Manage your money more effectively.
Your house, your car and your career all affect your finances. But smaller decisions, such as the bank accounts you open, the meals you buy and the apps you use can also have a significant impact on your financial well-being. If you want to keep your financial house in order and achieve your long-term money goals, don’t overlook small decisions that can have a big impact on your life.
Make saving an automatic process.
The easiest way to fatten a bank account is to take decision-making out of the equation and automate your savings. Thanks to direct deposit and automatic transfers, you can easily funnel money into a retirement fund or savings account each month. Many employers allow workers to split their paycheck between multiple accounts, making it simple to send some money to a savings account and the rest to checking. Meanwhile, contributions to a company-sponsored 401(k) plan may be eligible for matching funds to help your balance grow even faster. If neither of those are options, banks such as PNC and Citizens Bank allow customers to set up automatic recurring transfers from one account to another.
Bank extra money.
If it’s not possible to put part of your paycheck into savings right now, wait until your next raise. When that comes, divert all the additional income into savings. Since you haven’t been living off that money, it should be relatively easy to stash it into an account for future expenses like home maintenance or travel. The same applies to bonuses, gifts, tax refunds and other unexpected cash windfalls. Rather than spend the extra earnings on a whim, set the money aside for more meaningful purposes like home maintenance, retirement savings or debt repayment.
Open a sinking fund account.
A sinking fund is an account with money set aside for a future need. If you plan to go on vacation, you might have a sinking fund specifically for travel. Or if you need to buy propane in the winter to heat your house, you may have a sinking fund account in place for that. You can save a small amount each month toward an expected big-ticket item or service. “The key is that it’s a completely separate account,” says Zev Fried, managing director at investment management firm JSF Financial in Los Angeles. That way, you aren’t tempted to dip into the account for other purposes.
Invest your money.
Savings accounts are ideal for storing money that needs to be easily accessible in case of an emergency. However, the national interest rate for savings accounts with less than $100,000 is 0.07 percent, according to the Federal Reserve Bank of St. Louis. Invest your money in mutual funds for bigger gains. “People always think they have to get involved in a big brokerage firm or have an expensive financial planner,” says Neil St. Clair, president and COO of the Karma Network, which creates original programming for investors. However, online brokerages such as Betterment and Wealthfront make it easy to invest even small amounts of money. Wealthfront requires a $500 minimum balance; Betterment has no minimum deposit requirement for its basic accounts.
Rethink small purchases.
Cary Guffey, a certified financial planner with PNC Investments, says people often succumb to the “it’s only” mentality. They will make purchases because “it’s only $5” or some other small amount. Those seemingly inconsequential expenses can quickly add up. For example, say a drink at a casual restaurant costs $2.50. If a family of four buys drinks once a week while dining out, that could amount to $520 per year spent on beverages. Guffey says people should ask themselves: “Would you rather have something [worth] $1 a day or $365?”
Calculate the usage rate.
Rather than eliminate categories of spending from your budget, consider how often you expect to use purchases in those categories. “I have no problem with the gym membership if you use it,” Guffey says. According to Guffey, everything is a math problem. He encourages people to calculate the expected usage rate of the things they buy. For instance, a $20 piece of clothing might seem like a bargain. However, if you only wear it once because it doesn’t fit well or is poorly made, its usage rate is $20. If you buy a similar item for $100 and wear it 10 times, the usage rate is only $10. In this case, the more expensive item is the better value.
Tap into digital banking apps daily.
As online banking apps have become ubiquitous, customers can quickly check recent transactions and current account balances. Make logging into your accounts a part of your daily routine, just like checking email and social media. “It’s hard to make [the] right decisions when you have blinders on,” Fried says. Checking your balance every day can help you stick to spending priorities. It also allows you to catch any fraudulent or unexpected transactions quickly.
Track your spending patterns.
While checking your account daily is helpful, it’s even better to transfer those transactions into a reliable tracking system. While paper checkbook registers seem to be largely a thing of the past, software and apps like Mint, YNAB and Quicken are replacing them. Some options, like Mint, are free, while others require an ongoing subscription. These programs can import transactions and allow you to add upcoming bills so you can quickly see how much money you have available to spend. Plus, they have an added bonus of allowing users to total spending into categories. “Very few people know how much of their discretionary income is spent on dining out,” St. Clair says. Monitoring your spending can help provide this information so you can evaluate if certain spending habits need to change.
Shop with a list.
Impulse purchases can quickly torpedo even the best-laid-out budgets. Instead of mindlessly shopping, take a list of exactly what you need, so you’re not tempted to splurge on items that aren’t essential. If you find something you’d like to buy as an unplanned purchase, wait a day. If you still want the item after sleeping on it, add it to a wish list. For online shopping, delete stored payment information on favorite sites to eliminate the ease of one-click purchases and make it more difficult to spend impulsively.
Turn saving into a game.
St. Clair and his wife sometimes challenge one another to see who can spend the least amount of money during a night on the town. Making a game of saving money is one way to make it feel less restrictive. The internet is full of blog posts and articles about spending and savings challenges. Some people may see how long they can go without spending a dime on discretionary purchases. Other people save their $1 bills or incrementally increase their weekly savings to see how much they can put aside before it puts a crimp on their budget. The trick is to find a challenge that appeals to you and keeps you motivated.
Downsize purchases.
A small change that can make a big difference in your finances is reducing the number or amount of something you’re buying. “Rather than a venti [coffee] at Starbucks, get a [smaller] tall,” St. Clair says. Another way to downsize is getting “one less margarita at the bar during happy hour,” he adds. In this way, you can still enjoy small splurges, but minimize the amount you’re spending on them.
Negotiate ongoing bills.
While some bills such as utilities and rent aren’t easily negotiable, others have rates that are highly flexible. Phone, internet and cable services are three expenses where you can secure discounts if you’re willing to ask for them. “Call up the company [and say], ‘Dish is reaching out to me Mr. Time Warner,'” Fried says. Companies are often willing to extend special offers or promotional pricing to those who aren’t bound by a contract and are being courted by other providers. “They want to keep their customers,” Fried adds.
Transfer your credit card balances.
Ideally, you wouldn’t carry a balance on your credit card. However, in the real world, American households hold $834 billion worth of credit card debt, according to 2017 findings from the Federal Reserve Bank of New York’s Center for Microeconomic Data. If you are carrying debt on high-interest cards, it’s time to look for balance transfer offers that will give you low or no interest. Depending on the interest rate and your balance, the savings can be significant. “If you can save $75 a month, that’s $900 a year you’ve just saved,” Fried says. Be wary of balance transfer fees that can cut into that amount though.
Cancel subscription services.
From the auto club you never use to Netflix, which you never watch, your budget might be nickel-and-dimed by small recurring expenses. Scour your bank account and credit card statements and cancel any services you see that aren’t used on a regular basis. The only exception might be retainers for professional services such as legal work. These aren’t used often but might be valuable to maintain.
Buy insurance for your earnings.
Earning and saving money is only one aspect of financial security. You also have to protect that earning power. “People spend a lot of time thinking about accumulating assets,” says Craig Simms, senior vice president of Vantis Life Insurance Company. “What they don’t think about is if one or more breadwinners weren’t here to finance [their lifestyles].” Buying insurance — such as life and disability coverage — may sound like a big decision and a complex process. However, if you have benefits through a job, buying coverage is simply a question of checking the right boxes during open enrollment.
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