Like any goal, making it in life financially is a matter of developing good everyday habits. That doesn’t mean you need to overhaul your entire lifestyle and start sticking to a draconian budget starting tomorrow.
Small, incremental changes in the way you manage your money—such as trimming back some of your recurring bills and putting just a little bit more into savings each month—can, over time, significantly grow your net worth. Success may not happen overnight, but financial wellness is worth working for. Here are some ideas that can help put you on the road to a better financial life.
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1. Reviewing Monthly Expenses
One of the simplest ways to improve your financial health is to take a closer look at exactly where your money is going each month. Consider tracking expenses for a month or so, and then making a list of how much you’re currently spending monthly on essential and non-essential items.
You may want to list them in order of priority and then look for places where you could potentially pair back or, in some cases, completely eliminate the expense. This might involve canceling inactive memberships and unused subscriptions, and/or re-evaluating your cell, cable and car insurance plans. Ask: Do you have more bells and whistles than you need? Could you get a better deal elsewhere?
Or you might decide to cook more, get takeout less often or make fewer trips to the mall. Another way to knock down recurring bills is to do a little haggling. Sometimes all it takes is a phone call to get a provider to give you a better deal or to lower your rate. For instance, if you see a promotion going on from a competitor, you can always ask your company if they can apply that rate to your account. You can also call up a hospital to negotiate a discount on a medical bill.
2. Trying a 30-Day Spending Freeze
One quick way to change your spending habits is to put yourself on a one-month spending freeze, during which you avoid buying anything that isn’t a must. If that seems too challenging, you might want to pick a single category (such as clothing or shoes) or a specific store to stay away from for 30 days.
To help stay motivated you might keep track of the money you didn’t spend during your freeze and then put it to use paying down debt, starting an emergency fund, or saving for a downpayment on a home or other short-term financial goal. This can result in more money in the bank (or fewer bills) at the end of the month. And once you start seeing the payoff of not giving in to impulse buying, you may find yourself spending less even after the freeze is over.
3. Automating Every Bill
Setting up automatic withdrawals from your bank account to pay all of your bills helps ensure those bills get paid on time. And when it comes to improving your financial life, paying bills on time can have a pretty significant impact. For one reason, it helps you avoid paying interest and late-payment fees.
It could also help improve your credit score. That’s because a significant portion of your credit score is based on payment history. In fact, it’s weighted more than any other factor. Having a good credit score is important because it can help you qualify for the best interest rates on credit cards and loans, including a home mortgage.
4. Putting an Extra 1% Toward Retirement
Even if you think you can always plan for retirement later, the sooner your start, the easier it is, and the more you’ll have when you do retire. If you’re not yet maxing out your 401(k) contribution at work, which takes money out of your paycheck before taxes, you may want to increase it by just 1%.
You likely won’t notice the difference in your paycheck. But given the power of compounding interest (when your investments earn returns, those returns get reinvested and start to earn returns as well), that small increase can net more significant gains over time. You may want to set up a timeline for when you want to bump it up another percentage point after you’ve gotten used to the 1%. If you don’t have a 401(k) at work, you may want to look into opening an individual retirement account (IRA), keeping in mind that there are limits on how much you can put into retirement savings each year.
5. Paying in Cash
What is it about plastic that can make your brain think you’re not really spending money?
One way to curb unnecessary or mindless spending is to leave your credit cards at home and only carry the amount of cash you have budgeted to spend that day or week. When you can literally see your money going somewhere, you may find yourself becoming much more intentional in the way you spend it.
It can also be more difficult to get into debt when using cash, which could, in turn, pay off later by helping you avoid high-interest credit card payments.
6. Creating Multiple Income Streams
You may not be able to snap your fingers and get a raise at work, but it might be possible to increase your income in other ways. For example, is there a way to turn one of your hobbies, skills or interests into some extra funds?
Maybe a favorite local business could use some help managing their social media account or designing or writing copy for their website. Babysitting a neighbor’s kids, cleaning houses, walking dogs or running errands for an older person are also options.
Or you might consider taking up a side gig with flexible hours, such as driving, delivering food, helping people with small tasks or personal shopping through one of the many on-demand service apps.
7. Saying “No” to Monthly Fees
Unless you’re looking very closely at your bank statements each month, you might not even be aware of the fees your bank may be charging every month for your checking and savings accounts. These could include service fees, maintenance fees, ATM fees (if you go outside their network), minimum balance fees, overdraft/insufficient funds fees and transaction fees. Over time, those little dinks can make a major dent in your account.
If you notice that you’re getting hit with one or more bank fees, you may want to consider shopping around for a less expensive bank or switching to an online-only financial institution. Because online financial institutions typically don’t have the same overhead costs banks with physical branches do, they generally offer low or no fees.
8. Making Savings Automatic
To start a savings routine, consider opening up a high-yield savings account or cash management account and then setting up automatic monthly transfers from your checking account into this saving account. By having a set amount automatically transferred every month, you won’t have to think about (or remember to manually make) this transaction—it’ll just happen.
It’s perfectly OK to start small; even small deposits add up. Before long you may have enough for an emergency fund (i.e., three to six months’ worth of living expenses just in case), a down payment or another savings goal.
9. Knocking Down Debt
Having too much debt can hurt your chances of achieving financial security. That’s because when you’re spending a lot of money on interest each month, it can be harder to pay all of your other expenses on time, not to mention grow your savings.
Getting rid of debt can have long-range consequences as well. If you can lower your credit utilization ratio, which shows the amount of available credit you have, you could improve your credit scores. And that, in turn, could make it easier to qualify for lower-interest loans and credit cards in the future.
While knocking down debt may seem like a mountain to climb, choosing a simple debt reduction strategy may help. Since credit card debt typically costs the most in interest, you might consider chipping away at these debts first and then move on to the debt with the next-highest interest rate, and so on.
Another approach is to pay the minimum toward all your accounts and then pay any extra you can afford toward the debt with the smallest balance. When that debt is wiped out, you can move on to the next smallest balance and so on. If you can qualify for a lower interest rate, another option might be to take out a personal loan that consolidates all those high-interest debts into one more manageable payment.
The Takeaway
Making it financially doesn’t necessarily mean bringing in a huge paycheck or coming into a windfall (although those things don’t hurt). Financial wellness is more about being able to live within your means, while also being able to put some money into savings or investments each month
Making a few incremental changes, such as putting just 1% more of your paycheck into your 401(k), siphoning off an extra $100 into a savings or cash management account each month, can slowly but surely help you build your net worth.
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This article
originally appeared on SoFi.com and was
syndicated by MediaFeed.org.
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6 strategies for becoming debt free
It isn’t the $5 cups of coffee. Or the $50 a month for the gym.
It isn’t that new smartphone, or your shoe addiction, or even that pricey cable subscription. These are common things everyone likes to waggle their finger at when they talk about overspending. But it isn’t necessarily any one of those expenses that really gets people into debt.
It’s usually all of them. And then some.
According to the 2018 U.S. Financial Health Pulse survey by the Center for Financial Services Innovation, 46.5% of Americans said their spending equaled or exceeded their income in the past 12 months. 33.9% said they were unable to pay all their bills on time. And 29.5% said they had more debt than they could manage.
That’s a lot of people who are worried about money.
Though frivolous or impulsive spending can be part of the problem, the slide sometimes starts with the best of intentions — with the desire to get a college education, perhaps, or to own one’s own home.
According to Northwestern Mutual’s 2018 Planning and Progress Study, mortgages and student loans, along with credit cards, are among the leading sources of debt in the U.S.
And when the nonprofit organization Student Debt Crisis surveyed student loan borrowers in 2018, 86% said student debt is a major source of stress. Add in credit card payments, car payments, utility bills, groceries and gas, and all the other things — big and small — that take our money every single day, and it’s clear how debt can become a deep, dark hole.
Which is why it’s so important to have a plan to get back out.
If you’ve wanted to become debt-free for a while, but didn’t know how to get there, think of your plan as a rescue rope you can hold onto during the climb. Everyone’s situation is different, but here are some popular strategies you might consider on your journey to becoming debt-free.
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If you have a significant amount of debt to pay off, you’ll likely be looking to cut costs in a meaningful way. A budget can help with that. First, when you’re going through bills, it can help to determine your priorities, this information can assist you in making informed decisions about what can go and what should stay.
Later, it can create a feedback loop, as you (and your partner, spouse, or other family members) compare real-world spending to the numbers in the budget and consider whether to take corrective action to stay on track.
And over time, it also may be possible to uncover the behaviors that have been holding you back.
If the idea of bird-dogging every penny has been a barrier to budgeting, or if you’ve tried and failed in the past, it may help to keep the process simple. The 50/30/20 rule is a simplified budgeting strategy that’s gained traction because it limits the number of spending categories a budgeter must establish and then follow.
After determining net take-home pay (what’s left after paying taxes), it breaks down the spending money that’s left into three buckets: needs, wants, and savings:
• 50% of the money goes toward needs, including housing costs, utilities, groceries, transportation, medical expenses and any regular debt payments that have to be made (credit card bills, loans, etc.). From there, it’s up to whoever is drawing up the budget to determine what are the true necessities and what belongs in the wants bucket.
• 30% goes to those wants. That’s everything from grabbing takeout, to your Netflix subscription, to getting your car washed and detailed for date night. Logically, this is the portion of the budget that has the most potential for trimming, but emotionally, it might require some real effort to get everything to fit the allocated funds.
• 20% goes to savings. This money might go into an emergency fund, some sort of savings account for short- and long-term goals and/or an investment savings/retirement account. If you decide to pay extra toward your credit card or student loan debt, that expense also would go in this category.
The percentages are meant as a guideline, and they can be tweaked to fit individual needs. The key is to make a budget that’s strict but doable.
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Yes, this is easier said than done, but before rolling your eyes and moving on, consider the possibilities.
Is it time for a pay raise? If a bump is overdue, it might be time to have a talk with the boss.
Is there side-gig potential? Do you always have nights or weekends off, and would your employer be OK with your taking on a part-time or occasional job for extra money? Maybe a friend does catering, landscaping, house-painting, or some other work and could use an extra hand from time to time.
Could a hobby become a money-maker? Crafty folks can sell their wares online or at craft fairs and flea markets. History buffs can give lectures or teach classes. Animal lovers can offer dog-walking or cat-sitting services. Where there’s a passion, there’s often a way to earn income.
MARHARYTA MARKO
If that raise comes through, or you earn a bonus at work, or you get a tax refund from Uncle Sam, instead of living it up while the money lasts, consider using it to pay down some debt.
A few hundred dollars might not feel like it’s making much of a dent, but every dollar you pay over the minimum can help reduce the interest you owe on a credit card or student loan.
To get some idea of how paying even a little extra toward a bill can help, check out the alert on your monthly credit card statement. The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 requires card issuers to warn consumers about how long it will take to pay off a balance if only the minimum is paid each month.
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One way to consolidate debt is with an unsecured personal loan. You may be able to consolidate all or some of your debts at better terms, such as a lower or fixed interest rate and possibly pay them off in less time than you expected.
This strategy could be useful for those who aren’t up for keeping tabs on several bills every month. A personal loan can consolidate multiple debts together into one manageable payment, which could help make it easier to keep tabs on what you’ve paid and what you still owe.
And because the interest rates offered for personal loans can sometimes be lower than the rates on credit cards, you could end up paying less in interest over the life of the loan than you would have if you just kept plugging away at those individual revolving credit card balances.
Typically, the better your financial and credit history, the better the loan terms are likely to be, so it can be a good idea to check your credit record and make sure the information listed on credit reports is accurate.
Then look for a lender who offers the best terms to fit your needs. Keep the length of the loan in mind, as well as the interest rate and other terms to help you on the road of becoming debt-free.
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It could be difficult (okay, next to impossible) to stop using credit cards completely since they’re commonly used for things like booking or holding flights, making online purchases and more. But making a commitment to reduce credit card utilization could help you cut spending and reduce the amount of money that’s only going toward interest on those cards.
A credit card is a convenient way to pay — if you can keep your balance at zero. But if you can’t afford to erase the balance each month with a full payment, the interest can start piling up.
And though many credit cards make limited-time “no interest” offers, it’s good to review the terms in detail.
For instance, some cards may have terms where if consumers don’t pay off the entire balance by the end of the promotional period, they may be charged all of the interest accrued since the date of purchase.
To better the chances of staying in check, some options may be to consider recording all credit card purchases with a budgeting app or pen and paper and to try and face the costs in real-time, instead of weeks later when the bill arrives.
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Seeing progress is inspiring for many people. Think about how good you feel when you lose a little weight from dieting or gain some muscle from working out. Even small wins can be motivating.
How does that apply to downsize your debt?
Two of the commonly recommended approaches to debt repayment are the Debt Snowball and Debt Avalanche methods. These strategies vary but primarily focus on paying extra toward just one balance at a time instead of trying to put a little extra money toward all your balances at once.
The Debt Snowball
The Debt Snowball method directs any excess free cash you might have to the debt with the smallest outstanding balance. Here’s how it can work:
• Start by listing outstanding debts based on what you owe, from the smallest balance to the largest. (Disregard interest rates.)
• Make the minimum payment on all other debts and pay as much as possible each month toward eliminating the smallest balance on your Debt Snowball list.
• After you pay off the smallest debt, turn your attention to the next-lowest balance.
• Keep going until you are debt-free.
The Debt Avalanche
The Debt Avalanche method targets the highest interest rates rather than the balance that’s owed on each bill. It’s more about math than motivation — you can save money as you eliminate each of those high-interest loans and credit cards, which should allow you to pay off all your bills sooner. Here’s how it can work:
• Disregard minimum payment amounts and balances, and list balances in order starting with the highest interest rate.
• Make the minimum payment on all other debts and pay as much as you can each month to get rid of the bill with the highest interest rate.
• Move through the list one debt at a time until you pay off all the balances on your list.
Though the methods are different, both plans provide focus, and as each balance disappears, momentum grows. But a newer approach, the Debt Fireball method, may be a better fit for modern-day debt, which could include a large amount of low-interest student loan debt.
The Debt Fireball
The Fireball method takes a hybrid approach to the traditional Snowball and Avalanche strategies. It’s called the Fireball because it can help blaze through bad debt faster by making it a priority. Here’s how it can work:
• Categorize all debts as either “good” or “bad.” “Good” debt is generally things that can increase your net worth such as student loans or mortgages. (Interest rates under 7% could be considered good debt—rates above 7% would likely fall into the “bad” category.)
• List all those “bad” debts from smallest to largest based on each bill’s outstanding balance.
• Make the minimum monthly payment on all other debts and funnel any extra cash available each month toward the smallest balance on the Fireball’s “bad” debt list.
• Once that balance is paid in full, move on to the next smallest balance on that list. Keep blazing until all “bad” debt is repaid.
• Pay off “good” debt on the normal schedule while investing for the future. Apply everything you were paying toward “bad” debt to investing in a financial goal.
The Fireball makes sense mathematically because it gets rid of expensive (or bad) debt first, but it also provides plenty of motivation because momentum can grow as you approach the finish. These two combined elements could provide an extra boost to your efforts.
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The deeper the hole you’re in, the longer it may take to climb out. But having the right plan in place before you start could give you a better shot at sticking to a budget, minimizing your dependence on credit cards and methodically reducing your debt in a way that keeps you motivated and saves you money.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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