Easy Tips to Become Financially Healthy
Hey friends! In my reader survey, so many of you requested a few finance posts from Finn every now and again. Between his day job and spending every weekend hour on projects around here, the poor guy doesn’t have a lot of free time to write posts. However, I wrangled him into writing one in honor of Frugal February!
As you guys read from his Day in the Life post, Finn works in finance for his day job. He has always been a numbers guy and really enjoys all aspects of budgeting, investing, etc. Thank goodness, because I am horrible at those things and don’t have an interest in it…at all. I’m lucky that he takes the reigns on that aspect of our lives in our household. Today, I thought it would be fun if he shared his tips to be financially healthy. Take it away, Finn!
Nine Ideas to Improve Your Financial Health
Are you like me and spend most of your free time pondering how you can create a better version of yourself and striving to improve certain aspects of your daily routine? Have you ever uttered the phrase “I’m going to be a morning workout warrior,” or “I should read more.”? Well, chances are you aren’t, and you haven’t been. We have all tried diets and committed to eating healthier, and while some can find success, most struggle to change these bad habits. If you are able to do all those things and still get a good eight hours of sleep, then buzz off, Superhuman…I have nothing to teach you!
The rare times I find success in changing my behavior is when I actually take the time to learn HOW to change before diving in headfirst. For example, if you want to work out more and you don’t have an understanding of how to schedule a workout, then you will eventually fail and never be able to properly change your routine. The same thing is true for your finances and managing your money. If you are not familiar with how to manage a budget or how to properly align your assets, it can be a daunting task.
Here are some healthy habits you can fold into your life that will improve your financial stability. This is not a post about ridding yourself of debt or how to invest your money. Instead, I’m sharing positive steps we can all take to be financially healthy. We all have different financial situations and not all of these tips are for everyone, but if anything can help you feel better about managing your money – I suggest you give it a try!
Budgeting & Daily Finance Tips
First, let’s start with the little things that you should practice on a regular basis.
1. Establish a Personal Monthly Budget
This is the most critical step in changing your money habits, akin to stepping on the scale that first time (scary, I know!). You can only know how far you have come if you know where you started. Without a budget, you will never maintain spending discipline and it will be difficult to improve. On the flip side, without a budget, you will never be able to validate the savings and improvement from your efforts, even if you are succeeding!
There are common rules to budgeting (50-30-20 etc.) but your plan is your own to make. This is just a guide on how to measure it. A budget will help you understand how much you really spend each month on takeout, where you have glaring issues, and where you are missing opportunities to save.
I created a basic Excel file that anyone can use to help with your 2020 money management. You can find it right here and click the download button (in the top right corner) to save it to your desktop. You then have to open it with Excel on your desktop (not through Google Drive). It includes a monthly review tab you can switch through each month. At the end of each month, enter your budgets and then the amount you actually spent to determine how you are really saving and spending. But where do you get the numbers for the amount you actually spend? Well, let’s move onto tip #2.
2. Enroll in Free Spend Tracking Services
Free software sites like Mint.com or Nerdwallet.com can link all of your accounts and track your spending habits for you, making your budget review a heck of a lot easier. It is easy to track where costs should go (into your set categories) and you can even enter your budget data directly to track your month through the site.
These tools give you the freedom to sync up several credit cards, bank accounts, and more, providing you with insight into ALL your spending. This is also useful to help you check the validity of your purchases (to avoid fraud) and bundle all your assets into one personal balance sheet. These sites also allow you to get a comprehensive view of all of your accounts so you can create a personal balance sheet for your net worth. This is important for long-term planning.
I highly recommend Mint.com as I have been using it for years and it has really helped me stay on track with planning and tracking our expenses.
3. Know your Credit Score
Similar to Mint.com, there are free credit score sites (CreditKarma.com) that can keep you up to date with your credit score without running your report or causing inquiries. It will let you know when there is suspicious activity, new balance or requests, and keep you up to date on your score.
If you have not signed up, I highly suggest you do, in order to take control of your credit score and prevent future issues. Plus, this will help highlight the benefits of your actions as you lower your debt and increase your savings with this new budget plan!
4. Check Recurring Subscriptions
The simplicity of autopay has its positives (no missed bills, ease of use) but it also has its drawbacks. You could be spending money each month on things you no longer need! With the new Mint.com account you created above and your new budget planning, I suggest you search through your transactions and ensure all the automated charges are still necessary.
Examples would be streaming services for music or television, monthly subscriptions to online websites or phone apps, delivery programs, etc. Keep in mind that $19.99/month is actually $250/year and those types of items can add up quickly.
5. Take Advantage of Credit Card Benefits
Casey and I are not cash people. In fact, we rarely have cash on us (which isn’t a good thing when the neighborhood kids stop by wanting to shovel your sidewalk for $5!). But we pretty much use credit cards 98% of the time. I like this because it’s easier for me to track our spending (those transactions go right into our Mint.com account for me to review) and we have amazing credit card benefits.
I cash in our credit card rewards every few weeks and we get a check in the mail. We’re basically getting money because we spent money. It works out great! I know some people swear by using cash to stay on budget and that’s totally okay if it works for you, but using credit cards has a lot of real benefits.
6. Understand Your Debt & Make Payments On-Time
It goes without saying that paying your bills on time is a good practice, but it really does have a major impact on your finances. Missed payments will create a mark on your credit score, increase your financing/interest charges, and often incur unfavorable late fees. It is best to always stay on top of this and make sure all bills and payments are made on time (set Google reminders, people!) and pay attention to those due dates.
Please also understand your debt and your interest rates. Your mortgage and car payments may include an interest rate anywhere from 3-6%, while your credit card interest rate could be as high as a 30%. There is a big difference between the two and it makes sense to pay off that credit card debt faster! If possible, try not to carry any credit card debt, as it’s the costliest rate around.
Long-Term Strategies to Become Financially Healthy
There are other simple things to do that may not be as sexy or impactful today, but would be extremely beneficial down the line.
7. Sign up for Term Life Insurance
If you have children or a spouse that you support with your income, you need to buy term life insurance as soon as possible. At a minimum, you would want to get term life insurance to cover the mortgage balance on your home and provide two year’s salary for the individuals in your family. Obviously, you hope this never comes into play, but you have to be prepared for these types of scary events.
Casey and I signed up for term life insurance after we got married, when we were still in our twenties. The rate is determined based on your age and your health at the time (yay for being fit & young) and it stays at that same rate forever. So it’s usually best to do it sooner, rather than later, to get a low rate. For us, it ended up being a low-cost fee every month and it ensures that we are protected if anything happens. Plus, now that we’ve got a little one on the way we’re already all set for that! I truly believe this is such a simple step to take that can provide great peace of mind and protection.
8. Check Company Pre-Tax Benefits
If you work at a company that offers internal benefits and programs, look at those offered as “pre-tax” and see if you can utilize any of them. These programs will result in net savings of 20-30% for you because the dollars never get taxed. Some examples are public transportation, FSA (Flexible Spending Account) health accounts, etc. Review these benefits to see if there is a way for you to save hundreds of dollars a year on expenses you are already incurring each month.
I use the public transportation benefit through my work and I also have an FSA set up for us each year, since we have so many medical bills (infertility costs and now having a baby!). This has saved us a lot over the years.
9. Maximize Company 401k Match
Similar to the pre-tax benefits, your company may also offer a 401k retirement program, along with a match program. What this means is that your company will match a certain percent of your personal investment and add it into your retirement funds. (For example, if they match 10% and you invested $100, they will add in $10 more on top of your personal investment.) This is an immediate value!
These are also “pre-tax” submissions, so investing through this program allows you to lower your tax bill, while investing in a professionally controlled resource. This is also helpful if you are uncomfortable managing your retirement. This is FREE MONEY. You should take all the steps in your power to maximize the company match. This will lead to a long-term windfall of earnings that are free to you today and will help you achieve your savings goals much faster!
There are tons of ways to be smarter with your money management, but taking these small steps will help you build a framework to become financially healthy. Once you see your budget and spend a few months tracking expenses, it will be clear where you can really cut back and where you are wasting money. From there, you can figure out how to save for something you really want and improve your long-term strategy, giving you peace of mind and a fatter wallet.
I know I threw a lot of information your way (don’t worry, we’ll be back to normal DIY talk around here soon), so if you have any specific questions ask away in the comments below!
I’m Casey Finn, the voice behind The DIY Playbook. I’m married to Finn & mom to Rory and Ellis. Together we’re creating our dream home in Chicago, one DIY project at a time.