MAINE, USA — Saving money or getting yourself out of debt can be challenging, but there are a few things you can do to give yourself that extra financial cushion. Brenda Pollock is a financial counselor at Evergreen Credit Union. She shared some tips to keep you and your wallet happy.
Q: Brenda, you say that people who are financially fit share specific characteristics. How can you tell if you’re financially fit?
A: "People who practice healthy financial habits are:
Earning enough to cover their weekly and monthly expenses.
- They are debt-free or have a manageable amount of debt.
- Spending money only when they know it won’t cause them to worry about paying bills.
- They have a 3-month living expense emergency savings.
- Invest in themselves so they can retire at a comfortable age.
- Having excellent credit.
- Live within your means. It's the most important healthy financial habit you should work on!"
Q: With the cost of living rising and surging food prices pushing inflation to a 30-year high, can this be a real blow to anyone on a tight budget?
A: "The inflation of 2021 rose by the fastest pace in 40 years. This increase impacts most of us, so we should all be reminded to spend wisely.
Do that by trying to reduce your expenses. Cut out anything that is not necessary. This will free up some cash to allow you to buy the things you and your family truly need.
While there are many tactics you can use to determine spending, one simple way is to use the 50-30-20 rule. This rule recommends that you spend 50% of income on needs, 30% on wants, and 20% on savings and debt."
Q: You mention savings but is that even possible on a tight budget?
A: "If you want to create healthy financial habits, SAVE. Even if it’s a very small amount. This is the first step to being financially healthy. Emergencies like a car breaking down, or medical bills, or you lose your job, these are real life scenarios that happen to all of us. We all need to set some money aside in a separate account and set a goal to save at least $1,000. Every little bit counts. Saving $50 a month will lead to a savings of $600 in one year."
Q: The majority of Americans have debt. Can you have debt and still be financially healthy?
A: "Of course. The key is not having more debt than you can manage. One strategy used by financial institutions to assess whether you have too much debt is to determine your debt-to-income (or DTI) ratio. Your DTI ratio is your total monthly debt payments divided by your gross monthly income.
If your DTI ratio is: It is considered:
• less than 30% optimal
• between 31% - 36% safe
• between 36% - 42% questionable
• greater than 42% at risk
Q: Sometimes, no matter how much effort we put into managing our finances, it's just not enough to get ahead. If this is the case, what should we do?
A: "Ask for help. The representatives at your bank or credit union may be able to offer you assistance. Most have wellness programs or can recommend someone who can help.
Look for a credit counselor who is certified by an accredited organization, like me, through the Credit Union National Association.
Be careful about hiring a debt settlement company to help you deal with your debts. Many companies offering these services are not reputable and may cause you more harm than good."
Q: So it sounds like the key points about developing healthy financial habits take information, practice, and time?
"1. Don't spend more than you earn.
2. Manage your debt.
3. Save for emergencies.
4. Start planning for the future."