Are you trying to save up for a dream vacation? Or is a new car high on your priority list? Maybe you’re just ready to take control of your financial situation. You don’t need to completely overhaul your finances all in one day to start seeing an improvement. When you take small steps, you’re more likely to stick to your plan and see results.
Keep in mind that improving your finances will take time. Just like Rome wasn’t built in a day, your situation can’t be fixed overnight. However, the good news is that you can start now. Take these small steps and you’ll improve your financial situation.
Switch from Credit to Debit
Do you put all your purchases on a credit card and then pay off the balance, or some of the balance, at the end of each month? While this can be a good strategy for some people, it doesn’t work for everyone. It’s easy to lose track of your spending once you have a credit card. You know you won’t reach your limit, or at least you think you won’t reach your limit, so it’s tempting to spend without thinking about your budget.
If you ever have paid interest on your credit card bill or you’ve ever spent more than you meant to because of your credit limit, consider switching to a debit card. You won’t pay interest on your purchases with a debit card, and you’ll be forced to pay closer attention to your spending because you want to avoid overdraft fees. Ultimately, many people will stick to their budget better with debit. Plus, some debit cards, like credit cards, also offer rewards when you use them.
Look at Your Monthly Subscriptions
These days it’s easy to fall into the trap of signing up for a subscription and then forgetting to cancel it later. I know I have two subscriptions right now that I just need to take the time and cancel! Monthly subscriptions add up. Look at what you’re paying for that you’re not using and cancel those subscriptions right away. Then, think about canceling any subscriptions that aren’t bringing that much value to your life, or that you could do without.
For example, do you have to have YouTube Premium, or could you save money by canceling your subscription and just watching ads? You’ll probably be happier with the cash in your pocket at the end of the day and you won’t mind the time it takes to sit through a few ads. While you’re canceling subscriptions, see if there’s any way you can lower your other monthly bills. Look for a new insurance provider with better rates. You could end up saving hundreds over the course of the year!
Take Stock of Your Extra Spending
The little things do add up. One latte a week probably isn’t going to make or break your budget, but if you buy a latte every day, that equals a significant amount of money over time.
Maybe you like to collect something, or one of your hobbies, like tennis or ultimate frisbee, is a little expensive. Take the time to find out exactly where your extra money is going, and then…
Cut Costs In One Area
Decide where you want to cut back. If you have a gym membership and you’re paying monthly to be part of a soccer league, you may want to choose just one or the other. Or, if you travel multiple times a year just to get out of town, see if you can cancel one of those trips.
Find one area where you’re spending your extra income and cut back that spending. In the end, you’ll be glad that you have the money in your account for your long-term goals rather than for something that will briefly give you joy.
Automate Your Savings
“Out of sight, out of mind” applies to the money you don’t know you’re missing. As you cut back on your spending, you’ll need to make sure that you’re not tempted to spend the extra money that’s now in your account.
Stay focused on your goals by setting up an automatic transfer to your savings account. There are several different ways that you can do this. Many employers will allow you to split your paycheck so that part of it is sent directly to a savings account. That way, you won’t even see the money and know it’s missing.
Or, you can set up an automatic transfer from your checking to your savings account. Think about how much you can realistically save, and then try to add a little bit more. If you wind up in an emergency situation, you can transfer money back from your savings to your checking account if you need to. However, many banks put a limit on how many times you can deduct from your savings account in a month, so make sure you check with your bank, first.
Switch to a High-Yield Savings Account
According to the New York Times, a high-yield savings account gives you a great bang for your buck. But just why should you switch from a traditional savings account?
“We did this because regular savings accounts offer a small fraction of the A.P.Y. you get from a high-yield account. For example: A Chase savings account today offers 0.01 percent, while a Marcus account offers 1.7 percent. At those rates, if you had $500 in savings in each account and didn’t contribute any more, at the end of five years you’d have $500.25 in your Chase account and $544.36 in your Marcus account.
“It’s not a fortune, but it’s worth 15 minutes of your time today. (That’s the magic of compound interest.)”
With extra savings interest like that, you should definitely check and see if your bank offers a high-yield savings account. And if they don’t, it could be time to find a new bank.
Pay Your Debts
Credit card interest is one way that you could end up unnecessarily losing money, but it’s not the only one. Debt can change your life, and if you don’t pay at least the minimum payment due on your debt, you could end up in serious financial trouble.
Whether you have medical debt, student loan debt, or other debts, you need to pay at least the minimum amount due every month. Don’t let the due date pass you by or else you’ll end up wasting your money on paying interest. Automate your payments if you can!
Lower Your Energy Bills
Do you leave lights on when you’re not using them? Do you let the water run the whole time you’re brushing your teeth? Does your toilet use several gallons of water every time you flush?
Many people do things on a daily basis, sometimes without realizing it, that increase their energy bills. Think about what you’re doing that you could easily stop and that would save you money on electricity, gas, or water. If turning off the water while you brush your teeth will put more money in your pocket, why not do it?
Have a No-Spend Month
There’s no way to go an entire month without spending money. You have to eat and pay your utilities and other monthly bills – but you can still have a no-spend month. Think back to the one area where you’re going to focus on cutting your spending. For example, many people spend their extra money on clothes and shoes. For their no-spend month, they would take 30 days and not buy any new clothes or shoes.
What’s your area where you spend too much extra money? Could you go 30 days without spending anything in that area? Some people take this concept even further and don’t spend any money on non-essential items at all. Could you do the same knowing how much extra cash it would put in your pocket?
Optimize Your Savings for Retirement
If you want to improve your financial situation, you need to think about the future, which means retirement. Open an IRA if you haven’t already, and see how much of your income you can put in the account. Remember that IRAs have tax advantages and that they’re not tied to one employer.
If you’re already saving in your IRA, you may want to set up a separate savings account just for retirement and deposit money as much as you can. Future you will be grateful that you planned ahead!
Save for Your Emergency Fund
An emergency fund is an important financial safety net that everyone should have. While the general consensus is that your emergency fund should be somewhere between 3-6 months of your income, you may be able to save less or more than that.
No matter what you can save, make sure you have an emergency fund and that you contribute to it regularly. If you blow a tire, have an unexpected medical emergency, or otherwise need extra money unexpectedly, your emergency fund can save you from going into debt in order to cover that expense.
Set One Financial Goal for the End of the Year
Once you know what you should do and what you’re capable of doing to improve your finances, you should set a financial goal for the end of the year. Your goal should be specific and realistic.
For example, don’t just make your goal, “I’ll save more money in 2022.” Instead, be specific, such as, “I’ll save $5,000 by the end of 2022.” Remember to set a realistic goal based on what you can actually do to cut your spending and put more in your savings account.
In the end, you’ll be grateful that you’ve given yourself something concrete to work for, and when you either get close to or reach your goal, you’ll be happy knowing that you’ve improved your financial situation.