The amount of financial advice available today can feel overwhelming. But overlooking some of the most important parts can carry a heavy price tag and have a significant impact on overall financial wellbeing. To help make sorting through the advice more manageable, here are 13 pieces of easy financial advice to help you save and earn more.
1. Always Pay Yourself First
Americans aren’t the best at saving money. Often, a household will save the equivalent of what they earn in 15 minutes each day, which is far less than the recommended amount. To ensure you are saving enough, set your bank account up to transfer an amount that equals 20 percent of your pay into savings every payday and make it as much of a priority as paying any other bill.
2. Watch Out for Lifestyle Creep
The urge to keep up with friends, family members, and co-workers leads many households to spend beyond their means, which can spell disaster in the long-run. Often, people resort to taking on debt when their desired lifestyle and the life they can afford don’t match up. Instead of succumbing to the pressure, focus on living within your means and plan for any recurring expenses.
3. Use the Employer-Sponsored 401(k)
The earlier a person begins saving for retirement, the more compound interest works in their favor. A company 401(k) is an excellent way to get started and, in cases where the employer offers a match, can actually give you access to free money for retirement.
4. Invest Properly
Investing in the stock market can part of a healthy financial plan. But trying to time the market isn’t a realistic goal. Instead of moving the money around, focus on investments that you can maintain over the long-term. For example, target date retirement funds offer the ability to invest without having to actively manage the money. They also automatically adjust the asset allocation and level of risk based on the assigned retirement horizon, allowing you to diversify without having to make individual selections yourself.
5. Create an Emergency Fund
At some point, you will face an emergency that requires money now. Having an emergency fund lets you direct money towards these unexpected expenses before they occur. Ideally, most people should have at least three months of living expenses in an emergency fund, separate from other savings. That way, when disaster strikes, you have the money available to manage the situation without having to take on debt.
6. Pay Off Credit Cards Every Month
Carrying a balance on a credit card means you are paying a sizeable amount of interest for the privilege of using a financial institution’s money. And, if you miss a payment, you could be slapped with harsh fees too. Add to that the fact that high credit card balances can damage your credit score even if you pay the minimum payment on time, and it is hard to see any benefit of using them as a long-term financing solution.
7. Right-Size Your Savings
Having money in savings is critical, but you don’t want too much of your money sitting in a simple savings account. While your emergency fund and other short-term savings may need to be in a more liquid account, long-term savings is better placed in an account that provides a higher return.
If you are particularly risk-averse, at least look into high-yield savings accounts for money that will spend some time in the bank. While earning a 1 percent return doesn’t sound like a lot, it is better than an account that offers rates closer to 0.01 percent.
8. Add a Second Credit Card
Part of your credit score is focused on your credit utilization ratio, a reflection of the amount of your available credit that you actually use. If you have a single card and the balance gets high, your credit utilization ratio rises quickly. Having a second card can help buffer the effects of using a credit card by ensuring you have more credit available.
9. Concentrate on High-Interest Debt First
When you work to pay off debt, it is always wise to start with the one that carries the highest interest rate. In fact, dealing with high-interest debt should even be a priority over non-retirement investing and even building an emergency fund beyond the first $500 to $1,000. The amount of money you save by paying down the debt far outweighs the interest you’ll get from most savings options, making it good financial sense to work on it over other potential priorities.
10. Keep Up with Insurance
Not having the right insurance can cost you dearly during an emergency. Failing to have health insurance comes with fines from the IRS and leaves you vulnerable during a medical emergency. Other insurance, such as auto and homeowner’s or renter’s, are also important for mitigating the cost during an accident or disaster, making them important to the larger financial planning picture as well.
11. Manage Your Taxes
While paying your taxes isn’t fun, it is a necessity. Failing to file with the IRS leaves you open to penalty fees and even interest on the money you owe. You may also see a hit on your credit report, as well as a range of other financial consequences. This means you should make filing your taxes every year a priority.
12. Tracking Household Spending
Often, you can’t plan for your financial future if you don’t know where your money is going in the present. Simply tracking your household spending can give critical insights into where your money is going and will help you gain more control over your finances in both the short- and long-term.
13. Give It Time
The most important requirement for building wealth is to give it time. In the beginning, the amount earned from interest and other gains will seem small. Over time, however, compound interest will begin to make even a small amount of initial savings more powerful. While much of it doesn’t require a lot of effort, it does require patience. So, remember that time is critical to the process and give it a chance to work its wonders as you strive towards a brighter financial future.
h/t Business Insider