Improve Your Money Life
According to the American Institute of Stress, money issues are the second most common cause of stress in America. Fortunately, unlike your job, you do have quite a bit of control with what you do with your cash once it hits your bank account.
When you have control over your money, instead of it having control over you, you might find that you enjoy personal finance and will dig a bit deeper into further maximize your retirement accounts, open college funds for your kids or learn how to retire early on passive income. But for now, we're here to help shake up your money life in a good way with these fifteen tips you can implement starting now:
Calculate Your Net Worth
While you probably have some idea of your net worth's range, finding out an exact number will give you a place from which to start. This step may be a bit scary for some, but there's no better time than now to know where you stand financially. The simplest way to calculate your net worth is to to add up all of your assets and all of your debts. Then subtract the debts from the assets. Your car and home may be included in both categories if you have a loan on them.
Discuss Your Financial Situation With Your Partner
Whether or not you're married or how you keep your finances (joint or separate), it's important to discuss your financial well being with your partner and let them know of your intentions. For those who keep joint finances this may mean you need to convince your partner that it's time to pay the old debts that have been lingering around from your college days. Couples who manage money separately will have the challenge of vetoing takeout dinner and arguing in favor of eating yesterday's leftovers because they want to improve their own finances. If you're not in a relationship, do consider finding a financial accountability partner. The good thing about being single is that you don't have to convince your partner to change his habits or sell her car. The bad thing is that there's no one to celebrate successes with or pull through a difficult financial time with; this is where having a friend, sibling or parent to be open and honest with really helps.
Create a Spending Plan
This sounds nicer than the B-word. Budget. It's an off-putting word to many and may have the connotation of it restricting you.
In reality, it's just a tool to help you allocate your income. The simplest way to do this is to write down your income at the top of a lined paper then subtract your housing, food, utility, and vehicle costs, as well as monthly payments from credit cards and student loans. You may be surprised to find that there's still money left over. Where's that surplus been hiding all these years? Don't dwell on the past, take control and subtract other money that you need to spend each month. This might include child care, pet expenses, clothing, entertainment. Do you still have money leftover? Dave Ramsey’s website has free printable budgeting forms that cover everything.
Set Financial Goals
Whether you’re stuck in debt or are in a good financial situation, having a goal will give you something to aim at. Be realistic about them, but aim a bit out of your comfort zone.
If you think it will take you 24 months to pay off your credit cards, but you’ll hit a milestone birthday in 22 months, aim for being debt free by your birthday. Other goals can be contributing the full amount to your 401k each year; going on a dream vacation; buying a new house.
Automate Paying Yourself First
There's a reason Uncle Sam gets his share of each and every paycheck you bring home.
How else would he get his share if everyone was left to just send it in when they got around to it? The same idea applies to saving for your financial goals. A good rule of thumb is to be saving at least 10%, but if you're not doing this already, that number will be daunting. Start with just 2% and increase it by one or two percent each month until you're only using 90% of your income. To ensure that you do save the money each month, have it automatically drafted from your checking to your savings or investment account each month.
Pay Off Debt
Not only does debt eat up a good portion of your paycheck, with interest charges accumulating monthly, it takes up precious mental bandwidth as well.
Did I pay all the bills?
The website’s down, I’ll have to remember to pay this tomorrow morning before work.
How will I stretch this week's check to meet the minimum payments?
If you’ve ever had these thoughts, you’re not alone. You can choose to follow the Debt Snowball method (paying off smallest to largest debts which will give you motivational quick wins) or the Debt Avalanche (pay off the highest interest rate debt first to minimize interest paid), choose one and stick with it until you’re debt free. Use an online debt payoff calculator to make the math super-simple.
Switch to Drinking Water-Only
Few people drink only water but the savings you’ll reap will pay off huge in terms of your discretionary cash and overall wellness. A morning coffee, mid-morning soft drink from the vending machine, afternoon iced beverage on the way home and a drink after dinner can add up to. Even if you keep things super-simple with a plain coffee at $3, soda at $2, cool treat at $4 and evening drink at $6, that’s $15 a day. Which comes up to $75, if you do this five days a week. Even at half that amount a week, you’re looking at $150 spending for a month. Think of what you could do with that much extra cash!
Switch to water for the next month and enjoy the financial rewards of drinking water.
Have a No-Spend Month
Let's say you have $600 allocated towards entertainment, clothing and eating out each month. By making the decision to have a no-spend month, you automatically have an extra $600 to put towards something else, like paying off a nice chunk of debt.
It only takes a minute for you to decide to do this; you'll build your self-control muscles over the month as you pass up a great shoe sale, an impromptu weekend getaway with friends or your weekly trip to the mall to window shop which always ends with a impulse purchase.
Eat from Your Cupboards for a Week
Can't stomach the thought of not buying anything more than essentials for 30 days? Then try eating at home, with the goal of not buying any extra food, for a week. It's far less intense, reduces waste (all those random veggie pieces that you stuck in the freezer for "later" will make a lovely broth), and cleans out your home (hello, four half eaten jars of salsa and two bags of tortilla chips: round and triangular).
Don’t sacrifice your health to adhere to a week of eating what’s on hand, but be sensible in necessary purchases of vegetables, fruit, and meat. Take what you save from not using your entire “food” budget and put that money towards debt or a goal.
Take Advantage of Matched Money
If you're lucky enough to have an employer that matches some of your 401k or other investment contributions, you're missing out on free money by not contributing the amount necessary to get the match.
Of course, the "catch" is that you have to contribute as well. Reframe that idea and look at it positively; you're getting rewarded for doing a financially smart thing. Let's say employer will match the first two percent of your $50,000 salary; that's $1,000 extra a year for also putting aside $1,000. Divide that across 12 months and you have to contribute just $84 a month. Just the portion of the match alone will be worth over $135,000 if you invest from age 30 to 67 and earn an average of 7% a year.
Invest for Your Retirement Early and Often
This is advice that's often given to 20-somethings by mid-career folks, and usually stems from the later’s regret of not having followed this advice themselves. Using that $50,000 salary, investing just $300 a month, each and every month from age 22 to 67 will net you a cool $1.1 million. However you’ll end up with just over $188,000 than if you start at age 45.
This huge difference is thanks to the benefit of compound interest, over time your money grows faster because you’re not only adding your contributions but your interest is gaining interest as well. You can use an online calculator to see for yourself just how beneficial it is to start investing now.
Adjust Your Tax Withholding
Although getting a nice tax refund seems wonderful, wouldn't it be nice to have an extra $100 a month each and every month of the year rather than a $1200 windfall that, if we're being honest, usually isn't spent in the most fiscally responsible way?
Likewise, if every year you dread taxes because you owe large sums of money, you should also have your withholding amount adjusted so that you don’t get hit with a huge tax bill next year. This simply requires a trip to your HR office to have them adjust your exemptions so that your take home pay is in line with what it needs to be so that what April 15 comes around, you have to pay in very little or get a tiny refund.
Negotiate Credit Card Late Fees
Recently I was traveling and I was two days late paying my credit card bill. While I was certainly in the wrong, I decided to call the company and see if they'd wave it since it was the first time in my decade-long relationship with them. I used Ramit Sethi’s fee-waiving script and was successful! Simply be firm yet kind, acknowledge your mistake, and thank them for their kindness.
Invoke a Self-Imposed 30-day Waiting Period Before Buying a "Want"
You probably remember hearing stories of how your grandparents didn’t have a television until months after their neighbors because they were saving up for the big purchase. These stories are becoming fewer and farther between as people have access to credit cards or utilize payday lenders to finance big-ticket items.
Combat buying on credit due to impulse by making yourself wait 30 days from the time you realize that you “need it.” This will give you time to save up for the item and decide whether or not you really need the ten-speed blender/mixer combo that’s on sale for just $299 or the outfit that you’d probably wear just once before relegating it to the back of your closet.
Choose to Give Experiences Over Physical Gifts
Do you remember what you got for your birthday three years ago? Unless it was a larger-ticket item that holds significant sentimental value, the answer is probably no.
In recent years it’s become popular to give gifts like a year’s membership to an organization your partner belongs to, a day at the spa with a friend, or a family trip to Disney in lieu of physical gifts that take just moments to be broken, lost or forgotten altogether. Although they physical experience won’t last as long as another piece of jewelry, it will be remembered for years to come and won’t carry with it the guilt when you decide it’s time to declutter your physical belongings.