Improving your financial situation doesn’t happen overnight, nor does it require a major shift. The best way to achieve financial health is approaching it one step at a time. Here are 30 steps you can take one day at a time to learn smart financial management.
Day 1: Organize your income and expenses. You want to know exactly how much you have coming in and going out every month. Don’t forget to include savings, household expenses, debt repayment, and expenses that aren’t monthly such as car maintenance.
Day 2: Organize your debts. Make a comprehensive list of what you owe, your minimum monthly payments, and the interest rates you’re paying.
Day 4: Reduce fixed expenses. This is an important place to start for real savings. Ideas to consider include carpooling, installing a programmable thermostat, and reducing your cable package.
Day 5: Negotiate your credit card debt. Call your card issuers and ask for a lower interest rate or consider a new credit card with a 0% intro APR to pay down debt faster.
Day 6: Get a free copy of your credit reports from AnnualCreditReport.com. Look for any errors and dispute them with the credit bureaus right away to start improving your credit.
Day 7: Call your cable provider to reduce your package or negotiate for a lower rate. If you can’t get a better deal, consider ditching cable for Hulu, Netflix, and other low-cost entertainment.
Day 8: Choose one area of spending to reduce. This may be reducing your food costs by preparing meals at home or replacing movie theater tickets and Blu-Ray purchases with Redbox rentals.
Day 9: Automate your savings by automatically transferring at least 10% of your paycheck into savings and/or retirement.
Day 11: Save on car insurance by comparing quotes from at least 3 companies and asking about discounts you can get.
Day 12: Make a household inventory for insurance purposes. This should include photos, receipts, and estimated values for important belongings. This is a good time to collect warranty information and have expensive items appraised.
Day 13: Save on homeowners insurance by comparing quotes from a few companies, asking about discounts, and raising your deductible. You should be directing money into savings to cover the deductible, if necessary.
Day 14: Check for any subscriptions you don’t need, including magazines, websites, Netflix, and Hulu.
Day 15: Find out your true hourly wage to help you see the cost of purchases in hours.
Day 16: Start decluttering your home. Let go of papers, knickknacks, unused video games, and anything taking up space. Separate items into three piles: sell, donate, and trash.
Day 17: Spend one day listing items you don’t need for sale to boost your savings. Use apps like OfferUp and auction sites to get the most money possible.
Day 19: Do an energy audit on your home. Many utility companies do free audits to help you identify energy problems and high-use appliances.
Day 20: Reduce your energy spending by addressing the finding of your energy audit and easy improvements like insulating your water heater, installing a programmable thermostat, and putting up sun-blocking window treatments.
Day 21: Sign up for e-bills to make it easier to track your bills and pay them online.
Day 22: Check your loans to make sure you’re getting the best interest rate.
Day 23: Find out if you get any discounts through your employer and credit card issuer such as discounted tickets, extended product warranties, and free gym membership.
Day 24: Pay more than the minimum due on your credit cards. Set this up automatically to pay down debt faster and improve your credit.
Day 25: Do an audit of your bank account to make sure you aren’t paying unnecessary fees. Look for a free or high-interest checking account.
Day 26: Buy life insurance. It’s not just important to improve your own finances; you also want to ensure your family will be okay if something happens to you. Life insurance is also cheaper the younger you are.
Day 27: Update your financial accounts with correct beneficiary information. Consider payable-on-death accounts when appropriate.
Day 29: Lower your cell phone bill. Negotiate a lower rate with your provider, reduce your plan, or shop around for a cheaper plan.
Day 30: Visit an estate and probate lawyer to create or update a will and protect your assets.
Starting out a career is one of the bright spots of a 20-something’s life. College ends and adventures in the real world begin. Unfortunately, starting salaries are not that great. Things don’t really pick up pay wise for most until they enter their 30’s. 30-somethings do need to be careful with their money. Resisting the urge to spend one’s money foolish and avoid other financial mistakes has to be a top priority. Otherwise, the days on the calendar will arrive at a penniless retirement age.
Amassing Huge Amounts of Credit Card Debt
Young persons end up being easily approved for credit cards once their income and credit history helps facilitate approvals. A lack of worldly and fiscal experience leads many 30-somethings to use credit cards with abandon. This leads to building up incredible amounts of debt that are extremely difficult to pay off. In fact, a person could lose years and years of savings and investing because money ends up being directed towards credit card payments.
And what was all that money borrowed for in the first place? A whole lot of unnecessary luxury purchases. Don’t make the common mistake of borrowing heavily on a credit card. Doing so only creates major troubles.
Ignoring Retirement Planning
Since retirement is upwards of three decades away, why is there any rush to put money away? There are all sorts of reasons why putting money away as early as possible is important. The more money saved earlier means, in addition to building up a solid nest egg, there end up being more years of compounded interest and more money.
And playing catch up with retirement savings at age 51 is no fun. Nor is it likely to yield a nice nest egg.
Not Buying the Right Insurance
Insurance is incredibly important. All different types of insurance. Health insurance, auto insurance, renter’s insurance. Even career-related insurance such as personal trainer liability coverage is worth investing in.
Not having the right insurance in place can lead to financial devastation. Stunningly, there are still those who choose to avoid purchasing health insurance. Illness and accidents can lead to bankruptcy-inducing medical bills. These bills could be avoided with the right policy in place. And is the liability coverage on an auto policy high enough?
Take insurance seriously. Otherwise, the consequences could be devastating.
Marriage comes with many responsibilities and a host of those responsibilities are financial. Examining the costs associated with life together is important in order to properly budget that life.
Buying a beautiful — but unaffordable — home is a path to financial ruination. Properly budgeting before getting married could lead the union down the right path and one that avoids fiscal problems.
Get Serious Now
As the saying goes, life goes by quickly. Educating oneself early about money mistakes could reduce the chances of making huge money errors while 30-something. Getting serious about money matters right away should increase the likelihood of avoiding common money disasters while young.
Retirement may feel like a long way away, but it’s important to start preparing now. With strategies like early investing and regular exercise, you’re sure to enjoy your older years. Read through this quick list of tips so you can manage your choices now and reap all of the benefits when you’re older.
The power of investing and compound interest is incredible. Instead of using a savings account that may barely keep up with inflation, your retirement account will help you grow money over time. This slow but steady growth gains strength over time, as you earn more and more money from what you initially deposited. If you want to figure out just how your savings will balloon as you get older, this compound interest calculator is a great place to start.
Get a Great Education
Your education is the key to a stable future of financial success. Choose your major wisely and focus on employability to secure your future retirement. The best benefits of a thriving career involve not only the salary but also the potential retirement accounts with company matching. Setting up your future to involve a quality, full-time job instead of several part-time jobs to make end’s meet is a surefire way to keep your retirement secure.
Plan Your Family
It pays to delay having kids until your career is established, if given the option. This is a tip that’s more relevant to women than men, but it still plays a big role in any family’s finances. Although it can be a wonderful and fulfilling experience to raise a family, the main caretaker will likely have a hard time focusing on a career for several years, if not a couple of decades. Additionally, it can be difficult to re-enter your industry after even a year or two away. These delays can seriously set back growth in one’s career, and even lead to drastically lower retirement savings. Your career is the key to a quality retirement, so planning to have kids after you’ve achieved a decent position in the ranks of your industry can be a rewarding and practical choice.
Be Healthy Now
Avoid expensive treatments down the road by taking care of health problems now. Not everyone has the luxury of a naturally healthy body, and plenty of people are faced with huge medical debts without given much of a choice. However, it’s still a good idea to focus on what you can improve while you’re young so you can avoid major health expenses when you’re retired. Prevent injury with regular stretching and get consistent cardio exercise so you don’t wind up with any of the many possible issues associated with diabetes, cardiovascular disease, and more. A healthy diet and regular exercise are the keys to reducing retirement expenses and living pain-free in old age.
If you’re strapped for cash and is living from paycheck to paycheck every month, there are sidelines that can help relieve the financial burdens of your day-to-day expenses. Here are four of the top sidelines that have garnered positive reviews from like-minded individuals who are interested in improving their financial situation.
If you enjoy writing blog posts or journalistic style articles, a freelance writer may just be the perfect fit for you. The workload and schedule are usually very flexible since you can choose how many articles or words per day or week you want to do. In addition, you can either focus on a niche you love writing about or go for a broader range of topics that only require surface-level information. Freelance writers can make anywhere between $8 to $20 per hour on their computer at home. This makes the job attractive for stay-at-home parents and college students alike.
Coding is becoming a prevalent skill set today as technology further embeds itself into humanity’s day-to-day life. Someone who can program mobile applications, websites, or security systems can make substantial amounts of money even if it’s simply a part-time job. Keep in mind, however, that the job market for web developers is also competitive and cutthroat. You’ll need tons of time to improve your portfolio, hone your technical skills, and market yourself to employers. Depending on what specific job position or project they get, developers can earn between $20 to $60 per hour.
For people who love animals, especially canines, you can make some cash walking other people’s dog/s. The work is physically intense since you’ll be required to walk the dogs under all weather and temperature conditions. Regardless if there’s a snow storm, heat wave, or torrential downpour, you will need to take the dogs out even for a 5-minute relief walk. You can work for yourself or work for a dog walking company who already has the client volume for regular walks. A dog walker can make anywhere between $15 to $25 per hour, depending on agreed-upon rates and the number of dogs you have per walk.
Real Estate Broker
In just a few weeks time, you can get certified as a real estate agent and show people apartment rentals in your local neighborhood. To be an effective agent, however, one must have the social skills to converse with clientele and to close deals. Furthermore, many agents have expressed the importance of private transportation to get from point A to point B fast. Patience is also something you’ll need to have, character-wise, since you won’t always be able to close deals.
There are many ways to earn cash, but finding the one that suits your interest, skill set, and schedule can take some time and effort. While these options all sound good on paper, there are other key topics that must be addressed, such as paperwork and legal requirements, specifically taxes. You’ll want to make sure that you file the right income tax lest incur fees.
An IRA is a tax-advantaged account that allows you to save for retirement and dramatically lower your tax bill. With a standard IRA, you enjoy the tax savings today in the form of a tax deduction but you will pay taxes on the withdrawals you eventually make. A Roth IRA is different because you invest money after taxes but you will pay no income taxes on your withdrawals in retirement.
When you decide that a Roth IRA is right for you, it’s time to navigate the roadblocks and confusing rules to claim these tax benefits yourself. The good news is opening an IRA is not as complicated as you may think once you understand the qualifications and contribution rules.
Do You Qualify?
Not everyone can open a Roth IRA, but there’s a good chance you qualify. An IRA is designed to help lower- and middle-income people save for retirement so there are income limits. You can open and contribute to a Roth IRA as long as your taxable income and modified adjusted gross income (AGI) is:
- Under $184,000 if you are married filing jointly
- Under $132,000 if you are head of household, single, or married filing separately if you didn’t live with your spouse during the last year
- Under $10,000 if you are married filing separately and you did live with your spouse at all during the last year
Roth IRA contributions also begin to phase out before you hit these limits so you will not be able to fully contribute to your IRA if you approach the limit.
How Much Can You Contribute?
It’s also vital that you understand how much you are allowed to contribute to your IRA once it’s opened. If you are under 50, you can contribute up to $5,500 per year in a Roth IRA. If you are married, each spouse can contribute $5,500 per year, even if only one spouse is working. This limit is not per IRA: it applies for any Roth accounts you may have.
The IRS allows people who are 50 and older to make additional “catch up” contributions toward retirement. At 50 and beyond, you can contribute an extra $1,000 per year, or a total of $6,500.
How to Start a Roth IRA
Once you’re sure you’re eligible, you can open a Roth IRA. Nearly all investment firms, including banks, credit unions, and brokerages, offer Roth IRA accounts. It’s a good idea to compare accounts among several top-rated investment companies as the fees and investment options can vary quite a bit.
You can apply for an open a Roth IRA entirely online by answering a few easy questions and providing necessary documents. To open an IRA, you will need:
- Your driver’s license or government-issued photo ID (such as a passport or passport card)
- Your Social Security number
- Your bank account information
- Employment information
- Money to open the account. Depending on the financial institution, you will need anywhere from $25 to $3,000 to open an IRA.
After the application process, you will be asked to transfer money to your account. From there, you can set up automatic investments.
It may take up to a few weeks before you can use your account and begin trading as your deposit will need to clear the bank.
If you are looking to pay off a tax debt, consolidate credit card debt or need money to start a business, a personal loan may be just what you need. Personal loans usually come with lower interest rates than credit cards or payday loans, and they may be available regardless of your credit score. Where can you go to find a personal loan provider near you?
Talk to Your Local Bank or Credit Union
Most banks and credit unions offer personal loans with interest rates based on your credit score. Typically, credit unions offer lower rates because they have less overhead. To further lower your rate, you may want to consider securing the loan with collateral or by adding a cosigner. However, unsecured personal loans are generally made available to borrowers with good credit.
Online Lenders May Help You
The internet has given rise to lenders who have no physical presence. Instead of walking into a branch location, you ask questions from a bank representative through email or live chat. Your application will be submitted online, and the money will be electronically deposited into your bank account. The major advantage to using an online lender is that they are available no matter where you live, and they are generally available at any time of day to answer questions or process a loan application.
Getting a loan from a peer lending site is much like getting a loan from a bank. The major difference is that the loan is funded by individuals as opposed to a bank or financial institution. Your interest rate and other loan terms may be determined in part by your credit score as well as any terms imposed by the site itself.
Ask Friends or Family Members for a Loan
Friends or family members may have extra cash that they are willing to loan you. Just like you would when borrowing from a bank or any other type of lender, it is critical that you create a formal loan agreement. This increases the odds that the loan is repaid in a timely manner, which may work to preserve relationships with your best friend, your parents or others who you are close with. Asking friends or family members for money may be a good idea because those who know you may give you the amount that you need even if you don’t have good credit.
It is rare that you will have $10,000 laying around to buy a car or $5,000 to pay for a semester at school. Therefore, it will be to your benefit to know where you can turn to get the money needed to cover your immediate expenses. No matter what you need the cash for, it is a good idea to create a repayment plan before you take the loan to ensure that you don’t get too deep into debt.
If you have just come out of a bankruptcy, your credit is likely to be in shambles. It is possible that your credit score dropped by 100 points or more, and you also have to deal with that bankruptcy staying on your credit report for up to 10 years. Fortunately, there are steps that you can take to start immediately overcoming the credit impact a bankruptcy may have. If you can’t or don’t want to do these on your own then consider talking to some credit repair companies to get some advice or professional help.
Continue to Pay Down Your Debt
Just because you filed for bankruptcy doesn’t mean that all of your debts will go away. In some cases, you may choose to keep paying a car or student loan balance either because you want to keep the car or because you can’t discharge it in bankruptcy. By continuing to pay down your remaining debt balances, you will work toward building a positive credit history. In most cases, the effects of a bankruptcy start to diminish or go away entirely after a year or two.
Apply for a Secured Credit Card
Typically, a credit card is an unsecured loan reserved for those with good credit. However, those with poor credit may be able to get a line of credit that is secured by an initial deposit. Generally, the amount of your deposit is the amount of credit that you will have access to. The card issuer will report your payments to credit bureaus, and the card may convert from secured to unsecured after several timely payments.
Check Your Credit Report for Errors
Once a debt has been discharged, it should no longer remain on your credit report except to clarify that the account has been closed. You should also check for duplicate entries or other inaccurate information that may be visible to lenders or others making a decision based on your credit score. If there are errors on your credit report, you should contact the lender or the credit bureau directly.
Talk to a Financial Adviser
A financial adviser may be able to help you create and stick to a budget. By sticking to a budget, you are unlikely to spend money that you don’t have, which may reduce the odds that you have to use loans to finance your lifestyle. Financial advisers may also help you devise strategies to help you save for retirement or take other steps to improve your financial security going forward.
Filing for bankruptcy is not something that should be done lightly. However, if you do decide to file, make sure that you have a plan to repair your credit as soon as possible. By continuing to pay down debt, checking your credit report for errors and talking with a financial professional, it may be possible to move on from bankruptcy in a timely manner.
Albert Einstein is often credited with saying that “compound interest is the most powerful force in the universe.” Whether or not he actually said this, it remains an idea of abiding truth.
For most people who aren’t lucky enough to start the next Microsoft or Facebook, the best chance of acquiring real wealth in their lifetimes will be through the effects of compound interest and its financial cousin, compound returns. Most people simply don’t appreciate how powerful the effects of compounding interest and returns can be for those to whom they accrue. Nor do they often appreciate how detrimental they can be to those who must bear the burden of paying for them, as in the case of borrowers.
Understanding the power of compounding returns may be the most important single financial idea that anyone will ever learn. To illustrate the incredible power of compounding returns, of which compound interest is a subtype, it’s instructive to look at the case of Warren Buffett. Warren Buffett started his investing career in the mid-’50s. Over the next 60 years, he returned around 20 percent per year. Today, Warren Buffett is the second richest man alive, with a fortune of over $70 billion.
But how much might someone have made if they were able to invest $1,000 with Mr. Buffett at the start of his career? Since he returned about 20 percent over around 60 years, the answer is 1.2^60*1,000 or $56 million! If someone would have invested $100,000 with Buffett at the start of his career, they would have been among the richest people alive today!
Such is the incredible power of compounding returns. But the interest that banks charge is different from compounding returns only in degree. This leads to a related and important conclusion. From the standpoint of the borrower, taking a loan is the exact opposite of compounding financial returns in the market. And unlike in the case of the stock market, bank loans, consumer debt and debt generally are a zero sum game. There’s no rising tide lifting all boats, as in the case of American industry. There is only one party making payments to another party. This is the reason why so many homeowners are shocked to find out that they have paid 2 or 3 times the principal amount in interest, upon completion of a 30 year home loan.
But it also leads to one of the most important conclusions in personal finance. Debt should always be avoided at all costs. Debt is the single most destructive force to anyone’s ability to build wealth. There are two equally important reasons that make incurring personal debt the most pernicious financial decision that one could ever make. The first is the direct effect that debt has. As we saw earlier, accumulating debt is effectively the opposite of compounding returns. By itself, it can destroy what wealth one already has.
But the second reason is even more powerful. Personal debt makes it impossible to begin compounding returns. In a game like stock market investing, where nearly every player wins huge over the long term, the most important step you can take is to start playing as soon as possible.
Your 20s are often an enjoyable time in your life. They will likely be filled with milestones and a number of life exchanging experiences. This is also true in regards to your finances. You will make decisions that will impact the rest of your life. Here are some mistakes to avoid so that you won’t have to look back later on in life with regret.
Overspending On A Vehicle
It is very expensive to celebrate your new job opportunity by purchasing something expensive, such as a new vehicle. That could cause negative consequences down the line. New vehicles rapidly depreciate, while you will still pay thousands of dollars in high insurance premiums along with the interest. Consider purchasing a nice used car or initially relying on public transportation.
Forgetting To Plan For An Emergency
There is simply no excuse for not having an emergency fund. That should be one of the first things that you do after meeting your basic needs. Without setting aside money for an emergency fund, you may find yourself in debt.
Relying On Credit Cards
Placing a lot of weight on your credit cards is very dangerous for your financial future. Eventually, you will have to pay for your purchases. The worst case scenario would be you spending all of your savings towards the credit card purchases. If you start missing payments, you may cause severe damage to your credit score.
Trying To Keep Up With The Newest Trends
Peer pressure can influence a number of your poor financial decisions. You’ll likely have always meet someone who has more than you, but that should not impact your lifestyle. Avoid what everyone else is doing and focus on your own finances.
Not Paying Yourself
It is a mistake to not pay yourself first when you get paid. Set aside a certain amount of money before you pay your bills so that you can establish the habit of budgeting. By putting an emphasis on saving money, you can start building wealth.
Your college education is an investment towards your future to help you live the life that you want. Take time to research your career and your potential earnings. If you won’t be making a lot of money, you may have a harder time paying back your student loan debt.
No Financial Goals
Set goals that you plan to accomplish in the next 5 to 10 years. By identifying and setting financial goals, you will establish a sense of clarity that allows you to focus on what you are trying to accomplish.
Weddings can be expensive, especially if you don’t manage the costs. You don’t have to go into debt to have a fun memorable wedding.
Trusting Others With Your Finances
Sometimes people are going to tell you things that are not in your best interest. Do your own research and always rely on your own instincts.
Not Saving For Retirement
Start contributing to your retirement as soon as possible. Do not fall into the trap of thinking that retirement is far away. Start saving money as soon as you get your first job.