A previous version of this article, Friday the 13th! Financial Planning to Avoid Unlucky Losses, was posted on March 13, 2020.
This Friday the 13th, we want to point out some ways to avoid financial losses and improve your overall financial well-being.
1. Face Your Financial Fears
Financial anxiety and stress can affect anyone, regardless of age, socioeconomic status, or background. Economic uncertainty can make financial fears worse and even lead to financial avoidance which can become very costly.
Even though it is challenging to face our fears, we can gain financial confidence by taking small steps towards overcoming financial fears, anxiety, and stress. One of the best first steps towards facing your financial fears is learning more about the task or concept that haunts you. In our Money, Stress, & Bad Habits webinar, we spoke about some common maladaptive financial behaviors that are often driven by financial fears.
2. Prioritize Your Needs Over Wants
"Basic needs" typically consist of things like housing, food, and transportation. However, it's important to note that our needs are determined by our values and responsibilities. SMMC typically defines a "need" as something that could jeopardize your health, safety, or livelihood if you went without it.
Your unique situation will determine how you define needs and wants as well. For example, if you're a parent, childcare may be an additional need beyond the typical costs of shelter, nutrition, and transportation. If you are living with a chronic illness, your treatment may be critical to maintaining your health and safety. If you're single, you may have more flexibility in how you prioritize your needs and wants but less shared resources to lower costs.
We recently discussed the nuances of defining needs by talking about newer research on Maslow's Hierarchy of Needs in our Money & Happiness webinar which is also on YouTube.
Inflation and market volatility can make prioritizing expenses and budgeting in general more challenging. To learn more about how inflation works, check out Inflation: When Prices Rise on YouTube. Looking to be more intentional with your eating expenses? Check out our Save Money on Food video also on YouTube.
3. Set S.M.A.R.T. Goals
Setting S.M.A.R.T. goals can help give your dollars direction & purpose. There are many versions of this acronym, so you should use the one that works best for your goal or goals:
- S = specific, significant, stretching
- M = measurable, meaningful, motivational
- A = achievable, agreed upon, attainable, acceptable, action-oriented
- R = realistic, relevant, reasonable, rewarding, results-oriented
- T = timely, time-based, time-bound, tangible, trackable
Don't be afraid to update & re-prioritize your goals as your values and responsibilities change. Goal-setting is a critical part of financial planning, so SMMC incorporates it into a lot of our content. If you're still not sure where to start with setting your own goals, check out the following podcast episodes of Making Cents of Money:
4. Build a Budget (That Works for You)
Whether you call your strategy a budget or a spending plan, it's important to figure out what works best for you. In our Spooked by Spending Plans? webinar, we talked about several types of budget strategies including the very popular "50/20/30" budget.
We used data from the Consumer Expenditure Survey to discuss how the 50/20/30 guide does not work for everyone, so if you've tried it and felt frustrated, that's okay! Try something different.
You can learn more ways to build your own with the SMMC web page on Budgeting, or our Spend course which includes self-paced modules on Spooked by Spending Plans? and Budget Hacks.
5. Track Your Spending
Once you make a spending plan (or budget), you need to implement and track your progress. The best way to do that is by tracking both your spending and saving behaviors. You may find that you routinely spend more, or less, than you planned in your budget. Your expenses could be:
- Fixed - the same amount each month (or budget period)
- Flexible - amount varies; could be fixed or occassional
- Occassional - timing varies though amount could be fixed or flexible
Tracking your spending can help you look for ways to cut costs or avoid repeat late fees since you can make adjustments based on your spending behaviors and needs.
Looking for more information on how to define the types of expenses you have? Check out our blog post, "Identifying Expenses: Fixed, Flexible, or Occasional?"
6. Monitor Your Financial Accounts
Similar to tracking your spending, monitoring financial accounts can help you avoid losing money to things like fees or identity theft.
Identity theft has many forms, but many people associate unauthorized charges on their financial accounts with identity theft. Credit cards have more legal protections than debit cards or e-checks when it comes to dealing with unauthorized charges, but remember to monitor both. We discussed warning signs that you're a victim of identity theft in our Don't Get Phished: Avoid Scams & Fraud video also on YouTube.
Learn more about ways to watch for identity theft & fraud in our Protect course.
7. Use Insurance to Cover Your Assets
Insurance is one of the best ways to protect yourself against financial losses. There are many types of insurance to choose from to cover financial risks and potential losses. For example:
- Renter's insurance
- Car insurance
- Health insurance
- Disability insurance
- Life insurance
- Dental insurance
- Home owner's insurance
- And many more
Each type of insurance can have its own nuances, so if you're looking for a place to focus first, check out our Health Insurance Dissected or Cover Your Assets videos on YouTube.
You can learn more about how to cover your assets with insurance in our Protect course.
8. Look for Cost-Cutting Opportunities
Cutting costs is a great way to limit your losses, both in terms of money and opportunity cost. For example,
- Comparison shopping can help you save on things you need (e.g., food, clothes, etc.)
- You can look for free or reduced-price options to fulfill your needs (e.g., carpool, bus)
- Step-down high-cost behaviors over time to reduce spending (e.g., coffee, eating out)
It may take a bit of a mindset shift or a big behavior change to make these cost-cutting options work for you, but that's why framing your choices as a trade-off between immediate wants and long-term goals can be so powerful!
Listen to episode 105 of Making Cents of Money, Stages of Financial Behavior Change or watch our Get Savvy webinar recording on YouTube, Psychology of Money: Stages of Change, to explore how the Transtheoretical Model (TTM) may help explain some of your financial fears or resistance to change when it comes to shifting spending habits. In the webinar, we discussed a study by Grubman et al. (2011) where the Stages of Change Model was applied to overspending.
9. Make Sustainable Choices
There are many ways to make sustainable choices that can limit your financial losses:
- Reducing plastic waste can help reduce costs of buying bottled beverages
- Using LED bulbs to reduce energy consumption can save on utilities
- Biking, walking, or riding the bus instead of driving can reduce parking, fuel, and other car-ownership costs in addition to reducing emissions
Each university has resources dedicated to sustainability for you to get even more ideas!
10. Review Your Credit Reports Annually
Your credit reports contain your credit history, including information about debts, payments (both late and on time), as well as other publicly available information. They do not contain your credit scores, but it is extremely important to review your credit reports every year for accuracy from each of the 3 main credit bureaus: Experian, Equifax, and TransUnion.
Inaccurate information on your credit reports could cost you in many ways, like:
- Higher interest rates on credit-based products (e.g., loans, credit cards, etc.)
- Higher rates for auto, home, or other types of insurance
- Compromised career opportunities (in some states)
- Denial of an apartment lease
- Identity theft
The only place you can get all 3 of your credit reports for free is annualcreditreport.com. And you can learn more about managing credit in general by watching Mastering the Consumer Credit Game on YouTube.
11. Maintain an Emergency Fund
A solid foundation for any financial plan is to have an emergency fund. Emergency funds can be used for suprise expenses (e.g., a flat tire) or opportunities (e.g., a spontaneous concert).
Having money set aside for these types of expenses can save you money compared to borrowing with credit.
If you're not sure where to start with establishing an emergency fund, roughly 37% of Americans between 18-65 wouldn't cover a $400 surprise expense without borrowing or selling something they own according to the Report on the Economic Well-Being of U.S. Households by the Federal Reserve (2024).
Over the last decade, emergency preparedness has improved, but a significant portion of American adults may still struggle to cover a $400 emergency expense with cash or its equivalent.
12. Determine a Debt Management Plan
If you have or need to take out student loans, the earlier you have a debt management plan, the more money you could save. Debt management plans can also be used for:
- Establishing credit history
- Repaying credit card debt
- Managing multiple types of debt (e.g., student loans, personal loans, credit cards, buy now pay later plans)
To get started with a student loan debt management plan, you can watch our recorded webinar, Student Loan Management, or visit our Student Loans page which we try to keep updated with new content related to student loans, like podcasts.
13. Be Flexible
Your situation, resources, responsibilities, values, etc. can and will change throughout your life. Being flexible with your financial plan can help you avoid both stress and lost opportunities. Feel free to make changes to your plan.
As more people rely on you, or you rely on others, you'll want to have open and regular conversations about how financial plans, goals, and needs may change.
