prime, AND Disney+? Maybe giving up a streaming service or 2 for a short time would be a good way to build up your savings. The key is to find the ways that work best for you.
Get a side hustle
Another idea to help make some extra cash is to get a side hustle. This can range from becoming an Uber/Lyft driver, to becoming a personal shopper, to doing odd-jobs for your neighbors like mowing lawns, cleaning, cooking, etc. One thing to keep in mind with this specific option is that if you are receiving benefits, you've got to be careful that you don't go over your limit of hours/income.
There are plenty of other creative ideas out there to help you save up money in case of an emergency, hopefully the ones we listed will help you get the ball rolling.
When you need money fast
Things happen, and there's probably going to be a time in your life when something comes up and you don't have enough money saved away to cover the expenses. There are a few different approaches you can take in this instance, depending on the specific need:
The first thing to keep in mind is that you should avoid payday loans if you can. The interest rate on these loans can be up to 400%, and overall, they end up not being worth all the trouble (and additional cost) that they bring.
If you have a good relationship with your employer, one option to try is to ask for an advance on your paycheck. The response your employer will have greatly depends on how much they trust you as a worker. So its always a good idea to try to create and maintain a good relationship with your boss, in case you have to ask for an advance at some point.
If the last step isn't possible, or you need more money than just an advance in pay, another option is to ask your friends or family if they can help out. It's never a super comfortable position to be in. Which is why if you do ask them, its a good idea to either trade services for the money (mow their lawn, clean their house/car, etc.) or agree to a payment plan, in order to be able to pay them back.
Another option for getting some extra cash in a crunch is to try and secure a payday alternative loan. Certain credit unions will offer these as a way to avoid aggressive payday loans. The only catch is that you usually have to be a member of the credit union in question for at least a month before applying for a loan. Here are a few of the organizations that offer these types of loans:
- Qualstar Credit Union (No minimum credit score)
- Seattle Credit Union
- Harborstone Credit Union
- Alaska Federal Credit Union (Military)
- Any National Credit Union Association (NCUA) credit union
If you can think of any other ways to make sure that you're covered in case of an emergency, drop your ideas in the comments below.
Step 3: Building Credit
Now that we've gone through some basics of budgeting we're going to discuss ways to build your credit. But what do you do if you have bad credit?
Open An Account
The first thing we're going to tackle is where you can open a bank account, even with bad credit. What you want to keep in mind when applying for a new bank account is to always learn as much as you can about the bank in question before opening an account. Here are a few different banks that you can apply to with a less-than-ideal credit score:
Capital One 360 (Online)
BBVA Compass (Online)
Chime (Online, no credit check at all)
Greendot (Available at Walmart)
Any credit union that you are eligible to join
Improve Your Credit Score
The second part of dealing with bad credit is taking steps to improve your credit score. There are multiple ways that you can work to raise your credit score, some options include; requesting a credit report from Equifax, Experian, & TransUnion at www.annualcreditreport.com and disputing errors, paying down your debts with the highest interest rates first, reducing the balances on your credit cards to less than 30% of the limits, paying twice a month on cards with large balances - even if you pay the whole balance off at the end of the month, asking to increase your credit limit on your credit cards, opening a new account (but be careful because opening multiple accounts at once is not good for your credit), negotiating a debt collection settlement , becoming an authorized user on someone else's credit card.
Here is an example of how one person improved their credit score by over 150 points!
In March 2016 they received a free copy of their credit report at www.annualcreditreport.com , their credit score was 530.
In October 2016 they declared bankruptcy. Their student loans and court debt were taken out of default.
They made arrangements on their court debt and began making payments.
Then they applied for a 12-month credit builder loan at Express Credit Union, starting with $250.
They paid $45 to setup a secured credit card with Capital One Bank, receiving a $400 line of credit.
Every 6 months, they asked for an increase in credit limits.
They paid off all their court debt.
After 2 years with the Capital One Bank credit card, they applied for a 2nd card and received a $15,000 credit limit.
In February 2019, they were approved for a $15,000 car loan with a 5% interest rate, and their credit score was above 700!
Practicing patience and paying on time made all the difference in the world!
There you have it, the 3 steps to financial stability. This post is written in conjunction with the class Rental Magic, check out our blog post that covers the rest of curriculum, How to Rent a Place: From Start to Finish.
Also, please share any tips or tricks that you practice, which could help others in their journey toward financial stability!