Building wealth rarely involves grand gestures—at least for those of us without $50,000 bonuses to funnel into our savings or investment accounts every year. Instead, it’s about taking small but meaningful steps that have the power to yield big results over time.
“Achieving financial freedom, success and peace of mind is often the result of consistently doing many little things in the right way at the right time,” says Eric Hutchinson, a Certified Financial Planner and managing director at United Capital in Little Rock, Ark.
We rounded up six easy-to-implement habits that will improve your financial picture this month and in the future.
1. Track your spending.
Planning to buy a home one day? Travel the world? Stop working and just sit on the beach, sipping a pina colada? You can get there—if you map out a realistic spending (and savings) plan, and keep an eye on your daily transactions to ensure you’re sticking to it.
“Getting in the habit of keeping up with your cash flow is an important step to reaching any financial goal, and it’s easy with online tools or even old-fashioned spreadsheets,” says Ben Barzideh, a wealth advisor at Piershale Financial Group in Crystal Lake, Ill.
Hutchinson recommends creating a budget in which you live on 80 percent of your income and save 20 percent for those short- and long-term goals. (If that feels daunting, start with a smaller savings number and try to work your way up over time.)
Technology makes staying on the right track completely mindless, especially when it comes to automation. You can automate bill payments to eliminate any excuse to be late, plus contributions to your savings and investment accounts and even debt payments to reduce your burden as quickly as possible.
You can also leverage technology to safeguard your finances by signing up for text alerts from your creditors, bank, or cell phone provider to avoid over-the-limit fees and to be reminded when payments are due.
3. Save for a rainy day.
One of your first savings priorities should be to create an account dedicated to emergencies, like a high vet bill or car repair. Though Hutchinson recommends an ultimate goal of six months’ worth of living expenses, start by working toward one month’s equivalent and go from there.
“This emergency fund may take time to build, but it will give you so much peace of mind knowing that if your finances take a hit, you’ll be able to get back on your feet relatively easily,” Hutchinson says.
4. … And your long-term future.
If you’re not contributing to a 401(k) or IRA plan, start now. The longer you have to save before you need to access your cash, the more you stand to benefit from the power of compounding (returns on the money you invested, plus returns on your returns).
If you already have an investment account, consider increasing your contribution by a small increment—say 1 or 2 percent. “You probably won’t even notice the difference in your take-home pay,” Hutchinson says. Repeat every six months until you’re maxing out your accounts. (And always make sure you’re contributing enough to take advantage of any employer match money.)
5. Shop with a list.
Whether you’re heading to the grocery store or to the mall, scribbling down a list will help you save money by avoiding those tempting items that seem to call out to you in the store, but that you don’t actually need.
To stay organized, keep a running list on paper or within an app like Cozi. Paying with cash can also be a powerful tool in the fight against overspending. It’s much harder to part with cold, hard cash than to pay with plastic. And research has found that we pay a lot more attention to cost when we use cash versus cards.
6. Monitor your progress.
Every month, take your financial pulse, Hutchinson says. Are you living on close to 80 percent of your income? How many months’ worth of living expenses are currently in your emergency fund? Is there anything you should do differently next month?
This is your chance to recalibrate unrealistic goals, get even more aggressive with others—or stick to the status quo. “It isn’t necessarily about making changes,” Hutchinson says. “Just as with a physical at your doctor’s office, a regular review of your finances matters, too.”
February 4, 2016