Making changes to what we are accustomed to for many years is not easy, especially when it involves the way we handle money. We all know that if we make wise money moves as soon as possible, the possibility of getting better financially is greater. Most of us will set all kinds of goals for the New Year and still ended up going back and making that same old money habits.
Well, the ball has dropped, and the party has raged and fizzled out. A new year (and decade) is upon us, and after a month of financial decadence, it’s time to set your house in order.
The 9 Money Moves to Make That Will Accelerate Your Financial Growth:
Clean up your credit
This should be on top of everyone’s money moves list for the new year. Kickstart your new tax year by taking stock of your finances. And there’s no better place to start than taking a close, hard look at your credit.
Go to AnnualCreditReport.com to get your annual credit report checks free of charge. If you don’t like what you see therein, that means you have neglected this exercise for far too long. Luckily, there’s nothing in your reports that cannot be fixed, although some damage may linger more than others.
Go through the 3 reports with a fine-tooth comb. Watch out for anything that may be harming your credit scores and making it increasingly challenging for you to get new loans. Things like late payments, high credit card balances, past-due loans, or frequent hard inquiries.
Be on the look-out for anything that seems out of place and immediately file a dispute with the concerned credit bureau. It could be an error that will negatively impact your score if not corrected.
Focus on boosting your credit score by:
- Paying down existing debts: Especially cards with high utilization rates (that is the ratio of the available credit to the credit you’ve used). Pushing down this ration to less than 30% will boost your credit score quickly.
- Paying on time. This is the single most significant factor that affects your credit because creditors need assurance that you’ll pay your debts on time. While there’s little you can do to reverse past missteps in this direction, paying on time will build a recent positive history and reduce the impact of the adverse reports.
Focus on paying off high-interest debts
Out of all your loans, determine the ones with the highest interest rates, then tackle them with all your might.
Carrying high-interest debt is basically having the formidable compound interest work against you. You’ll pay interest on accumulated interest in addition to the principal. This drags down your financial health as well as your credit score.
Shop for a loan with a lower interest rate and use it to consolidate your loans. This will reduce your monthly payments, making it possible to pay off your debt faster and pay less in total interest.
An obvious but often underrated way of saving money is by learning how to carry out essential repairs and maintenance yourself. It’s normal for things to break in your home and your vehicle.
While it helps to have an emergency fund for these contingencies, these mostly unexpected repairs could dent your finances severely. You can save a lot of money by rolling up your sleeves and learning how to fix things.
There are endless sources of information on a variety of home improvement projects and essential vehicle maintenance and repairs. These range from changing your car engine oil to fixing leaking plumbing.
All these can be found for free on YouTube and other online resources. Even if you paid for a manual, it would still be far cheaper than paying someone to do the job.
Increase your retirement contributions
Capitalize on the powerful principle of compound interest by increasing your retirement contributions every year. Even a 1% increase in savings will make a lot of difference.
Check how much wiggle room you have in your budget to accommodate the increase and raise your contributions accordingly. It may not make any noticeable difference in your paycheck, but your retirement nest egg will benefit significantly due to compound interest.
If your employer matches your contributions, you should try to max them out. Channel every spare money towards increasing your retirement savings. If not for anything else, it will help you keep up with inflation rates. You’re better off starting now. Compounding interest becomes less beneficial with new contributions as you near retirement.
If you’ve maxed out your contributions, consider investing the leftovers in an I.R.A. An I.R.A. also comes in handy if your employers don’t offer a 401(k)-retirement plan.
Set aside money for an emergency
An emergency fund keeps you safe in the event of an unexpected financial expense. However, despite all the standard advice to set aside money to meet up with any contingencies, many Americans have no emergency savings. Even worse, they rely on short term loans or credit cards to pay for emergencies.
Make setting up an emergency fund your top priority this new year, if you don’t already have one. An excellent way to start is by having enough money in your emergency savings to cover 3 to 6 months of living expenses. The funds may be squirreled away in separate savings, checking, or money market account.
Imagine forking out $1000 to fix a blown car radiator. With an emergency fund, you take the sting out of such unexpected expenses.
Trim your expenses
It’s very vital for your financial health for you to live well below your means. This means that you spend less than you earn each month. While it sounds so simple, it’s easier said than done. Credit cards and loans lure people into spending more than their income will allow.
Therefore, make trimming your expenses the central part of your financial plan this year.
Create a budget to plan your costs and keep track of your spending.
Save up for high-cost expense items instead of relying on your credit card. And do not attempt to keep up with the Joneses: you may be able to fake wealth by buying all the trappings on credit, but your reckless spending will catch up with you sooner than later.
Review your recurring expenditure and cut out needless bills. Cancel subscriptions to magazines you hardly read, the gym membership that you’ve only used once in 3 months, and other things you don’t really need.
Start a side hustle
Like most people, you may find it difficult to cut down your expenses and living within your means. But there may be another way to go about it and quite possibly one of the best if not the best money moves you can make especially if your expenses exceed your income.
What if you could increase your income?
A side business or side hustle allows you to make extra money on the side for some extra cash often by doing something you love in addition to your regular job. And there are no shortages of opportunities to make money on the side in 2020. You can sell your skills as a freelancer, flip items on eBay, Etsy or Amazon, drive for Uber or Lyft, or even walk dogs.
Apart from increasing your income and as a result, improving your finances, a side business also allows you to explore and develop innate abilities that your 9 to 5 may not demand of you.
Automate your finances
Automate your finances by putting systems in place to automatically transfer money from your checking account or through paycheck deductions into your savings or retirement account. This makes saving money every month effortless because one of the hardest things about saving money is having to remember to log in to your bank account and initiate various funds transfers by clicking the transfer button.
When you automate your finances, the right amount of money will be sent to the right account at precisely the right time. You won’t have to set a reminder for yourself or even do as much as lift a finger.
You won’t be using up all your willpower fighting the temptation of acquiring a shiny new gadget and putting off savings till the next month.
It’s undoubtedly hard to spend money that has since left your account or paycheck.
Apart from saving money, automation can help to pay bills and expenses with greater efficiency. When you charge a recurring bill automatically to a dedicated account or card, you won’t risk forgetting a due bill, thereby saving cash you would have otherwise paid in late fees and penal charges.
When you automate bill payments like mortgages, utilities, tuition costs, memberships, and subscription, you’ll simplify your finances and save time, which you can dedicate to analyzing your finances, planning your tax, managing your investment portfolios and other more critical tasks.
Automation isn’t limited to just paying bills and savings. You can automate deposits into your investment accounts periodically and into a mix of funds of your choosing. This will help you to avoid the temptation to time the market.
Get professional help
It can be overwhelming to manage your finances yourself. Especially if you went overboard during the holidays and put yourself in a financial bind. While you may be more comfortable getting advice from close friends and family, getting professional help may be just what you need.
A professional financial adviser can help straighten out your finances, improve your financial health, and put you on the path to wealth. Whether you’re saving up money for a new house or ridding yourself of debt, a financial advisor can work with you to design a bespoke financial plan with defined strategies to help you reach your goals.
The start of a new year is a time people usually take stock of their lives, identify areas they fall short, and create specific plans to make improvements. While resolving to eat healthier, exercise more, or quit smoking will keep you in good health, sound financial resolutions dutifully executed will help you make the best out of your money. The money moves I mentioned above will definitely help you have a much better year than the previous, financially at least.