Financial peace of mind starts with good money habits. This is true even if you’re facing money challenges, such as frequently overdrafting your checking account.
“We’re always going to come up against challenges or things we don’t understand about money,” says Brian Ford, head of financial wellness at Truist. “We don’t need to feel overwhelmed or inadequate. We simply need to take one subject at a time and look at it as a challenge to overcome.”
As a first step, embrace the “fresh start” effect. “This is the idea that our past doesn’t completely dictate our future,” Ford says. “We can move on. We can change. We can be better.”
Here are four tips to boost your financial confidence and guide you through your fresh start.
1. Create a monthly budget
Understanding where your money goes gives you better control over it. Just writing down what you spend during the week has been found to improve financial confidence.
Creating a monthly budget to track your expenses and income allows you to see spending patterns. List fixed monthly expenses such as rent, mortgage, insurance, car payment, and utilities. Then list personal wants (like that morning coffee or new outfit) and needs (like groceries and gas).
Use online banking tools that help you categorize fixed costs versus savings, and personal needs versus wants. Spending patterns can show you ways to spend less on small things, so you can save more money (and hopefully avoid overdraft charges).
2. Start an emergency savings account
Think of emergency savings as your financial confidence account. Starting small is OK—even if it’s just $5 a month with a goal of setting aside $1,000. The important thing is getting in the habit of saving something every month.
Continue growing your emergency fund until it’s enough to cover three to six months of living expenses. Want to make it easier to reach your goal? Automatically transfer money to your emergency savings account from your paycheck or another account each month.
Emergency savings can protect you from a sudden loss of income and help pay for unexpected expenses, including car and home repairs, sudden medical costs, and family emergencies.
“It’s going to feel good because you’re going to look at it in a few months from now, or even a year from now, and be like, ‘Hot dang, I’m a saver. I have an account for emergencies,’” Ford says. “And again, that will build confidence.”
3. Develop a strategy to start paying down debt
Debt can weigh on your mind. “When you’re facing debt, it can be so anxiety-producing … for a lot of people it feels like there’s no way out,” says Truist happiness expert Bright Dickson. “You can go through and reduce that debt over time, but it takes a ton of planning and organization.”
Writing down a list of your credit card debts will help you create a strategy for paying them down. You can use the snowball method to focus on paying off the smallest balances first, one by one. Or use the avalanche method to pay off the ones with the highest interest rates first. If you can, make extra payments that let you pay less interest.
Making the monthly minimum payment on each credit card is a must. Being successful depends on avoiding new credit card debt, sticking to a payment strategy, and reminding yourself that reducing debt may do wonders for your confidence.
4. Manage your credit score
By taking steps to improve your credit score, you’ll build confidence now and set yourself up for increased financial success later. If you have dreams of owning a home or starting a business, your credit score will play an important part in what kinds of loans and interest rates you qualify for.
There are several factors that impact your credit score—reducing your debt and paying bills on time can increase it. Requesting a credit report once every 12 months from each of the credit reporting agencies—Experian, Equifax, and TransUnion—allows you to review your credit history and credit score. Dispute any incorrect entries to keep your credit score on track. Listen to our podcast for advice on raising and repairing your credit score.
It can take time to get to a place where you feel on top of your finances. Keep reminding yourself not to lose hope. Your efforts will make a difference.
“Whenever we’re in a situation—especially financially—where we don’t want to be, take ownership of it by following these small steps and making positive habits sustainable,” Ford says. “That’s a big deal.”