Whether you’re stuck in a cycle of debt, earn too little to maintain your desired standard of living, or simply want to get a jump start on saving for a major financial goal such as buying a home or investing, you may need help to get on track with your objectives.
Follow the strategies in this article to take control of your finances right now. Let get into it.
- 10 Simple Steps to Improve your Finances in 2021
- How can I Improve my Finances in one year?
- What to do in a bad Financial Situation?
- What Improves Human Capital?
10 Simple Steps to Improve your Finances in 2021
1. Read Personal Finance Books
If you need help with your finances but aren’t sure where to start, seek financial wisdom from books written by experts. There are many books out there on taking control of your finances, from how to get out of debt to how to build an investment portfolio. Books offer a great way to change your approach to managing money.
Read Also: How Personal Finance is Evolving Through Mobile Apps
To boost your savings, buy used financial books online or borrow them for free at your local library. Consider audiobooks if you would rather receive the advice by ear.
2. Create a Budget
If you are struggling to handle your finances, then you likely need to create a budget—a plan for how to spend your money each month that is based on how much you typically earn and spend. A budget is your best tool to change your financial future.
To start, write down your income and all your expenses, and then subtract the expenses from the income to determine your discretionary spending. At the start of each month, set up a budget to allocate how discretionary funds get spent. Track the spending over the course of the month, and at the end of the month, determine whether you stuck to the budget.
If you spent more than you made, fix your budget by cutting unnecessary expenses or earning more. Implement the revised budget the next month to start living within your means.
3. Cut your Monthly Expenses
One of the easiest things you can do to take control of your finances is to cut your monthly expenses.
While you may not be able to reduce certain fixed expenses, such as rent or a car payment, without drastically altering your lifestyle, you can reduce variable expenses, such as clothing or entertainment, by being flexible and thinking frugally.
You can, for example, reduce electricity consumption to lower your utility costs, choose different providers for your home or life insurance, or buy your food at a discount at bulk stores.
4. Cancel Expensive Cable
Speaking of cutting monthly bills, there’s likely one bill that you could cut right now and potentially save hundreds of dollars every month: your cable bill. If you need a little help with your finances or you just want to reach your financial goals more quickly, you should consider cutting cable.
You don’t even have to give up TV altogether. “Cutting the cord,” that is, eliminating costly cable services in favor of low-cost streaming services such as Netflix and Hulu, allows you to watch the shows you love without spending a ton each month.
If, after reviewing various streaming options, you’re still determined to stick with your cable provider, downgrade to a cable package with fewer channels to save a little money every month.
5. Reduce your Eating out
Looking for an easy way to take control of your variable expenses every month? Curb your habit of eating out. The occasional splurge at a nice restaurant is fine, but the savings can add up if you start cooking at home or bringing bagged lunches to work instead of eating out each day.
Start small by cooking at home at least once a week. The next week, start taking your lunches to work. You may be surprised at just how much you can save. Over a 40-year period, brown-bagging it can save you $1,300 per year, or more than $50,000 over a 40-year career.
6. Pay off your Debt
One of the most expensive mistakes that you can make is to carry a lot of debt, especially high-interest credit card debt. If you want to change your financial picture and gain more financial opportunities, pay off your debt as quickly as possible.
Start by listing all of your current debts, be it credit card debt, student loan debt, or a car loan, and figure out the minimum amount you owe to remain current with each debt. Simply paying the minimum amount won’t get you out of debt quickly, so evaluate your fixed expenses and determine how much of your discretionary spending budget you can allocate toward debt repayment.
Try to reduce the interest rate on the debt by asking the issuer for a lower rate, consolidating multiple debts into one debt, or transferring high-interest debt to a low-interest credit card, such as a balance transfer card. Then, set up a debt payment plan and adopt sound spending habits to pay off the debt as quickly as possible.
7. Be Careful with your Credit Card Usage
If you are struggling to make ends meet each month, you may be relying too much on your credit cards. If you keep using your credit cards as a stop-gap measure to make ends meet, you’ll quickly wind up in debt. This will limit how much money you have each month to pay bills, save for retirement, or work toward another financial goal.
If you really want to take control of your finances, stop using your credit cards. In addition to setting up a budget so that you don’t have to buy things on credit, switch to cash or debit cards to avoid accruing more debt, open a short-term savings account and draw from it for large expenses, or leave your credit card at home so that you’re never tempted to pull it out of your pocket and swipe it.
8. Learn to Save Every Week
Like investing, saving is another passive approach to growing your wealth, albeit more gradually. To take control of your finances right now, open and direct money into interest-bearing savings account on a regular basis (every week, month, or a certain time of year, for example).
This may be money that you save on your grocery budget each month, a tax refund, a set amount that you put aside from each paycheck, or an amount that you allocated in your budget to save each month.
No matter which option you choose, and no matter how little you save, look for ways to increase your savings over time. Small gains will amount to big returns over the long run.
9. Build a Financial Plan
A financial plan is essential for taking control of your finances and accomplishing specific goals. In short, a financial plan is a timeline for the big milestones in your life.
It’s similar to a budget, but it covers a longer time horizon of 10, 20, or 30 years down the road, whereas a budget is a short-term plan for the weeks or months ahead. The two documents work hand in hand, which is why a budget is often a component of a larger financial plan.
These plans can also help you with your finances by prioritizing your goals, as it is often more effective to focus on one or two financial goals at a time. Your financial plan should include events including buying a home, saving for retirement, and paying for your kids’ college education.
10. Be Realistic with your Goals
Take the time to set financial goals that you are working toward, such as buying a house or growing your retirement nest egg. If you do not have specific things that you are working toward, you will have difficulty motivating yourself to keep saving or investing each month.
As you set your goals, ensure that they are realistic. For example, don’t set a goal to pay off $40,000 in debt in a single year when your salary is only $30,000. Unrealistic goals that set you up to fail can discourage you from making the right financial moves in the future.
Finally, track your goals over time so that you can see how much you have accomplished. For example, most modern brokerage firms offer tools on their websites that let you monitor your investment portfolio gains and losses over time. These tools can help you stay on track when you are working toward a long-term goal.
How can I Improve my Finances in one year?
Many of the most important money habits are built over time: Saving, investing and cutting back spending, among others. Those aren’t short term goals, but rather long term solutions. Still, there are plenty of things that can be accomplished in a year’s time that can make a major difference in your life.
Here are six simple financial tasks you can tackle that will pay dividends for years to come:
1. Track your spending for one month
This financial task seems basic, but it’s key to figuring out where your money is going and how you might be able to better allocate it.
As you’re logging your expenses, categorize them in a way that makes sense to you (bills, food, transportation, eating out, entertainment, etc.). At the end of the month, calculate the total you’ve spent in each of your categories. It will become obvious where you can cut back spending, if you need to, or where you should direct more money.
2. Start taking privacy and online security seriously
With the countless data breaches and financial scams transpiring on a near daily basis, it’s imperative to proactively protect your financial and personal data. There are a number of strategies for doing this, but some of the most basic include:
- Set alerts on your bank accounts and credit cards for suspicious activity.
- Routinely check your financial accounts and credit report for fraud.
- Use unique passwords for your financial accounts and keep a password manager.
- Do not trust anyone — whether on the phone or via email or text — claiming to be from a bank, brokerage or other financial or government institution.
- Freeze your credit reports if you will not need to access them in the short term and opt into a credit monitoring service.
Nothing will keep you 100% secure, but making it even slightly more difficult for someone to scam you will encourage them to move on to an easier mark, security experts say. And remember, securing your finances and personal data isn’t something you can do once and then forget about; it should be an ongoing concern.
3. Improve your personal savings rate
Your personal savings rate is the amount of your disposable income you do not spend in a given time frame.
You can determine it for 2019 using the following steps:
- Calculate your income for the year
- Calculate your saving for the year
- Divide your savings by your income
- Multiply by 100 for a percentage
That means if you take home $3,000 per month and save $300 between retirement, your savings account and other funds, your personal savings rate is 10%.
Remember, your savings figure should include any contributions to your savings account, retirement accounts, health care savings accounts, including an FSA or HSA, 529 plans and any other investments. The figure won’t be perfectly exact because 401(k) contributions, for one, are made pre-tax, but it’s still a worthwhile exercise.
Once you know your savings rate, aim to increase it by at least one percentage point in 2020. Then, increase your automatic contributions by 1%, or to whatever your goal percentage is, and track your progress throughout the year. Experts recommend saving 20% of your monthly income, between retirement and other goals.
4. Increase your credit score
Improving your credit score can help you secure lower interest rates on credit cards, auto loans and even a mortgage. If you’re planning to open a new card, or want to buy a house one day, improving your credit score can save you, potentially, thousands to tens of thousands of dollars over time.
First things first: Pull your credit report. You can pull your report for free once a year from each of the three main credit bureaus: Equifax, Experian and TransUnion. Once you do, you can get a better sense of the story your credit is currently telling: Have you missed a lot of payments? Do you have old, overdue accounts you forgot about?
Your report will tell you. It lists all of your credit inquiries, all of your credit accounts, how long they’ve been open and your payment history.
Here’s how to achieve the perfect credit score
That knowledge will help inform the steps you can take to improve your credit over the next 12 months. The most important thing you can do is pay off your bills on time and in full, which accounts for the largest portion of your credit score. If you’ve been tracking your spending, you will be able to spot easy things to cut out to ensure that your bills remain in your budget.
After that, the amount you owe is the most important factor. The less money you have on credit at any one time, the better, but credit experts say to aim to use no more than 30% of your credit limit. If your credit limit across accounts is $10,000, you want to charge no more than $3,000 total at one time.
Experts say a score of 750 or higher will typically qualify you for the best offers (your FICO score ranges between 300 and 850); once you hit 750, there’s no need to obsess over increasing it any more.
5. Have better conversations
If you have a partner, schedule a time to talk through your financial goals, worries and strategies. Being open and honest about money will bring you closer together, and, ideally, prevent any anger or frustration around your shared finances from building.
Talking with a trusted friend or coworker, especially one who seems to know a bit more about money than you, can also be enlightening. They might be able to give you solid advice, or offer encouragement. Discussing salaries with coworkers, when done prudently, can give you a better idea of if you are being compensated fairly.
6. Think sustainably
Practicing sustainability is good for the planet and your bank account. If you scale back how much you’re buying overall, you’ll save money. Similarly, buying sustainably-made products that can be reused over and over, instead of one-time use items, can also save you over the long term.
The most sustainable product is the one you don’t buy. That said, replacing a few products with a sustainably-produced version, like beeswax wrap in lieu of plastic wrap or shampoo and conditioner bars, can help you build more sustainable habits over time.
Again, you’ll want to use up what you already have — throwing away perfectly usable Ziploc bags to use a more environmentally-friendly option won’t help anything — and while doing so, save for the larger up-front expenses of sustainable products. Then, when it’s time to replace the items you’ve used up, you’ll have the money you need.
What to do in a bad Financial Situation?
Everyone is subject to finding themselves in a bad financial situation. No matter how much you may prepare, you’ll certainly face challenging times with your finances.
Luckily, you can anticipate these hardships and prepare by setting aside money in an emergency fund, spending moderately, and by keeping your finances organized. But what happens if you find yourself in a really bad financial situation and you aren’t sure how to fix it?
Being in a tough financial situation can fill you with real fear. But don’t lose hope – no matter where you find yourself, you can always fix your financial situation.
If you find yourself in a bad financial situation, here’s what to do.
Don’t Panic
It’s natural to stress when your finances are a mess. But panicking won’t fix anything or help to improve the situation any. In fact, panicking can cause you to make some poor decisions that can make your current situation even worse.
Try not to panic. Instead, start thinking about how can you turn your situation around. No matter how bad of a situation you find yourself in, you can always reverse your financial situation. It’s only as temporary as you make it.
Dip Into Savings
If you have an emergency fund, now is the ideal time to put it into action. While it is never fun to have to spend the money you worked hard to save, it’s better to use the cash you have available instead of relying on credit cards or loans.
Cut Back on Spending
Next, take an in-depth look at your budget. See what expenses you can cut back on, or better yet, cut out entirely.
Essentially, you are trying to find spare cash within your budget. Unnecessary expenses, such as shopping, eating out, and entertainment are likely line items that you can cut out for the time being.
And don’t forget to see where you can cut back on your necessary expenses. Can you turn down the air conditioning to save on utilities? Cut coupons to save on groceries (or use Ibotta)?
Talk to Your Lenders
If you’ve tried everything and still have bills that you are unable to pay, it may be time to fess up to your lenders. Though it won’t likely be a fun conversation, if you can’t pay a bill, a company wants to know about it.
Some companies will even work with you to set up a payment plan. It’s not ideal, but it’s better than simply ignoring the problem, which can get you into major financial and legal trouble.
Give your lenders a call and let them know what’s going on. If you have some extra cash, see if you can at least make a partial payment until you can get them the rest of the money you owe them.
Prioritize What You Can
What bills do you owe in the short-term? Which ones are most pressing to pay? Make a list of all of your bills, how much and when they are due, and then reorganize them to put the highest priority bills at the top of your list.
It’s a serious thing when you owe other people money, but if you’re struggling, you may not be able to pay all of your bills. At this point, the most important thing is to make sure you and your family have food and shelter, so prioritize those bills first.
Start Hustling
If a shortage of cash seems to be at the top of your problems, starting a side hustle is one of the best ways to improve your financial future. A side hustle can help to break the cycle of living paycheck to paycheck and will help you get your finances in order.
There are so many side hustles that you can start today to begin earning extra cash. You could start waiting tables on the side, pet sitting on the weekends, drive for Uber or Lyft, or start mowing lawns for pay. Some side hustles, like blogging and freelance writing, take a while to build up to become profitable but are also great ways to be able to earn money from home.
Create a Long-Term Plan
If you are in a bad financial situation, it may take some time to recover. You may need to catch up on overdue bills, replenish your emergency fund, and fix your credit score.
Create a plan to recover your finances and prevent such a situation from happening again. Consider increasing your emergency fund to give yourself extra security against rough financial times.
What Improves Human Capital?
The human capital is your skillset, education, collective skills, knowledge, and even creativity.
Unlike your bank account or net worth, the nature of human capital’s “assets” makes it hard to quantify. There are formulas that might result in a calculated result, but this tally will never be as well-defined as the balance on a bank statement.
The great thing is, you can actually improve your human capital at any time. No matter your age, financial situation, or future plans, there are things you can do to bump this value significantly.
Here are ten ways to increase your human capital.
1. Get more education
There will always be a discussion about whether certain levels of education are worth the investment. Many people fail to look at the full picture. You may hear about ROI (return on investment), but many people have a much narrower definition than they should.
Your return on educational investment is more than the salary you receive out of the gate. It’s even more than all the income you would earn throughout your lifetime while practicing the specific skills you learned.
The process of continually seeking higher education keeps your mind active and working hard, improves your ability to learn anything (keeping those cognitive skills sharp), and opens your mind up to new ideas. These are all qualities that can increase your human capital.
The possibilities for learning more are endless. There’s the traditional route of going to college, graduate school, and beyond. Or you can look at a specialty program, like a coding boot camp. Vocational programs fit in here too. So do adult educational classes.
But increasingly people are turning to online classes to boost their human capital. If you need a boost for your career or just want to learn something new for the fun of it, check out Udemy and Skillshare.
Udemy has over 100,000 online courses in business, marketing, and software. If you’re looking to climb the corporate ladder or start your own company, you’ll want to up your human capital with some of their courses.
Or if you’ve applied for a job that requires a particular skill set that you don’t have yet, like financial modeling in excel, sign up for a single class from them. If you’re more on the creative side, Udemy also offers courses in design, photography, and personal development.
Another great place for online learning is Skillshare. This is more firmly targeted towards creatives–so those who love design, photography, writing, and even lifestyle and animation. In addition to classes that could help you improve your creative skills (and thus your personal capital), they have classes on the business side too. Why?
Because creatives still need to get paid, brand their products, stay on task, be productive, set their prices, invoice, and collect their money.
2. Automate your finances
If you are still looking at each of your accounts one by one, paying your bills as you get them, and investing only when you remember to, you’re missing out. You need to automate–set up the process once and then let it do its thing. That will free up more time for you to focus on the other parts of increasing your human capital.
Let’s go over two main ways to automate your finances – investing and saving.
Investing:
A lot of people get scared off by the complexity and risk of the investing world. They’ll earn income from their day job and dump it in a savings account until they need it. Missing out on the world of investing is a mistake. The earlier you start in life, the better.
Investing is also a lot easier to do these days than ever before. There are companies that will literally do it for you – robo-advisors. And there are entire websites dedicated to teaching you how to put your finances on autopilot.
If you think you don’t have enough money to start investing, think again. You can invest with as little as $5 and certainly with as much as $1 million. Just jump in now – you won’t regret it.
So how do you start? There are so many great options out there, but three we like are M1Finance, Acorns, and Betterment.
M1Finance is a hybrid robo-advisor. You can set up an account with them and automate your investments–simply have M1Finance pull money from a designated account each month and invest it for you. And if you haven’t crafted an investment strategy yet or aren’t sure what you want, M1Finance lets you choose from different “pies” of investments (and who doesn’t like pie?).
Acorns helps the investor who has trouble finding the cash. You link your credit or debit cards to Acorn–anytime you make a purchase, Acorns rounds it up to the next dollar and takes the “change” and invests it for you.
Makes it super simple. You’ll be investing any time you make a purchase and you won’t have to do a thing! If you’re worried that won’t be enough, you can also set up recurring transfers of as little as $5.
Finally, Betterment is known as the original robo-advisor that gives you the option to invest in exchange-traded funds (ETFs) that are packaged for you. Like the other options discussed, you’ll want to link an account to Betterment and set up a reoccurring transfer. This will allow you to invest each month without having to do anything.
Savings:
Empower will help you automatically save and all you have to do is spend a tiny bit of time setting it up. Then you can forget about it until you check into your budgeting app (you’re using one, right?) and see how your savings account has bloomed.
One cool and distinguishing feature of this app is that you set your savings goal and the app creates a strategy to make it possible. How, you might ask? By monitoring your account activity, finding when you have extra cash and when you’re strapped for cash.
Chime is an online-only bank that offers simple, easy-to-understand banking. Like Acorn, when you use your debit card, Chime automatically rounds the charge to the next dollar amount and transfers the change into your Chime savings account. Another way Chime helps you save – they have way fewer fees than a traditional bank.
3. Get more experience
If you believe that your job is confined to what happens between 9:00 AM and 5:00 PM, your opportunities for advancement might be similarly limited. Instead, use your available time and resources to get more experience either in your career field or in a field that interests or could benefit you.
Ask your boss for a new project. Talk to someone from a different department at your company and see if you can learn about their roles and plug into their work.
I’m a strong proponent for not making your job the only thing that defines you. However, by developing a work ethic in which you expend effort and achieve at levels beyond what is asked of you, you can increase your human capital.
4. Explore beyond your industry
When the housing market collapsed, thousands of mortgage brokers were forced out of their jobs. Many of these individuals didn’t have much training in any other industry, leaving them in a tricky situation. They had to trade in their six-figure commission-based incomes for low-wage sales training positions or wait for the market to return.
Read Also: How to Budget for Personal Finance
By acquiring skills in an industry that doesn’t fluctuate (due to market cycles or other external forces), you will have a higher human capital than someone whose job will always be a victim of circumstances. Even if your skills are simply established as a fall-back option, you will improve your financial stability and earning security in the process.
5. Get involved
If there is an issue you care about, seek organizations whose mission includes the advancement of that issue. Volunteering for a non-profit organization or speaking out to express your passion is a good way to increase your value to the world and your human capital at the same time.
Volunteering will help you gain knowledge and learn new skills while adding a nice bit of humanitarianism to your resume. In fact, volunteering can be a great way to test out a new career path–volunteers are expected to have some expertise, but not a ton.
There are even non-profits whose mission is to teach you about that industry. For example, Oakland-based Grid Alternatives trains volunteers to install solar panels–it’s a way for those with no clean energy experience to get a foot in the industry.
If you don’t know where to start, check out idealist.org, VolunteerMatch, or go through your local community center or place of service for tons of volunteer opportunities in your area.
Once you start volunteering, you’ll meet other people who are looking to help others and better themselves. You’ll possibly make connections that will lead you to new opportunities, new careers, and new ideas in the future.
Conclusion
Improving your finances should be your priority as soon as you start getting little income. Different tips are available in this article for you to succeed, all you need to do is put them into practice.
