Everyone makes tons of goals around the new year. Unfortunately by summer, most of those ambitious plans have been long forgotten.
But here’s the thing. Summer is a great time for a financial reboot. There are so many fun (and free!) things to do, there’s no expensive heating bill to worry about, and best of all, here’s the Improve My Life This Year – The Complete Guide to Improving Your Financial Life.
How to use The Complete Guide to Improving Your Financial Life
My advice is this: use this guide as a checklist. Review it point-by-point. Most readers will find that some parts are more relevant than others to their specific financial situation. That’s great! Focus on the areas where you can improve. Financial difficulties lead to stress, health problems, relationship conflicts and depression. So if you are serious about improving your life this year, it is absolutely vital that you gain complete control over your financial situation.
Step 1: Increase Your Income
Alright here we are at step 1. If you want to improve your financial situation, a simple, yet overlooked way is to increase your income. How? Well first, just ask for it. You may be surprised, but if you sit down with your boss and ask for more hours or ask for a raise, you may get it. The worst that can happen is they say no, but the answer is definitely no until you summon the courage to ask.
To increase your chances of being told yes, I recommend 2 strategies. One, take a month to do amazing work. That’ll build up your reputation prior to meeting with your boss. Two, document everything. As much as possible, record all the contributions you are making, particularly the ones that go above and beyond the call of duty. Especially important here are ones that can be linked to increased profits for your company. Find a way to show how your work adds value to the company. If you are making the firm more money, it is much easier for your manager to justify increasing your salary.
If you strike out here, then I recommend that you seek out other money-making opportunities outside of work. Do you write a blog? If not, check out this post on how to start one. Once you get some readers, you can add affiliate links to your articles (I’ll have a post out soon which explains how to do this) and earn commissions when people make purchases.
Another idea is to monetize a skill you already have. Do you like to play chess? Start offering chess lessons. Love golf? Be a caddie on the weekends. Love to read? Start a really cool book club and charge dues to join. The wonderful thing about living in this age is you can easily and cheaply start almost any business with a simple website.
To recap Step 1: Do some great work for a month. Document it all. Show it to your boss and ask for a raise. In the meantime, launch a website or start a blog and sell the skills you already have.
Step 2: Decrease Your Expenses
You all know the classic saying, “A penny saved is a penny earned.” It’s totally true. While we try to increase our income in Step 1, we can also improve our financial situation by reducing our expenses. How?
A great place to start is with this post, How to Save More Money in 6 Simple Ways. In that article, one thing I talk about is the idea that you should track every expense you make for one month. It is tedious and annoying, but trust me, the results will shock you. You’ll find there are things that you had no idea you spent so much money on.
The best way I have found to reduce expenses is to look for and eliminate these unnecessary habitual costs. I answered a question on Quora recently with analysis on just how much a daily coffee from Starbucks can set you back financially in the long-run. You can read the answer in full here or just skip to the conclusion – you may retire with $10,000 less just because you drank a cup a day this year.
How else can you save money? I’ll open that question up to you. Please tell us in the comments below any money-saving tips you have.
To recap Step 2: Record all your expenses for one month. Then identify and eliminate the habitual expenses that have been costing more than realize.
Step 3: Use the Gains from Step 1 and Step 2 to Increase Your Savings
OK, Step 3 is where things get fun. Take your new income from Step 1. Take your new free money from Step 2. Add them together. Congratulations! This is your new money for savings. Now, this is important. I want you to open a new savings account. We don’t want this money mixing with the money we use in our daily life. This new money for savings should simply not exist in our mind. We will use it for building a long-term pile of money for starting a future business, getting higher education, or retiring with dignity and freedom.
So, open a new savings account and hide the money from Step 1 and Step 2 there. Or, if your willing to add a bit of risk in exchange for likely higher future returns, you can choose to put it in an low-fee or no-fee index fund. In the short-term, the market can swing up or down quite a bit, but if you are truly investing for the long-run, this can be a smart move (Of course it goes without saying, all investments have risk and you should do due diligence before making any investment decisions and speak with a certified financial adviser).
To recap Step 3: Add your new money from Step 1 and from Step 2 and save it for your future.
Step 4: Create a Plan to Get out of Debt
Step 4 is so important that I considered making it Step 1. If you are in debt, you absolutely need to come up with a realistic plan to get out. At the risk of over-simplifying, we can honestly think of debt as either good or bad debt.
Good debt is the kind that is enabling you to become wealthier in the future. If you bought a good home with a mortgage in a nice neighborhood where prices are rising, this is most likely to be good debt. Why? Well, through this debt you are A) avoiding rent payments and B) slowly gaining full ownership of an asset that is rising in value. Of course, in the long-run, you’d like to pay off that mortgage, but this debt isn’t so terrible to have.
Bad debt on the other hand is the debt that does not deliver any tangible long-term increases to your wealth. Let’s say I buy an expensive watch with my credit card. Most likely, that watch will not help me get richer in the future. If I am in debt now because of it, that debt is bad debt because it doesn’t enrich me; it only slowly bleeds me.
The simple rule to remember is this. Find out the interest rate you can earn by saving the money in Step 3. Compare that rate to the interest rate you are being charged for any debts that you have in Step 4. Whichever rate is higher becomes your priority.
If I can earn 2% by saving the money in a CD at the bank and I pay 1% interest on student loans and 15% on my credit cards, then any new money I gain from Steps 1&2 should first go to pay off credit cards, then go toward a CD and then go making more than the minimum payment on the student loans – in that order.
Important Note: Some people are struggling to make their current payments. For you there may be significant help available. National Debt Relief has helped tens of thousands of people and is accredited by the Better Business Bureau. If you need help, you can get some free advice from the them today.
To recap Step 4: Rank your debts by the interest rate you pay and tackle the highest rates first. If you need help with your debts, get some help now so you can be on the path to freedom.
Step 5: Make Important Financial Decisions Wisely
Now let’s start looking at the future. Big financial decisions will impact your overall financial health a lot. Sure you can save some extra money by making coffee at home rather than buying it outside everyday, but if you want to make the biggest positive impact to your overall financial situation, you absolutely need to make the right decisions at some key moments.
A great example of this is when you are buying a new home. The choice of which home to buy, the choice of which community to live in, and the choice of which mortgage provider to go with are huge.
My best advice here is to say that you need to research as much as possible. Don’t just blindly make a choice based on emotion or random luck. When I need to make important financial decisions, I often go to The Simple Dollar. It is a fantastic blog with tons of advice and tips on making smart financial choices. They’ve been featured in places like Forbes Magazine and Time Magazine. A good example of their work is a recent guide they put together on The Best Mortgage Lenders. The person who reads this is way more likely to make the right call when it comes time to buy a home, and that may lead to hundreds if not thousands of dollars of savings.
To recap Step 5: When it comes to the big decisions in life, buying a home, going to university, or investing in the stock market, you absolutely need to spend time researching before jumping to a conclusion.
Step 6: Track Future Progress with a Proper Budget
OK, if you’ve followed the first 5 steps, you are now well ahead of most other people. Step 6 is how we maintain our success. You need to make a monthly budget and you need to track your expenses. This doesn’t have to be hard. You can use a free service like Mint to stay on top of your monthly progress.
Tracking is valuable because it makes sure you don’t slide into old bad habits or get of course from your goals.
To recap Step 6: Don’t lose your progress through neglect. Track your monthly progress manually or with a free online program to make sure are staying on target.
Step 7: Relax and Trust the Process
Whew! We made it to the end. Great work!
Remember at the start of the article, we mentioned that money problems may cause stress, health problems, relationship difficulties and even depression? Don’t let that happen to you. If you have followed the 6 steps, if you are in periodic contact with a certified financial adviser, and if you working to improve day-by-day, then relax and trust the process you are on. I’m proud of you for taking on this challenge and I believe that you have what it takes to succeed! Good luck!