Whether you’re living large as a millionaire or struggling to get by from paycheck to paycheck, you can always make some improvements to your personal money management. Turns out that one in every three Americans lack a future financial plan.
The Oracle of Omaha said it best, “Someone is sitting in the shade today because someone planted a tree a long time ago”. The key to financial success is to have a plan. To help you get started with one or strengthen your current one, here are seven ways to save and spend your funds more efficiently.
1. Pay Off Your Debts
This is easier said than done, of course, but many people bury their heads in the sand when it comes to debt, and that simply isn’t a course of action that works. Start paying more than the bare monthly minimum to save a lot on interest charges and pay down debt faster.
Let’s imagine that you have student loans with an interest rate of 6.8% and a balance of $12,000. If you were to only make a monthly payment of $138.00, you would pay off the balance in 10 years and end up paying an estimated total of $4,572 in interest. By paying instead $236 every month, you would pay off the balance in just five years and save $2,383 on interest! You can also refinance student loans to lock in lower interest rates and lower monthly payments.
If you have been missing a couple payments, don’t let the situation escalate. Answer the phone when collection agencies call. They want to get the money they’re owed, so they’ll be willing to work with you in terms of payment plans and fee arrangements over a period of time. Everything is negotiable, as long as you take the initiative.
2. Track Your Expenses
How much do you really spend on coffee each month? What percentage of your budget is going towards your car insurance?
If your bank has an online enrollment program, you should be able to check these figures whenever you want. You can’t make positive changes to your spending habits until you know what your spending habits are in the first place.
You may be surprised by how much that coffee cup is costing you. Let’s imagine that you spend $8 every day on two coffee cups for a total of $240 per month or $2,880 per year. This money would be better used to pay down high-interest credit card debt, beef up your nest egg, or start an emergency fund.
3. Ask for Help
If you’re unsure how to handle your taxes, franchises or retirement accounts, don’t be afraid to reach out to the experts. For example, companies such as Fisher Investments (FI) can help you navigate the world of stocks and investment portfolios. Other examples are the Volunteer Income Tax Assistance (VITA) program, which offers free tax help to people who generally make $54,000 or less, and the Tax Counseling for the Elderly (TCE) program, which offers free tax help for all taxpayers, particularly those who are 60 years of age and older.
There’s no shame in getting a helping hand from those with the skills and background in financial management, retirement planning, and tax preparation that you lack.
4. Lower Your Bills
People go into debt because their annual income is less than their annual expenses. Sometimes this isn’t your fault; rather than having out-of-control spending habits, your bills are simply too high for your budget. A good way to fix this is to talk to various companies and ask if there are ways to raise your deductibles or lower your bills with different service plans.
Picking up the phone to contact your service providers is the easiest way to lower your bills. One example is to find out if you would save money by bundling your home insurance and car insurance with the same provider. Another example is to pre-pay an entire year worth of service instead of making monthly or quarterly payments because many companies charge a “convenience fee” for making smaller payments.
5. Invest Wisely
Stick to your area of expertise. Don’t put all of your eggs into one basket. Start with group investment clubs before attempting solo investments. These are all common tips given to first-time investors, so if you’ve never heard them before, you might want to do some homework about the proper way to utilize the stock market.
Research has shown that even the pros have a hard time beating the market. Only 20% to 35% of managers of active funds beat their benchmark for their category. And that’s their full-time job! Exchange traded funds (ETFs) provide a solid return over time and minimize your fees. Even Buffett himself established in his will that he would like to allocate 90% of cash of his estate for his spouse in a low-cost Vanguard index fund.
6. Raise Your Credit Score
This is another task that’s easy to talk about but harder to do. The good news is that it isn’t impossible, not even if you have a lower-than-average credit score. You just need to start eliminating those debts and making your bill payments on time so that your bank will be amenable to a loan the next time you need one.
Paying your debts on time makes 35% of your FICO score. This is the criteria with the most weight on your FICO score. By paying your bills on time all the time, you’re already taking the most important step in improving your credit score. In addition, if you pay more than the minimum monthly payment on time every time, you’re also taking care of the second most important factor of your credit score: amounts owed (30% of score).
7. Set Goals
Last but certainly not least, give yourself tangible savings goals that will keep you on track throughout the year. For example, you might try to put at least X percent of every paycheck into your savings account, or you might try to make at least X amount of dollars through your investments every six months. Meeting small goals will have a cumulative effect on your long-term goals.
These are just a few tips for better money management. Remember, the size of your bank account doesn’t matter; it’s all about how you handle whatever funds are available to you.
Image credit: Ken Teegardin