Financial Health

With so many different diets and opinions out there around the healthiest foods, it can get tricky to choose the right diet for yourself. After many trial-and-error approaches, it’s no wonder why someone may give up and give in (hello cheat days/weeks/months!). But instead of looking at the latest diet trend or trying to replicate your favorite celebrity endorsement, have you ever tried going back to the basics? After all, the fundamentals of losing weight is simple -- the calories you put in (the input) need to be less than what you’re working off (the output). Or vice-versa – the output needs to be more than your input. That ‘Delta’ can be considered your break-even point, and you don’t see results until you move that needle.

It’s this basic principle that can be applied to financial diets too -- the money you make (input) needs to be more than what you spend (output). Or on the flip side – the money you spend (output) needs to be less than what you make (input). Finding your ‘Delta’ for income vs expenses is an important measurement to gauge financial behavior off of.

Once your input (income) and output (expenses) levers are identified, you can explore strategies to adjust and ultimately, to improve your overall financial health. You may need to bring in more income (think part-time job, side hustle, bonus payout, tax return, etc). Or you may need to look at the other side of the equation: decrease expenses.

Just like dieting, the key is to find what works for you. Instead of making a short-term diet work, and then splurging at the end, instead turn the exercise into an ongoing, positive, long-term habit. As life changes, your money habits should evolve with it. And just as implementing a healthy diet should become a lifelong habit, so should your activities to monitor and minimize expenses.

To get started, follow this 5-step framework to identify, implement and see results for the expense side of the equation:

  1. Create Your Budget System: before you dive into the specific activities you plan to implement to minimize expenses, you first need to understand your starting point. In the simplest form, take note of your income and all of your current expenses, which can be broken down by fixed expenses (rent/mortgage, monthly bills, insurance, etc) and flexible spending (groceries, entertainment, shopping, etc). What is your ‘Delta?’ In other words, what is your leftover money after income minus expenses?

  2. Set Your Goals: now that you have a snapshot of your financial picture down on paper, what are your goals? Make sure to make them as realistic as possible (for example, if you earn a salary of $50K, it may not be realistic to put $50K that year toward debt, but perhaps finding $200 more a month to put toward debt can be a starting point to form a healthy, ongoing habit). Don’t forget to write your goals down on paper.

  3. Map It Out: next you will determine how exactly you will accomplish your goal. If you’re looking to change your financial health, you need to make changes to cut some expenses and keep your spending in check. There are many different activities you can do – some may make a small impact, others a more significant impact. But the key is to start somewhere to learn your version of healthy financial habits. For some thought-starters, here are a handful of strategies for different areas in your life you may consider to decreasing expenses:

    Debt Table

  4. Track It: as you implement your strategies to cut expenses, don’t forget to set up a system to track your progress. Monitor the impact to your ‘Delta’ to determine what’s making an impact and what’s not. You may consider using ISU Credit Unions software tool MoneyDesktop, to categorize your spending and start identifying trend lines.

  5. Reap the Rewards: as you turn a financial diet into a healthy financial habit, celebrate your wins. After all, your relationship with finances is forever – it doesn’t just end or take a break -- which is why it’s even more important to make it less of a love/hate relationship, and more of a productive relationship.

Considering each and every person is different -- with unique situations, interests and financial strategies, it’s important to do you. Just like trying different foods or diets, you’ll learn what may work and what doesn’t resonate. And your strategies may change throughout life as your needs, circumstances and financial picture evolve. The key is to keep consistent, stay the course and find the right balance to achieve a healthy and happy financial relationship.

Chat with an ISU Credit Unionexpert to try and help you define your financial stratgies and see where we can help you during our budgeting journey!