“Beware of little expenses. A small leak will sink a great ship.” — Benjamin Franklin
How to Improve your Finances
Money might not be the most important thing in life, but it most certainly makes the world go round. And, although it’s not the be-all and end-all for happiness, it’s something that most people closely tie to their overall quality of life. And, if your finances have been a source of contention for you, then you’re not alone.
Most people struggle, financially speaking. As an emotionally-charged subject, money is integral in any person’s standard-of-living. When you have money, you’re free to do things that most people simply can’t do. But, money delves deeper than that. For most people, having more money means having more time, freedom, and less cares in the world.
Whatever emotional-shape money takes on for you, it’s clear, regardless, that our financial worlds can often be in a state of disarray. For one reason or another, we feel like we have no control over money. We feel imprisoned by debt and shackled by obligation. And, usually, most people have little to no money left over the closer they get to the end of the month.
Needless to say, then, that most people are looking for ways to improve their finances. But with so much going on all the time, we tend to get sidetracked and forget about the important little steps that can help give us a sound financial life. So, if you’re amongst the millions out there that are looking for ways to improve their financial picture, here are some sure-fire pointers that will help.
#1 – Set Clear Financial Goals
One of the best ways that you can improve your finances is to set clearly-defined financial goals. This doesn’t mean some abstract target in your mind. Your goals can’t simply be to have or make more money; they have to be real and measurable. You should set your goals for the long term and the short term.
Your long-term financial goals should be your big-picture ideal. 5 or 10 years from now, where do you picture yourself? Once you have the long-term goals defined, go about setting the short term ones as well. What are your financial goals 1 year from now? Write them out with real dollar amounts that have set dates.
Don’t just say you’ll make more money by the end of the year. How much more money will you make? Set a figure. Do you want to get out of debt? Exactly how much debt do you plan on paying off, and exactly by when? Maybe your goal is to eliminate $10,000 of debt in the next year. Define that and set a date that you can move towards.
Setting financial goals that are real and on paper creates a visceral transformation in your mind. When you can see your goals outlined there in front of you, you’ll do much more to achieve them. The unconscious mind has a funny way of moving you towards what you ask it for, as long you know what that is. When it’s abstract, it’s easier to get distracted and put it off. Make it real and measurable.
#2 – Create Financial Milestones
Milestones create the bridge between your financial goals. When you set a yearlong financial goal, the milestones are what make up the gaps between that year. For example, if you’re looking to pay off $10,000 of debt within 12 months, you could break that down into monthly and weekly milestones.
Financial milestones are important because they target the small picture. On a weekly basis, when you have a specific milestone in mind, it’s easier to track. For example, paying off $10,000 of debt in one year means paying off approximately $192 per week as a financial milestone.
$192 per week is more manageable to some people than the ominous figure of $10,000. When you have a financial milestone, it’s easier to adjust your spending and saving habits accordingly. How much is your latte habit costing you per week? How about buying lunch out? There are always ways to cut your spending when you absolutely need to.
You can even go as far as creating daily milestones if necessary. On a daily basis, when you break things down that you plan to achieve in a year, it’s far easier to move closer and closer to those goals. When we don’t break things down into milestones, it’s easier to get sidetracked, distracted, and end up procrastinating.
#3 – Track All Expenses
In a recent post about keystone habits, I talked about the importance of developing certain habits that help to create a domino-effect for building other habits. Expense tracking is one of those habits. Often, we lose site of our spending simply because we fail to track the money going out every single day.
When we lose site of our expenses, it’s easier to overspend. However, when you can see every last red cent that goes out, right there in front of you, it’s harder to lose sight of that. If you’ve never tracked expenses, this one habit can literally transform your financial life.
To do this, simply setup a spreadsheet, download an app, or just buy a small notepad that you can write in every single day. Then, all you need to do is jot down the expense with some detailed information. Include the amount, description, date/time, why you spent the money, and categorize the expense.
This means that for every single thing that you do or purchase in a day, you need to catalog it, without fail. Commit to doing this for 90 days and watch your financial life transform. Simple daily habits that include lattes, cigarettes, and pricey lunches eating out, can add up over time. When you track expenses, you can see the cost of your bad habits much easier.
#4 – Immediately Open Bills
One way to improve your finances over time is to open all of your bills immediately when you receive them. This also goes hand-in-hand with tracking all expenses. When you receive your bills, catalog and understand them. Don’t ignore them. Again, I know that it’s easier to ignore bills when you don’t look at them and track them, so don’t fall into that trap.
Immediately opening your bills also has other effects as well. It impacts your spending habits. When you ignore bills, and you don’t prioritize them, your impulse spending increases. You’re far more likely to engage in impulse buying when you ignore the bills sitting on your table at home.
When bills and other notices pile up at your home or office, it also helps to further cloud your unconscious mind. While the conscious mind may be able to ignore it, it sits in the unconscious mind, stirring and building fears, anxieties, and worries. If you don’t tackle it, this can help to further distract you from pursuing your goals.
#5 – Take a Daily Money Minute
Every single morning, you need a money minute. What’s a money minute? It’s a time where you login to your bank accounts and review the transactions from the prior day and engage in some lightweight financial planning. You want to ensure that you know what money is going out of your account and why. And, if you’re tracking your expenses, you can double check this with ease.
Your daily money minute helps to further bring things into the conscious realm of your mind, and not hide from the costs that you’re incurring on a daily basis. Take this time to briefly analyze your goals and objectives. Where can you be putting your money that will help to get you ahead over the long term? Are there any expenses you can help to avoid in the future?
Asking yourself these questions and reviewing your financial picture on a daily basis is all part of the money minute. Your money minute could be 5 minutes, 15 minutes, 30 minutes, or even an hour. This all depends on how committed you are to your saving, spending, and investment objectives.
#6 – Prioritize Debt Repayments
One of the biggest deterrents to making headway, financially speaking, is the overwhelming debt that most people face. When you’re faced with enormous debt, it’s hard to concentrate on anything else. How can we be expected to get ahead when all we can see is mounting debt in front of our eyes?
When we’re facing enormous debt, it’s also easier to avoid looking at bank account statements. But, the sooner that debt is repaid, the better you’ll feel. And, like everything else, debt repayment builds momentum. Once you get in the habit of paying off debt, your overall spending will fall in line with it.
To prioritize your debt, pick the highest interest credit card that you have, and double the minimum payments until it’s paid off. Then, switch to the next highest interest credit card. If your goal is to get out of debt, not only do you have to make a plan for repayment, but you also have to monitor your spending habits.
Usually, when most people receive cash from something like a mortgage refinance, inheritance, or other source, they pay off their debt only to accumulate it back up again. So, you have to be wary. If you want to live a debt-free lifestyle, do things like tracking your expenses and taking a daily money minute. Monitor where you are, financially, and where you’re going at all times.
#7 – Save & Invest 15% of Your Income
Most people have poor savings habits. They’re unable to save any of their income. In fact, according to one study by BankRate.com, 76% of Americans are living paycheck to paycheck. That’s more than two-thirds of the population in world’s richest country. The study also concluded that fewer than 1 in 4 Americans have enough in savings to last them 6 months should they lose their ability to earn income.
These figures for America state the obvious. If the richest country in the world has problems, how is the rest of the world faring? Regardless, what’s evident is that most of the world is simply trying to get by from month to month. They’re struggling to get from one pay-period to the next.
So, it’s safe to say that saving and investing is quite possibly the furthest thing from peoples’ minds, and rightfully so. However, so much can be said about modifying one’s lifestyle in order to support saving and investing income. At first, it might seem down right impossible. However, over time, like any other habit, this one takes root and gets stronger and stronger.
And, in order to get ahead, saving and investing has to become a priority. Tucking away at least 15% of your income is a necessity. If you can’t manage that, then you’re not digging deep enough. Building a savings habit is difficult, but possible. As the money accumulates over time, you build momentum.
#8 – Create a Monthly Budget
Creating a monthly budget is beneficial in nearly every aspect of your life. It keeps you on track for spending, helps to determine how to achieve a financial goal that you set out to achieve, and it provides some structure to our often chaotic lives. Budgets bring order to that financial chaos.
Today, creating a budget isn’t very difficult. In fact, there are plenty of tools at our disposal. From smartphone apps, to desktop-based solutions, and even pencil-and-paper ones. Once you find your favorite tool, simply build yourself a budget that you can stick to. Follow along with the other ways mentioned here to improve your finances, and over time, it will come together.
However, that being said, sticking to a monthly budget can be difficult, especially when certain habits are ingrained. If you know that you have some bad habits that are costing you a pretty penny, prioritize the elimination of those habits. Keep in mind that if a goal means something profound enough to you, you’ll do whatever it takes to reach it, which includes eliminating any and all financially-draining habits.