How You Can Improve Your Finances In 2018
The new year always brings about change, and one of the most common resolutions people make is to improve their finances. That’s pretty broad, but what it really comes down to is intent and management. Usually, finances need improvement because they’re poorly managed or governed by indiscipline.
So where you usually start with finances needs to be a good, hard look at what you’re doing and why. This generally boils down to basic budgeting: what’s coming in, and what’s going out?
Understand where you are in relation to your expenses
A budget is a good way to get a handle on this. If you don’t operate on a budget, start doing so immediately. You literally can’t implement any changes unless you know what you’re working with.
But, for the sake of argument, let’s assume you have a budget and stick to it. What is it that you’re trying to do (more on that in a minute)? What sources of income do you have, and what percentage of that income goes toward expenses?
Some expenses are necessities, and that’s how you should organize your budget if you don’t already. Paying down debt like student loans or outstanding credit card balances is a must, along with basic things like rent/mortgage, food, transportation, etc. Discretionary spending, on the other hand, is probably where you’ll find the most fat to trim, which brings us to our next point:
Look for ways to save, because every penny counts
We’re not going to tell you that forgoing your daily cup of coffee is your ticket to affording a home, because if you save five dollars a day it would take you 70 years to amass enough for the cost of an average home. We’re also not going to tell you it won’t help, either; when financial advisors and consumer advocates encourage saving, it’s more about the mindset. The more you can save, the better your chances of achieving financial goals.
So don’t think of it in terms of saving a few dollars a day. Instead, think of it as being in the practice of cutting costs wherever you can as a habit.
To that end, look for ways you can trim the fat in your budget, because those pennies do add up. It’s not just about discretionary income either, even though trimming down your entertainment budget certainly won’t hurt. If you can save on toilet paper by shopping at wholesale stores, then make that part of your plan. Buying in bulk, by the way, is a great way to save on certain necessities. Even though it’s daunting to spend more upfront, you save more on the back end. It circles back to our previous point in that knowing what you can spend and not being intimidated by higher upfront costs is a matter of budgeting.
Set reasonable, specific, and manageable goals.
The key to setting goals lies in the plan for achieving them. Anyone can say, “I want to retire as a millionaire.” That’s easy. The hard part is how. It’s not enough to have an idea for getting there, because again, anyone can say they want to win the lottery or start a business.
The distinction needs to be made between feasible plans of action and those that are just unreasonable. To get there, you need to A.) break up your goals into smaller stepping stones to get to your destination, and B.) be specific about what those stepping stones are and how they’re in service of your larger overall plan.
Have a financial goal, but prepare a rainy day fund.
Americans in this day and age are terrible when it comes to saving. Over 40% of the population couldn’t come up with $500 immediately in case of an emergency. So while it’s good to plan ahead for your goals, you also need to plan for worst-case scenarios. Unfortunately, the path to severe financial trouble can be as simple as an illness or a layoff at work.
The best rule of thumb is to have enough set aside for six months’ worth of expenses in case you find yourself without an income for one reason or another. This is usually enough to cover most other types of emergencies, or at least help make them not quite so financially devastating. “Emergency” is a broad category here, and the idea is to have this fund in case anything comes your way. You can’t exactly plan for medical costs for an illness you may never get, but having several thousand stashed away would be better than not should you find yourself in that situation.
When it comes to saving money, be creative!
This is an overlooked aspect of financial management. You can have a lot of fun doing it, and you might find that you’re a wiz at doing well by spending relatively little. When you get into the right mindset, you’ll start comparing insurance plans and buying groceries in bulk. You might install web browser apps like Honey, which automatically search for discount/coupon codes across the Internet instantly whenever you check out at an online store.
You can also do things like clear your browser history when searching for flights or hotels, because most travel and airline sites know when you’ve been looking around for accommodations – by using common tracking codes called cookies – and actually raise their prices because they know you’re more likely to buy (seriously, that’s a thing).
To give you an example that’s close to home for us, as real estate investors we’re able buy smart on materials when renovating homes, which dramatically cuts our costs. When designing interiors, sometimes we’ll grab a beat-up furniture piece from a thrift store, strip it, and repaint it with a faded look. Things like that are great additions to rooms with a modern-chic design, and it also works for rustic looks too!
For more perspectives on finance and consumer advice, check back with us each week as we post new blogs and be sure to sign up for our Priority Access List for advance listings and market updates. We’ll see you next week, and in the meantime, don’t forget that you can also keep up with us on Facebook and Twitter!
– Get It Right Solutions LLC