10 Small Money Moves That Can Have a Big Impact
These Changes May Seem Minor, but They Can Have a Major Impact
When it comes to money, small changes may work better than big ones. It's because smaller bite-size changes are more likely to grow into new habits that stick. Try these 10 small money moves to build habits that can have a major impact on your financial success.
1. Save a Little
Sure, saving a lot would be great. But saving what you can is even better. Maybe that’s $10 a month into the piggy bank on the kitchen counter, putting an extra $25 a month into your bank savings account, or beginning a 1 percent contribution to your 401(k).
It's easy to look at the budget and see nothing left over but if you're honest, there's likely an extra $10 somewhere. (Starbucks, maybe?) Small moves like this have a big impact over time.
2. Make an Extra Payment
What if you made one extra mortgage payment a year? Or rounded your car payment up to the nearest hundred dollars? A little extra here and there can mean your mortgage is paid off years in advance or your car is paid off months in advance.
One word of caution—with mortgages you may have to make the entire extra payment at once rather than paying a little more each month. If you add a little extra each month the lender may not apply the extra payment to principal. Contact your lender to find out how to pay extra in a way that the excess payment reduces your principal balance.
3. Learn Your Bracket
Taxes matter. If you pay them, you should learn how they work. Start by studying the tax brackets. When you look at the bracket you’ll see that after your taxable income exceeds certain limits, the tax rate goes up. Once you understand this you can see the benefit of contributing higher income amounts to a 401(k) or Traditional IRA—the deductible contributions save you money at the higher rate.
4. Switch to an Index Fund
Just because you can’t see the fee being deducted doesn’t mean it doesn’t matter. Mutual funds deduct fees before they give your share of the investment returns. It’s been proven that one of the best ways to find the best performing mutual funds is to switch to lower fee funds—which usually means using an index fund. As your account balances grow this simple change can save you thousands year after year.
Speaking of investments, ask your financial adviser how they're getting paid. If they're charging you fees and putting you in funds with high fees, you might want to seek a few other opinions.
5. Track Your Progress
It would be hard to find your way through a thick forest if there was no trail. It can also be hard to save for retirement without a sense of where your actions will take you. Online retirement calculators project your path—they help you see how your savings will grow over time and what kind of income might be available to you later. If you’ve never run a projection—get online and give it a go.
A financial adviser can help you with a detailed projection but the online calculators are a great help as well.
6. Read One Finance Book
A single book can impart knowledge that will serve you for a lifetime. Even if you don’t like reading, surely you can get through one book? The one I would recommend is Behavior Gap, by Carl Richards. It’s a great book on how our behaviors cause us to unknowingly make dumb decisions with our money.
Financial stuff can feel overwhelming. A simple step you can use to make it more manageable is to get your financial information organized. I was buried in debt at one point in my life. I didn’t want to see how bad it was—but it was only after I forced myself to organize all my credit card statements and tally up the totals that I began to make significant progress toward paying things off.
8. Buy Used
Cars, furniture, clothing… you can almost always find what you want and pay less for it by buying used. If you get in the habit of looking for used items first you can save hundreds, sometimes thousands, every single year.
9. Cancel Something
Too many of us have some type of recurring charge that is coming out of our bank account or being charged to our credit card—and it is for something we don’t even use. It might be a magazine subscription, annual membership renewal fee, or something you signed up for accidentally. Scour your statements and set aside the time it will take to cancel those things you don’t use.
While you're at it, is there something you do use that you could live without? That would give you more money to put toward your savings goals.
10. Turn Off Financial TV
One client told me that one of the things he really liked about working with a financial advisor was that he didn’t watch financial TV anymore. He found life to be far more relaxing once he tuned that stuff out. Everyone can benefit from turning off the financial stock tip shows. Put a solid long-term plan in place and watch stuff that will make you laugh—not stuff that will only stress you out.