How to Actually Improve Your Finances in a Year
Saving up for school and retirement for your children, making a profit in the stock market – it all takes years. But there are financial goals you can achieve in one year that can go a long way too.
First, determine exactly what you want to achieve over the next 12 months. For me, this is an emergency fundraiser and a separate vacation fundraiser. For you, this could be raising your credit score, or saving money for retirement, or simply raising awareness of your finances. Whatever it is: write it down, put it on your Google calendar, or leave it in the comments.
Once this is done, you can actually take steps to complete it. Here are some starting points.
Increase your credit score
Good credit can bring you higher mortgage / car loan interest rates, which can save you thousands over a lifetime (or simply raise your credit card interest rates).
Increasing your result over the course of a year will not be easy (especially if you have a higher score), but it is possible. To do this, you need to understand how your result is determined *:
- Payment history: 35%
- Debt: 30% of the amount owed
- Story length: 15%
- New loan: 10%
- Types of loans used: 10%
This means that the most important factor is whether you paid on time or not. And you must pay the full balance, not the minimum balance they recommend (which can lead to debt and cost you more money). If you haven’t paid your bill on time, you may see an increase in your score if you do so for at least six months.
The second factor – the amount owed – is a little more complicated. It depends on the use of your credit or how much of your credit limit you are using. Experts recommend that you spend no more than 30% of your limit – regardless of whether you pay it off every month – in a given credit cycle to maximize your score. So, for example, if your limit is $ 1,000, you should try not to deposit more than $ 300 on your credit card (s) at one time. If you have more than one card, you should aim for 30% (or better yet, 10%) of the available aggregate credit. You can do this either by being frugal, making small payments over the course of a month to keep you below your limit, or by asking your lender to increase your limit.
The length of the story is pretty obvious: it’s the average age of your accounts and how long it’s been since you used them. This is something you really can’t change, although this is one reason parents might consider adding their teens or college kids as authorized users of their credit cards.
The fourth factor listed above measures how many cards you open at the same time (opening multiple accounts, in particular store credit cards, hurts your credit history), and the fifth one measures your set of loans: mortgage, student loans, car loan, etc. combination. but do not apply for a mortgage to increase your loan.
In addition to understanding your score, you should check your credit report (you are entitled to a free report from every credit bureau – Equifax, Experian, and TransUnion – every 12 months) for errors and dispute them by contacting the bureau. You can use this letter format provided by the FTC . The bureaus must reply to you within 30 days.
Save more
We’ve talked a lot about saving the last few days here by two cents. In particular, if you are working in a gig economy, saving money is necessary to give yourself more freedom. You may need a pillow if you decide to move across the country in search of work, or start your own business, or if you lose your job. It’s time to do it.
You can set up an automatic weekly transfer (or one for each salary) and forget about it. If you already have it, increase it by $ 5. Don’t miss out on the money – I did the weekly translation two years ago and only remember when I wrote about it.
You can also complete an assignment, such as the 52 week assignment that Lifehacker wrote about in the past.
You can use the app to save money for you.
Save more – especially for retirement
If you have a 401 (k) sponsored company, increase your contribution 1-2% this year (up to $ 18,500 in 2018 , plus an additional $ 6,000 if you’re over 50). If you are self-employed, open an IRA (or Roth). If you already have one, increase the amount you are depositing again.
Check your fees. Here’s a great spreadsheet from NerdWallet showing how seemingly small fees stack up over time . For example, NW discovered in another story that paying a 1% commission could cost a 25-year-old theorist more than $ 590,000 over 40 years of savings. You want to start saving young so that your money grows, but remember that fees increase too.
(Not investing yet? To get started, read our beginner’s guide .)
Spend an hour with a paid financial planner
Did you know that not all financial planners / consultants are required to act solely in the best interests of their clients? Does this mean they can sell investment products to consumers that they get kicked back even if another similar option is available to the consumer that is provided at no cost? This is where paid financial planners come in handy.
These professionals ( not to be confused with “paid” consultants) have a fiduciary responsibility to act in the best interest of their clients and cannot accept any compensation for the products they sell. They offer comprehensive financial advice and can finally answer for you once and for all, whether you personally need to save a little more or pay off your student loan debt.
The very structure of the commission depends on the planner. Some charge an hourly rate, a fee, or a percentage of assets. You can find it here .
Protect your identity
If you haven’t taken steps to protect your personal information and identity from theft, what are you waiting for – an even more serious data breach ?
You cannot afford to wait any longer. Here are some basic things you can do:
- Put a scam alert on your accounts
- Freeze your loan (at all three bureaus) if you are not going to buy a house, car, etc. soon.
- Consider paying for identity theft services that track loan applications in your name, as well as activities on the dark web.
Read a few books
Obviously, you should keep reading Two Cents, but there are also some great books that are more detailed than we can get here and offer invaluable information. Here are some of them that I like:
- “ Random Walk Down Wall Street ” Gordon Burton Malki and “Registration Card ” Harold Pollack and Helayn Olen often recommend my colleagues when I worked in the Money Magazine, and I learned a lot of these books as a novice writer on personal finance.
- Elizabeth Rosenthal ‘s American Disease is a fascinating read about how and why the health care system in the United States has become so confused. He also offers some helpful tips for reducing and negotiating costs.
- Malcolm Harris ‘s Kids These Days , in the most comprehensive and understandable way I’ve read, explains the many ways millennials are screwed into the modern economy.
- You Need a Budget by Jesse Mecham is a great beginner’s guide to setting your priorities and actually budgeting. If you’re already familiar with YNAB through the Mecham website , you may not need the book, but for those who prefer screen paper (or looking for a holiday gift that will save the recipient’s money), the book is a great introduction to responsible money management.