This guest post is from one of Wesabe’s new Advisory Board members, J.D. Roth, who writes about smart personal finance at Get Rich Slowly.
With the holidays over, most of us turn our thoughts to the coming year. We begin to make resolutions to improve our lives. Many of our goals are financial: get out of debt, open a retirement account, save for a trip to Europe.
Although we each have different aims, the methods for reaching these goals are largely the same. To achieve financial success, you need to exercise good financial habits, and to make the most of the tools available to you. Listed below are five of the most effective ways to make any financial resolution a success.
Track your spending
By tracking your spending, you demystify money – you begin to perceive it as a tool. You gain a sense of power. You no longer feel that money controls you, but that you control money. Logging your expenses paints a picture of your spending habits as they actually exist, not as you think they exist. Using this information, you can alter your habits. This is an essential money skill, and it’s easy, especially with Wesabe.
Optimize your accounts
For eighteen years, I was an account holder at a large national bank. I paid an $8 “service charge” every month, as well as many other fees. I received terrible service and earned no interest. Over the last couple of years, I’ve finally begun to optimize my accounts. If you haven’t already done so, consider the following:
- An online high-yield savings account. Even in this era of low interest rates, it’s still possible to earn about 3% on your savings. Internet favorite ING Direct currently offers a 2.75% APY and HSBC Direct offers a 3.00% APY. (I opened an account with ING Direct last year and love it!)
- A rewards checking account. Believe it or not, it’s possible to find checking accounts that pay interest. Online checking accounts generally pay between 1% and 3%, depending on your balance. But you can usually find an even better deal through your local bank or credit union. Check out this huge list of rewards checking accounts by state for rates as high as 6%! (Those marked with a red asterisk are available nationwide.)
- A rewards credit card. If you know you have trouble with credit, it’s best to avoid plastic altogether. But if you’re able to use credit responsibly, make sure your credit card is paying you. Avoid cards that carry an annual fee. Find a rewards program that matches your lifestyle. But don’t choose a card just because it offers a signup bonus or because it gives you a discount at your favorite store. Read the terms and conditions. Understand the card’s limitations. Remember: your goal is to pick a tool, like a vacuum cleaner. You’re not looking for a one-time bonus, but a long-term relationship you can live with.
When optimizing your accounts, it’s important to choose systems that work for you. I signed up for a rewards checking account at a local credit union, but the nearest branch is five minutes out of my way. I never use it. I had to compromise by opening on online checking account instead. I earn a lower rate, but it’s an account I’ll actually use.
Fund your retirement
The current economy gives a lot of people the jitters. But if history is any indication, now is a great time to be buying stocks for your retirement. Take advantage of any employer-matched opportunities, such as a 401(k). Also consider starting a Roth IRA.
Don’t know where to begin? Many experts recommend index funds – mutual funds that track a stock market index. For more ideas, check out Wesabe’s simple investing group.
Nobody cares more about your money than you do. One of the best ways to take control of your personal finances is to embark on a program of self-education. Pick some of the best books about money, and borrow one at a time from your public library.
Want to learn more about investing? Try The Four Pillars of Investing by William Bernstein. Need to get out of debt? Read The Total Money Makeover by Dave Ramsey. Looking for the proper balance between money and meaning? Check out the new edition of the classic Your Money or Your Life by Joe Dominguez and Vicki Robin.
Boost your income
While you can go a long way to meeting your financial goals by reducing your spending and using the right tools, nothing supercharges your progress like a boost in income. If you have the discipline to save your extra earnings, you can get out of debt more quickly, or save to meet your other goals. How can you find more cash?
- Ask for a raise. Perhaps the most effective long-term strategy for boosting your income is to seek more money at your current job. Over the past few years, I’ve had several readers write to tell me how they’ve given themselves a raise through ambition and ingenuity. Here’s one example.
- Switch employers. Unfortunately, not every employer is able or willing to offer raises, even when they’re merited. If you’re in a position where a raise isn’t possible, consider finding a new employer. Yes, this can be a hassle. But often the increase in salary makes it worth it.
- Take a second job. Many people find that the best way to get out of a financial hole is to temporarily take a second job. Nobody wants to work more than 40 hours per week, but sometimes that’s what is needed to get out of debt or to save for a house. Just remind yourself that you’re doing this for a short time. Here are some good ways to earn extra income on the side.
- Sell things. A few years ago, I was $35,000 in debt. When I finally made the decision to turn things around, one of my first steps was to sell a bunch of the stuff I’d bought with that $35,000. I used eBay, Craigslist, garage sales, and the Amazon Marketplace to sell thousands of dollars in CDs, DVDs, games, and comic books.
Another effective way to increase your income is to pursue entrepreneurship. While working to defeat my debt, I started a small computer consulting business. It didn’t generate a lot of income, but it did provide $2,000 a year that I wouldn’t have had otherwise!
The road to wealth is paved with goals
In 2008, I tried something new. Instead of making resolutions, I set goals. Mere semantics? Perhaps. But I found that when things went wrong, I didn’t give up on my goals as I had abandoned resolutions in the past. I didn’t lose my way – my goals were still there, urging me along.
Experts say that goals should be “SMART” – specific, measurable, achievable, realistic, and timed – but from my experience, what matters most is passion. You have to care about your goal. It has to be important to you. The goals that are most attainable are those that you want more than anything else.
Goals are the fundamental building blocks of success, not just in personal finance, but in every area of life. Without goals, you are living reactively, letting life push you around. With goals, you can live a proactive life, steering toward a destination. When you have an end in mind, it’s easier to see when you’ve made a wrong turn. You know where your path is supposed to lead.