If you can’t seem to get out of a financial rut, you may feel discouraged at times. You may see your friends moving forward with their lives - getting married, buying homes and taking vacations. And you may ask yourself, why can’t I enjoy the same pleasures? Understand that you’re not alone and that there are also certain moves that can better your finances. Before you can get out of a financial rut, you have to identify possible causes and then move forward.
1. You Don’t save
Saving can help you get out of a financial rut. I know this can be difficult if you don’t have a lot of extra money, but in order to reach some of your financial goals, you have to learn how to pay yourself first. For example, maybe you earn enough to afford a mortgage payment, but you don’t have money for a down payment. To come up with a down payment, you need a savings plan, and this often calls for sacrifices and cut backs.
2. You Don’t Earn Enough
Living paycheck to paycheck can certainly contribute to a financial rut. You can’t get on top if you’re constantly in the hole. You can ask your boss for a raise or look for higher-paying jobs, but nothing’s really guaranteed. Getting out of a financial rut may require doing your own thing on the side. Maybe you can pick up part-time work or start your own part-time business. Since your day job covers your bills, your part-time income can build your savings and take care of extra expenses.
3. Learned Behavior
If your parents didn’t know how to manage money, they may teach you the same bad habits. To improve your finances, you have to recognize the mistakes your parents made, and then learn how to manage money yourself. And the good news is that there’s plenty of helpful advice available - you just have to look.
4. Too Much of a Social Life
Let’s be honest for one minute, how much do you spend on entertainment and recreation each week? Do the math and you may discover the reason you’re in a financial rut. Not that you should stay home and give up your social life, but the things you do in your spare time shouldn’t leave you broke. And if they do, it’s time for a budget checkup.
5. You Don’t Know How to Manage Your Credit
If you get a credit card and immediately think of the things you’re going to buy, you might end up in trouble. It only takes a short amount of time to max out a credit card, but it can take years to pay it back. Depending on how much you owe, credit card payments may take a chunk of your disposable income, leaving you in a financial rut.
6. Living above Your Means
This goes far beyond spending too much on entertainment or shopping too much. Take a look at your big expenses, such as your rent/mortgage or car payment. Ideally, housing should not exceed 28% of your gross income, and transportation should not exceed 20% of your gross income. If you’re spending way more in both areas, there’s a good chance you’re living above your means.
7. You Don’t Have a Plan
If you’re in a financial rut, you can’t just hope for the best. There is no magic wand to generate income or clean up your finances. This takes action and a good plan. For example, starting with your next paycheck, maybe you can consistently put money in savings. And with next month’s credit card statement, maybe you can pay more than your minimum.
Don’t think that you can’t get out of a rut. These moves are the first steps to gaining control of your money. And with better control, you’re in a better position to reach long-term financial goals.
How did you manage to get out of a financial rut?