There are still a lot of financial improvements that need to be made by American households. Although the economy is showing signs of recovery, a lot of consumers are not too aggressive in making improvements in their financial life. That is because they lost too much after the Great Recession that making plans to boost their personal finances is not that easy to do.
But after a recent study from Gallup.com, building up your financial security might be more possible. The survey revealed that more consumers feel confident about their job security. Only less than 20% of workers, both full time and part time, fear that they will be laid off from their work. This went down from 29%. Lesser people also think that their benefits (34% from 43%), wages (24% from 31%) and work hours (24% from 25%) will be reduced.
Your income is one of the ways that will allow you to work on financial improvements. After all, you need funds for that. Your main source of money is your job. Now that people have a higher sense of job security, working on improving your finances will be easier to do.
4 ways you can improve your finances after job security
So what can you do to improve your personal finances? After your job security, you want to build up your financial security so you can survive a job loss. Do not be overconfident about your job. You need to work on these 4 financial improvements to make your job and financial security last.
Make bigger debt payments.
If you feel that you job is secure enough, you might want to work on making bigger debt payments. Regardless if your income increased or not, you should put more money into your monthly credit contributions. Put in as much money as you can so you do not have to lose too much on paying interest. For example, if you have credit card debt, the longer you stay in debt, the more you will end up paying on interest. If you feel like your money is secure because your job is stable, you may want to take what is allotted towards your savings and use it to pay more of your debt. The interest on your debt is much bigger than what you will get from your savings account.
Build up your savings.
Once you have slashed a huge amount of debt from your balance, it may be time to put your attention towards your savings. The most important part is your emergency fund. According to an article published on USAToday.com, more than 25% of Americans do not have an emergency fund. Those who have savings, majority of them have less than 6 months in their account. You want to make sure that any future emergency will not force you to borrow money just to get out of it. Build up that fund beforehand so you will feel more secure.
Once your emergency fund is okay, you may want to save up for future purchases. If you plan on buying a home or a car or even a new equipment, save up for it. That way, you do not have to buy it on credit.
Contribute more towards your retirement.
As you are working on your savings, you may want to contribute more into your retirement fund too. After all, you should not only prepare for future purchases, you should also make sure that your retirement will also be secure. A lot of pre-retirees are having problems with their retirement because they did not save enough when they were in abundance. Well now that your job is secure, this is one of the financial improvements that you need to work on.
Be more aggressive in investing.
Lastly, you want to focus your resources on investing. One of the best ways for you to increase your wealth is by investing it in stocks, bonds, mutual funds or equity. Instead of just putting it in your savings account, make your money work for you by earning you extra income. After all, the rate in investments is a lot bigger compared to your savings account. Why not put it where it can grow the most? Some people have aggressively increased their wealth by investing. If you do it well, this might even be a significant source of income for you. This is one of the best ways for you to achieve what everyone dreams of – early retirement.
Make sure you improve your finances and not your lifestyle
When your job security comes with a higher income, make sure that you will resist the temptation to use the extra money for something else. The reason why it is hard to improve finances is because we are tempted to upgrade our lifestyle immediately. While we deserve one or two upgrades in our life, you need to be careful that it will not spiral into more improvements.
There is this social phenomenon called the Diderot effect. According to Wikipedia.org, this refers to the introduction of something new and how it leads to a series of consumption and purchases. For instance, if you feel that your new found job security and income increase is a sign that you can buy your own home, be careful to limit this upgrade in your life. In some cases, a new home leads to buying new furniture, a new car and everything else that will compliment that one upgrade that you planned.
If you are getting all of these through credit, then you are in big trouble. You may think that your job is secure for the next year, but most mortgages and car loans require payments that last more than that.
So instead of focusing on improving your lifestyle, make financial improvements instead.
When is it okay to improve your lifestyle?
Although we are discouraging you from upgrading your lifestyle, we do not want you to become Scrooges. You can improve your lifestyle but make sure that you know your priorities first. Here are 5 signs that improving your way of living is okay.
- When you do not have debt. As long as you have debt, you should be very careful of how you use your money. Do not splurge or be careless with your spending. You need to prioritize your debt payments first. Once they are eliminated, that is the only time that you can think about upgrading your lifestyle.
- When your retirement contributions are steady. It is also alright to focus less on your financial improvements and put more money into your lifestyle upgrade when your retirement contributions are steady. Determine how much you will need to retire and see if you are up to date with your contributions. As long as the changes you will make in your life will not compromise your monthly retirement savings, then go ahead with the purchases you want to make.
- When you have enough money in your emergency fund. If you have at least 6 months worth of expenses in your emergency fund, it is okay to make purchases that will improve your standard of living.
- When your investments are giving you extra income. When your investments are giving you profit, you may want to use that to finance any improvement that you want to implement in your life. This increase in income can serve as your extra source of funds for unexpected purchases.
- When it can improve your productivity. Lastly, it is okay to upgrade your lifestyle if you know that it can make you more productive. For instance, renovating your home so you can build a better home office is a good idea as it can help you work more productively. The same is true for your car. If it is costing you more money because of repairs and gas consumption, then it should be okay to upgrade it.
Bottom line is, financial improvements should be prioritized before an upgrade in your lifestyle. That way, you can maximize the security that your job is giving your financial life.