Everyone wants to improve their finances, but what practical steps can they take to actually improve their finances?
After talking to a number of people about personal finances I realized that the thing people are really looking for are practical steps they can take to improve their finances.
This entire blog is focused on improving your finances. While we do spend a significant amount of time talking about specific things such as side hustles, blogging, careers, and saving money, today I want to talk about some simple and practical things that people can do to improve their finances.
1) Set up automatic contributions to a retirement account
I know many people who are in their 20s who do not have a retirement account. If they do have a retirement account set up through an employer, they are not having money taken out of their paychecks and put into their retirement accounts.
This is an alarming trend. Setting up automatic contributions to your retirement account is an easy thing to put off, but it can have huge implications down the road. The best time to start contributing is when you are young because those dollars have the longest time to compound year-over-year, versus contributing later in life when there is a shorter time for that money to grow.
If you don’t already have automatic contributions being made to a retirement account, now’s the time to get started.
2) Track your income and spending
I’ll be the first to admit that tracking your income and spending can be time-consuming. It’s not a fun thing to do, especially if you have a variety of credit and check cards.
If you don’t track your spending, though, there is no way to tell if you are over-spending in any given category. You might think you are only spending $200 a month on restaurants and take-out, but in reality you are spending double that. These are things that can be identified – and corrected – if you track your spending.
3) Find ways to cut expenses
Finding ways to cut expenses is a practical action that can be taken to improve your finances. If you track your spending, as I suggested, it’s easier to identify categories and areas that you are spending more than you should be.
Some practical ways to cut out spending is getting rid of subscriptions that are not used (Spotify, Netflix, magazines, cable, gym memberships, etc.), learning how to coupon (here’s a guide for beginners), or using an HSA for qualified health expenses.
4) Set up automatic contributions to a savings account
Retirement accounts aren’t the only accounts that you should be making automatic contributions to. Having money regularly transferred from your checking account to a savings account, or having money regularly taken out of your paycheck and put into a savings account is another practical way to improve your finances.
Having an emergency fund is essential in case of unexpected job loss, car repairs, house problems, medical expenses, and more. If you automatically set up contributions to your savings account you will have money available for a rainy day.
5) Evaluate your Income
The last tip I have for practically improving your finances is to evaluate your income. Assuming you have a full-time job, there are a number of things you should be thinking about. Are you getting paid the same as a comparable employee at another company (check Glassdoor for this information)? Are you qualified for a higher-paying job? Would learning a new skill allow you to get a higher-paying job?
Doing an analysis on your income should be done at least annually. With the wealth of salary data available online these days there is no reason to be paid less than your peers.
If you are already making as much as you can at your full-time job, it’s time to think outside the box. Would starting a side hustle (i.e. making money outside of your full-time job) help you reach your financial goals faster? I make money through side hustles and it’s greatly benefited my wife and I as we pay down student debt and work towards financial goals.
If you want to join me in the blogosphere, check out my post 5 ways to make money blogging. Blogging isn’t the only way to make side income – nor is it the easiest – but it’s definitely an ideal way to make money on top of your full-time job.
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These are just 5 ways to improve your finances. If you are looking for more ways, check out my series on ways to improve your finances in the new year: part 1, part 2, and part 3.
What practical things have you done to improve your finances?
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I think that tracking, and cutting, spending is pretty key. Without a clear sense of where your money is going every month, it’s difficult to set goals or get ahead of the paycheck-to-paycheck mindset. It really helps me to see every dollar I spend, because I’m able to ask myself if X purchase was more important to me than the savings I could have instead accrued.
Mrs. Frugalwoods Yes I agree. If you aren’t tracking your spending you can only have a general idea of what you are spending money on, at best.
I think these are all key DC. I was just speaking with someone over the weekend and they had no idea what they were paying for a number of what we’d consider basic things. It turned out that they didn’t know what their money was doing or where it was going month to month. That tracking, and then deciding what needs to go is vital and when you can add a little more income on top of it you can see some traction take place.
I think these are all important! Tracking our expenses was the best thing we have ever done for ourselves. What we discovered was shocking and we could never go back after that.
Practical strategies motivated by big time goals and dreams is the recipe for success in anything I think. I’m with Holly on tracking expenses and income as the ultimate first step.
Yes, yes, yes, yes, and yes! Haha. All of these practical tips are ways to implement good money habits. They’re all simple. But that does not mean they’ll be easy! For example, when evaluating your income seems obvious and something “everyone” should do, it’s definitely not something everyone does. But that one step alone will help you stand in your financial truth and know exactly where you stand. And knowing is the first step toward changing and achieving your financial goals.
And never forget starting a side hustle! It’s a great way to get an additional $100 a week or more. That could fund a IRA for the year, every year.
I posted a great side hustle on my blog how I started a side gig.
And never forget starting a side hustle! It’s a great way to get an additional $100 a week or more. That could fund a IRA for the year, every year.
I posted a great side hustle on my blog how I started a side gig.
Holly at ClubThrifty I didn’t find anything unexpected when I started to track my finances, but I have found it to be a useful exercise to see where our money was going each month. It also has helped me catch more than a couple of incorrect charges.
FrugalRules Yes, there really is no way to know where your money is going unless you track it at a detailed level. I don’t think it’s *terrible* to not record everything, but if this is what you are doing you can only know generally how much you are spending (and on what).
brokeandbeau I think one thing a lot of people struggle with is taking advice and turning it into practical steps. I tried to do that in this post and hopefully I can get even better at making things practical in future steps. You’re right, though, that you need the motivation that comes with big-time goals.
No Nonsense Landlord Thanks for sharing your thoughts! I did not include side hustles in this post because I was trying to only give advice that was as practical as possible. Yes, you could argue a side hustle can be practical (it’s not that difficult to start making extra money if you really want to), but there are a few other steps I would recommend first.
Heading over to your blog now to check out your side hustle post.
Tracking expenses has been a big key to improving our finances the last two years or so. It’s awful to think about how much we wasted back in the day, but at least we are no longer wasting money like we used to.
theFinancegirl I agree with you. Not everything is as “easy” as you’d think. I think recording income and expenses can be a real pain, to be honest. I have a system going right now that works well for me so I can do it in about an hour or so a month. At the beginning, though, it could take three times as long as I was still trying to develop a system that works for me.
We do chart our income, usually come tax time, to see how things have been going being that both DH and I are self-employed. It helps us to see our progress or lack thereof and determine what contributed to it.
blonde_finance I’m glad to hear that recording expenses had a positive impact on your finances. I personally didn’t find anything shocking when I started to record my finances, but I have caught a couple of improper charges.
Kassandra @ More Than Just Money I got a bit screwed last year on taxes (for the second straight year) because I didn’t keep enough tabs on our tax withholdings, income, etc. This year I am paying in a lot more voluntary taxes (quarterly taxes + more on my paychecks) to make sure we don’t get hit with a huge bill again this year.
Tracking our spending is probably one of the best things we’ve ever done when it comes to our finances. By tracking our spending, we finally noticed where we had spending problems and what needed to be fixed ASAP. We always knew in the past we were spending a lot, but once that actual number is in your face it can be a major reality check.
These are great tips that everyone should do. I see so often that people mean to or are going to do it next week and then it’s been 3 years and it didn’t get done. Even putting a small percentage of your income into retirement in your early 20’s is probably enough to allow you to retire at a decent age. If you wait until you’re 40, you have to put in so much it’s almost overwhelming.
SenseofCents I think one thing that was eye-opening for us when we started to track our spending is just how much student loans, mortgage, and regular bills cost. They really start to add up. It didn’t change our spending habits much since they were fixed costs, but it’s still good to keep tabs on everything and have a detailed view.
Eyesonthedollar Thanks for the feedback, Kim. I worry when people I know who are now getting close to their 30s or are in their 30s have not taken the time to set up automatic retirement contributions. Even contributing a small amount each month throughout your 20s gives you a great head start.
Tracking your spending is huge. I feel strongly about tracking and categorizing expenses, and it’s made me dislike using cash because I want to keep track of everything as best I can. Before I was in this habit, you could have asked me how how much I spent in a category, groceries for example, and I would have definitely underestimated the amount. I feel more in control and knowledgeable about my financial situation this way.
Love these tips, DC! All great, but I especially like #5 as I don’t think we always give that one enough attention. Before I’d even consider a side hustle, I’d first take a hard look at my income. Like you said, am I being compensated fairly? If not, why? What can do I to get pay equity or do I need to work elsewhere? What skills can I learn to earn a promotion? Will my company help pay for additional training or schooling? Once my income is maximized, then I’d start considering side hustles to supplement and possibly one day even out earn your current salary.
I think tracking spending is the easiest way to get started on improving finances. Once you see where you’re spending, then you can adjust and budget accordingly.
I think there are many people who are afraid of IRA’s because they’ve heard horror stories from people whose IRA’s somehow disappeared a few years back. I don’t know how that happened, but I’ve heard the stories from the horses mouths up close and personal. I can understand people’s reluctance to give up control of their money. But is anything really safe? Sometimes, you just have to jump in and pray you remember how to swim!
I track all of my spending. I save all the receipts and input that info into a spreadsheet. I’ve been doing that for a couple years now. It definitely helps because you see exactly where your money is going.
BudgetandBees I agree with you about not wanting to spend cash. Pretty much all my cash expenditures do not end up getting entered into our model, so I try to have as few of them as possible.
ShannonRyan Thanks Shannon! I agree with you about analyzing our income. Side hustles take up your “free time” (and can quickly consume ALL your free time) so it’s important to look at our 9-5 income first and see how that can be maximized.
TheWriteBudget I agree. Unless you track your spending it’s nearly impossible to know where your money is going, at least from a detailed perspective.
kay at frugalvoices I did NOT hear about disappearing IRAs! I would be really interested in hearing about it if you are up for writing a blog post about them. I think for people in their 20s and 30s it’s more laziness and not understanding retirement accounts than it is a fear of losing the retirement account itself.
Jason @ The Butler Journal I have a spreadsheet model that I use as well. I’ve also been doing it for a little more than two years now and it’s definitely benefited me and helped me feel more control over my finances.
Tracking my spending really was the best practical thing I could have done. I was not a huge spender but all the little things do add up.
I love all of these, but especially 1 and 4. There’s no excuse for not paying yourself first when you can automate things!
DC @ Young Adult Money kay at frugalvoices I’m really not qualified to write a post about this. I’ve only heard from people who have lost their IRA money a few years back, and these were people who were very close to retirement. Here is a link I found from 2008.
http://usatoday30.usatoday.com/money/perfi/retirement/2008-10-07-retirement-accounts-losses_N.htm
I don’t want to scare anyone. I just remember how demolished these people were realizing that they could not retire as planned.
Hi there,
We are students campaigning for young people in credit card debt and your website has been very helpful in finding great advice and information. Our credit crusade is all about getting young people back on track. What is the best tip you can give for students in credit card debt?
Feel free to check out our blog (http://thecreditcrusade.wordpress.com/), Facebook page (https://facebook.com/thecreditcrusade) and Twitter (http://twitter.com/creditcrusade) for more information.
Thanks!
Setting up automatic contributions to my retirement account was the first step I took to improve my finances. It was not only the easiest step, but it’s had the greatest impact as well.
I like these tips DC- Managing and improving your finances doesn’t have to be complicated. Tracking our incomem and expenses has really opened up our to where our money is coming from, and where it is going… Perception and reality can be two different things : )
Great article here DC, impressed on how well you’ve distilled it down :)
To me number 4 and 5 and probably the most important, this way you have the opportunity to pay yourself first and keep increasing the amount you are saving and investing!
A really small way I’ve improved my finances is by not spending either gold or silver coins.. Here down under we have 1 and 2 $ coins instead of dollar bills and everytime I get change, I save it up and put this into a money tin, that I then deposit every few months to then either distribute into savings or pay off credit card bills (I always pay my credit card in full though)..
Another way is by enlisting a professional who can help increase your rate of return on the investments you have.. While there are cons to having a planner, there are some good ones out there..
Automatic contributions and bill pay has saved me so much money on fees and late charges. We don’t budget, we set savings goals then live on the rest.
kay at frugalvoices DC @ Young Adult Money Hmmm very interesting. Thanks for sharing the link!
Practical Cents It took me about 6 months or so from when I decided to start tracking my spending to ACTUALLY tracking my spending. It definitely has been the best “practical” finance activity I’ve done.
SimplySave Yes! I know a lot of people who are nearing 30 or past 30 who do not have automatic contributions to a retirement account. Even a small contribution each paycheck can make a big difference within 5-10 years.
The Barefoot Budgeter It’s really incredible how easy it is to set up, especially if you have a retirement plan through an employer. There are options outside of employer-sponsored plans, though, that are just as easy. Definitely glad I did it!
BudgetforMore I put off tracking my expenses for about six months, mainly because I thought it would be time-consuming. It was a little time-consuming initially, but now two years later I can get everything into a spreadsheet within an hour or an hour and a half.
mycareercrusade Thanks for the kind words about my post and for sharing your own thoughts. I like the approach you’ve taken and I think a lot of people would benefit by following your advice. My wife and I often save our change but we’ve started to use our credit cards for almost all our purchases so we don’t save up as much as we used to. If there were $1 or $2 coins that could add up quick!
Charles@gettingarichlife We also don’t budget, but we know what our debts are and have them on auto-pay. We also know what we want to save in retirement, our HSA, etc. and try to stick to those goals. It’s pretty easy to stick to goals when it’s automated.
I love using automatic contributions from my paycheck.. The accounts continue to grow, and I don’t even notice the money coming and going…
I try to do all 5 of these, but #1 is my favorite. Automatic contributions are a great way to save for retirement. Set it and forget it!
seedebtrun Exactly! That’s what I love about automatic contributions. I think it’s particularly useful for people in their 20s and 30s who have a laundry list of things they could use the money for instead. It forces you to save and invest.
pfjenna That’s what I tell people! “Set it and forget it” is the best retirement strategy. You don’t miss the money, you are consistently saving, etc.
I actually didn’t mind using notes, it is a lot less heavier haha.. Our gold 1 and 2 $ coins are pretty cool though, you’ll have to visit OZ sometime, I’ll shout you a beer for your troubles haha
mycareercrusade Yes would definitely need to meet up if I make it there!
Tip #5 is extremely valuable in my opinion. We often focus on saving money so often that we forget the other part of the equation, which is increasing our income.
Even if a job switch or promotion are out of the question, there are tons of ways to make a few bucks here and there. The important thing is to remember that every little bit adds up to a larger amount in the long haul.
If we make $5 extra a week, it’s $260 a year and $2600 a decade! Invest it with decent returns and that number really gets inflated.
John Green Or bump that up to $50 a week and you can make $2,600 (extra) in a year! That can make a big impact on people’s finances.