The Best Tiny Changes To Make Now To Improve Your Finances
Steps to take to improve your finances include taking a look at income and expenses, cutting back of a few unnecessary spending habits, saving small amounts of money, and increasing contributions to retirement by one or two percent.
Fixing your finances is much like deciding to eat healthier or start exercising. The quickest path to failure is to take on several major life changes at once because nobody ever sticks with them over the long haul. Financial planners say that setting two or three small goals and taking steps toward them each day is a far more achievable way to pursue financial security.
Brent Weiss, co-founder and head of financial wellness at financial planning firm Facet, told CNN that keeping things “incremental, implementable, and imperfect” is the most important thing in improving one’s finances. “The most we’ll work on is three things, because life happens,” he said. “It’s not about changing your life but changing a couple of things to improve your financial health.”
The first step in any life change is deciding what you want and how you plan to get it. This means taking an honest look at your finances and choosing two or three areas to tackle. For example, you should look at your income vs. your expenses, how much you’re saving each month, and list your assets and liabilities.
Examine your spending patterns and make a list of where your money goes. Rose Niang, the financial planning director at Edelman Financial Engines, suggests dividing that list into a column of “needs” and “wants.” Doing so will paint a realistic picture of where your finances actually go each month and help you identify budget-busters that you can eliminate.
Don’t entirely rob yourself of items on the “wants” list, however. Those are often the things that make life more enjoyable and if you trim them all away, it will be hard to stick to your plan. Simply cut back in ways that improve your finances, such as visiting the coffee shop once a week instead of every day.
If you decide that saving more money will help improve your finances, Niang suggests starting small. Saving even one to two percent of your income will make a discernable difference over time and won’t take a big bite out of your daily budget. “You’ll be surprised how you don’t notice it,” said Niang.
Apply the same think-small principle to contributing to your employer’s 401(k) or 403(b) retirement plan. Increasing it by just one or two percent will benefit you in several ways. Your retirement fund will grow, your employer will make a bigger matching contribution, and you’ll enjoy a bigger deduction on your taxes because these contributions are tax-deferred.
Paying down debt is another area of your finances where small steps result in noticeable benefits. Because credit card interest rates are at record highs right now, contribute as much as you can to paying down the principal balance. Consider applying for a low fee/low penalty balance transfer card that has an initial 0% rate for the first year or so, then transfer your current debt and pay it off before the zero-rate period ends.
Financial experts warn that interest rates are likely to remain high for a while—or rise even higher—so do what you can to avoid acquiring new debt. Increase your savings instead of using credit cards as your backup funding source. And if it’s time to buy a new home, protect your finances by making the biggest down payment you can to save interest costs over time.
Investing can be another thing that improves your finances but it’s important to have a diversified portfolio, Niang says. “Markets are cyclical…you diversify in hopes that when one side is doing badly, another is doing well.” A healthy, diversified portfolio will include stocks and bonds across a variety of sectors.