5 Steps I’m Taking To Improve My Own Finances This Year
It’s 2022, meaning our own personal financial New Year’s resolutions are coming to fruition. Unlike a majority of people who give up on their resolutions by February, these are 5 easy steps I’m taking this year that don’t require major life changes.
1. Learn How To Manage My Own Investments
I personally have never been a big fan of financial advisors for the average person. Sure, if you’re making millions of dollars, have foreign investments, and want to play in case you have a disability or long term illness, a financial planner can help you with taxes and investments specifically in disability and illness insurance. However, for most people like me, investing is for a simple goal: Retirement. Wth that being said, it’s not hard to set up retirement accounts and utilize free services to teach you about Roth and traditional IRA’s, 401Ks, and everything in between. In fact, the typical investor can’t beat the market, and they’ll charge you 2% for doing it, all while you can beat them AND do it for free.
If you don’t learn to manage your money, then other people will find ways to mismanage it for you.
2. Learn Where My Money Goes
The best way to learn where your money actually goes is by tracking. Unfortunately, this does take an effort, but it’s an important one. Once you see how the cost of your morning coffee adds up over the course of a month, you’ll realize that making small, manageable changes in your everyday expenses can have as big an impact on your financial situation as getting a raise.
If you’re anything like me, you look for every side hustle to make a few extra dollars a day. For some (I’m sure easily explained) reason, we get more pleasure from making a dollar than saving a dollar. This means that I will happily work extra hard to make an extra $5 a day, rather than stopping to eat out and learning to cook (even though, through my budgeting, I spend over $250 a month eating out, over $8 a day).
3. Pay My Credit Card Bill on Time
This seems like an obvious one, but it’s actually not so obvious: What does on time mean?
On-time credit payments are one of the largest components of your credit score. Condition yourself to be diligent about making timely payments and keeping your credit card balances low. I’ve decided to put a calendar event on my phone to remind me at the end of the month to pay in full each time.
However, there is an “on time” payment that is actually more helpful than just paying off at the end of the month, and many seem to not know.
Paying off your credit card right before the card statement is published, can be more helpful than just on the last day of the month. This is because your bank account doesn’t actually send your monthly totals to the credit bureaus, but your statement totals. Statements usually don’t go the first of the month to the end of the month, but a few days after the month starts. For example, U.S. Bank, which I have a credit card with, sends statements on the 4th. This means to get the lowest amount on my card, the lowest utilization rate, and thus the best credit impact, I should pay off all my debts on the 3rd. Otherwise, I accumulate credit debt the 1st through the 4th, which increases my credit utilization.
4. Using High Yield Saving Accounts For My Emergency Fund
Having money in savings to use for emergencies can keep you out of trouble financially and help you sleep better at night. Also, if you get into the habit of saving money and treating it as a non-negotiable monthly expense, then pretty soon, you’ll have more than just emergency money saved up — you’ll have retirement money, vacation money, or even money for a down payment on a home.
In fact, I often recommend to students and new investors to create a line-item in their budget for their savings, rather than just having savings be a “whatever is leftover from the costs”. By creating a savings line item, you not only guarantee you’ll have enough in your savings, but also mentally budget less for the rest of your activities.
But don’t just let your emergency savings sit inactive for the rest of your life. While you don’t want to invest it, because then, of course, it probably won’t be there in actual emergencies such as economic downturns, you do want it earning some form of interest. This is as simple as looking for High Yield Savings Accounts (HYSA) that pay higher interest than a normal checking or saving account. In times like these, that can mean .15% (compared to .01% in normal savings accounts), however just a few years ago in 2019 pre-pandemic, many savings accounts offered 2–3% a year on it. It’s extremely simple to just move money into the account monthly, but many people I know don’t even know they existed.
5. Diversify My Portfolio
I’ve gotten used to the market bull run, I’m sure many of us investors have too. After seeing my portfolio go up 60% in a year, I wondered to myself why anyone bothered with any other form of investing. Then the end of the year came, and 2022 brought market downpours.
This reminded me of the importance of diversifying.
I wrote a previous article about 4 different alternative investments you should consider. Some, like real estate, can be invested with actual physical properties, but also with stocks focused on real estate if you don’t feel comfortable with the high start up costs. Others, like wine, NFT’s, and staking, are riskier and more niche, but can create safer, and higher returns, than bonds or savings accounts.
In the end, the easiest way to diversify your portfolio is to diversify your stock picks. You don’t need to start buying up houses, bottles of wine, and create NTFs to “diversify”, when you can buy stocks focused on technology, consumer goods, and real estate, for no higher start up costs than what you’re used to.
In the end, while most people do not stick with their new years resolutions past February or March, these steps I listed for myself do not require lifestyle changes. At 5 minutes at most to research some stocks, look at my budget, and change savings accounts, anyone can do this and set themselves up for a great future.
