Big things come in little packages. That’s true in a lot of areas of life, and it’s certainly true when it comes to money. In fact, some of the most important and effective money moves you can make are quick, easy, and really powerful. As we approach the end of the 2016, I thought it would be a good time to review 11 steps you can take to easily improve your finances in the coming year.
1. Pay your bills on time: This sounds simple, I know, and fairly obvious. But it’s important enough to be worth mentioning.
While financial setbacks sometimes prevent us from keeping up with our bills, most times it’s just a matter of organization and discipline. The importance cannot be stressed enough, though. Late payments can wreck your credit score, result in default interest rates, and sour important relationships with your creditors (you never know when you may want to increase your credit limit).
If you have a habit of missing payments, there are several options that can help you stay on top of your bills:
- Automate: Set up automatic payment on as many bills as you can. We pay our mortgage, home equity, electric, gas, and phone bills through automatic deductions from our checking account or credit card (we always use a cash back card for payment when we can).
- Pay as you go: As soon as a bill comes in, pay it right away. This way, there’s no doubt that it will get paid on time.
- Batch and process: Another approach is to designate one or two days each month to sit down and pay your bills. If you need to spread them out throughout the month to match your income, setting up a cash flow calendar is a great tool.
- Money management software: Software and online tools can help you better manage your money. I’m a fan of both Quicken and YNAB (You Need a Budget). I use Quicken now, but both are good options, as are several free online money management tools. Just use whatever works best for you. A tool is only valuable if you actually use it!
2. Track your net worth: When it comes to measuring your progress, net worth is THE key yardstick. Each month we make money and we spend money. The results are reflected in our balance sheet. Make more than you spend, and the difference shows up as extra cash in the bank (an asset), or perhaps an extra payment on a credit card (a liability). Spend more than you make, and the difference shows up as a withdrawal from your bank account or perhaps a charge to a credit card or home equity line of credit. Either way, it’s the balance sheet that measures our progress.
If you’ve never prepared a balance sheet, our 3-step financial checkup shows you how.
3. Check your credit: You can get your credit report for free once a year from each of the three major credit bureaus from annualcreditreport.com. Because they can each have different information on file for you, it’s important to check your report from all three. Get them all at one time each year, or pull one from each bureau every four months. Either way, check your credit report for errors every year.
The reason it’s so important is that your credit score can have a major impact on your finances. It affects everything from the interest rate you’ll get on a mortgage to the rate you get on credit cards or your next car loan. In her excellent book, Your Credit Score, Liz Weston analyzes just how much a good credit score is worth. Over the course of a lifetime, it’s easily worth tens of thousands of dollars for most people, and even more for some.
Some new studies even suggest that those who check their credit more often actually wind up with higher scores. Neat, huh? Note that you can’t get your FICO credit score from annualcreditreport.com. If you want your score, check out these free ways to get your credit score.
4. Rebalance your investment portfolio: Over time, your investments will deviate from your asset allocation plan. As one asset class goes up and another goes down, you will end up with too much money invested in one class and not enough in another. We rebalance once a year, but whatever you choose, make sure to keep you investments in line with your plan.
5. Conduct a credit card audit: Once a year, we review our credit cards and ask whether we’d be better off with different cards. For example, if you are carrying a balance from month to month, ask yourself whether you can get a card with a lower interest rate or a 0% APR on balance transfers.
If your focus is on rewards, ask whether there are better cards available. I just converted our Amex Gold Preferred Rewards card to a Premier Rewards card. The rewards are much, much better, and all it took was a few minutes online to make the change.
One final thought. If your credit score has improved throughout the year, you may qualify for cards you couldn’t get a year earlier. If you’re not sure, check your score and then compare cards. While credit card issuers look at more than just your credit score, here is a good rule of thumb for translating credit scores into the types of cards you can get: 700+ (excellent and good credit credit cards), 650-699 (fair credit credit cards), below 649 (poor or bad credit credit cards).
6. Evaluate your bank: I’ve banked at Citi for nearly 20 years. Still, each year I ask myself if there are better options out there. And when I need to open a savings account or CD, I don’t limit myself to Citi. Instead, I look for the highest yields available. So look at where you keep your cash and ask yourself whether you can do better.
7. Review and revise your goals: Goals are critical in just about every area of life. They are particularly important when it comes to money.
Our goals this year include paying off all non-mortgage debt, giving a certain amount to charity, and expanding our investments. Whatever your goals, write them down and refer back to them regularly. They can be a great motivator.
8. Scrub your monthly expenses: It’s amazing how many creative ways there are to save money. You can reduce telephone bills by moving to MNVOs like Republic Wireless or a prepaid plan. You can reduce heating and cooling bills in countless ways, including using programmable thermostats and CFL bulbs. You can rid yourself of cable and still enjoy most TV shows. The list goes on and on. If you want more ideas, check out my free book, 99 Painless Ways to Save Money.
9. Consider refinancing your mortgage: Although rates have ticked up a bit lately, they are still at historic lows. If you haven’t refinanced, now is the time to consider it. This one move could save you hundreds of dollars a month and thousands of dollars over the life of your mortgage.
10. Evaluate all of your insurance: Once a year, we reevaluate all of our insurance. We examine our deductibles to see if we can save money by raising them. We ask whether we need all of the insurance we have. And we shop for better rates, which is easy to do online.
11. Get smart: Improving your finances is a life-long learning process. Whether you want to become a better investor, start a business, or just better manage your money, there are some great books that can help you along the way. Some time ago I put together a list of 7 great personal finance books. These books are still valuable today, as are many others. The key is to never stop learning.
If you have other things you are doing this year to improve your finances, leave a comment to let us know what you are doing.