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Do you want to improve your finances in 2020 and become better at managing your money? I will show you how to do so with the 14 easy step-by-step personal finance tips detailed in this article.
Many people start the New Year with high hopes and dreams of improving their financial situation. They plan to pay off debt, cut their expenses, save and invest more, and generally manage their money better.
However, if statistics are anything to go by, these lofty goals quickly fall by the wayside once the year gets going. As per U.S. News, 80% of New Year’s resolutions fail by the second week of February. So, to put it mildly, the majority of resolutions people make for the New Year are doomed to fail!
Why do New Year’s resolutions fail? Maybe it’s because you decide to implement changes that are radically different from your current lifestyle. Or, you set too many goals, become overwhelmed, and then proceed to fail on all of them.
Whatever the reasons have been for your failures in the past, this year can be different – you’ve got this!
How To Improve Your Finances This Year
In order to improve your life, you will need to improve your money management. Think about your financial troubles and how your life could be different if your financial problems could all just magically disappear!
While several years of poor financial decision-making will definitely not go away in one day, when you start the year on the right track and stick to a good plan, your finances and life will turn around for the better.
These 14 personal finance tips are a great starting point for significantly improving your financial situation. Start by implementing four, five, six, or seven of them and watch your finances improve in ways you have never imagined possible.
1. Set Clear Financial Goals
What is it you want to achieve financially this year? Do you want to pay off debt? How much debt do you want to pay off and by when? Your goals should be specific, and, time-bound! For example, in 2018, my wife and I set a 1-year goal to pay off $30,000 in car loans.
Your financial goals can be broken down into daily, weekly, monthly, semi-annual, annual, or even longer time-frame milestones. Define your short-, medium-, and long-term goals. Depending on your level of discipline and the difficulty of what you plan to achieve, you may need to break some massive goals into smaller short-term goals so you can follow your progress and make it easier to stay on track.
Going back to the example above, we decided in late December 2017 that we wanted to pay off $30,000 in car loans by the end of December 2018. To make our goal even more specific, we planned to make at least an additional $2,000 in lump-sum payments every month.
Lump-sum payments: $2,000 x 12 months = $24,000
Regular monthly loan repayments: $500/month x 12 months = $6,000
Total payments in 2018 = $30,000
Although, there were months we could not put down up to $2,000 towards our car loans, knowing the minimum amount we needed to crush our debt was super-helpful to staying on track. As of this writing (November 2018), we are on track to pay off the entire $30K debt by the end of this year!
In summary, apply the SMART acronym to your financial goals. They should be:
S – Specific: What do I want to accomplish (e.g. pay off $30,000 in car loans) and when do I want to accomplish it (e.g. in 12 months)?
M – Measurable: How much do I need to put aside to reach my goals? Example – $2,000 lump-sum payments per month for 12 months.
A – Attainable: Is it possible for me to achieve this goal? How? This is up to you and whether you are willing to pay the price for attaining your dreams or goals.
Example – You can save an additional $800 per month by cooking at home and packing your lunch, carpooling to work, cutting your own hair, paying lower bank fees, cutting your utility bills, quitting smoking, and more. You can also make an extra $500 per month by renting out your car, dog sitting, flipping items, using cash back apps, and more.
R – Realistic/Relevant: How important is achieving this goal to you? Why is it important to you? For example, so you can have more money to put towards your retirement savings.
T – Time-Bound (Timely): When will your goal be achieved? One, Two, Three months? 1 year? A long term goal may comprise of several shorter-term milestones to keep you on track.
Budget: A mathematical confirmation of your suspicions. – A.A. Latimer
You need a budget to tell you where your money comes from and where it goes. While creating a financial goal is great, you won’t accomplish anything if you do not have money left at the end of each month.
Take a close look at your income and expenses to determine if you have enough money left at the end of the month. If you do not, it is time to cut your expenses and also find ways to increase your income. For example, by starting a blog that makes money.
Free apps you can use for budgeting include Mint (U.S. and Canada) and KOHO (Canada). A paid alternative is YNAB.
3. Pay Off High-Interest Debt
To get yourself back on a sound financial footing, you need to put an end to high-interest debt i.e. credit card debt. The average credit card debt per U.S. household in 2018 was $8,431. In Canada, the average consumer non-mortgage debt stood at $22,800.
Plan to pay off your credit card obligations as soon as possible because every day that goes by on your outstanding balance (after the Grace Period has ended) means an increase in your debts. Start by making an extra payment every month – if you only make the minimum payments, your debts will stick around forever.
If you carry a large credit card balance, consider a low-interest balance-transfer card like the Scotiabank Value Visa Card (Canadians). Low-interest credit cards give you some relief from having the bulk of your payments go towards servicing interest payments instead of paying down your principal debt.
One useful app available in the U.S. for staying on top of your credit card debts is Empower. This free banking app will help you pay off debt, earn high-interest rates on your savings, lower your bank fees, and earn cash back on your spending.
If you have student loans, consider refinancing it at a lower interest rate to potentially save thousands of dollars.
If your credit profile has been trashed by poor financial decisions in your past, a secured credit card could help you start rebuilding your credit. In Canada, you can check out the Refresh Secured Visa Credit Card here. Check out other bad credit options here.
Avoid Payday loans by all means possible – you could be paying upwards of 600% in interest rate per year!
4. Diversify Your Income Sources
In the “battle of the budget,” you can win by cutting your expenses, increasing your income, or by doing both.
Let us take a look at some ways to increase your income. One option is to earn more at your current day job. You may be able to accomplish this by offering more at your job and negotiating a pay raise, or you may have to look for a better-paying job elsewhere.
Another option is to find alternative ways of supplementing your full-time salary with extra sources of income via a side hustle. There are so many ways to earn extra income in your spare time (and from your home), including:
D. Rent out your spare room: Monetize your empty room by listing it on Airbnb and make some money. You get a free $1 million in liability coverage/protection.
E. Teach English Online: Teach kids in overseas countries how to speak English from the comfort of your home and in your spare time. This gig pays as much as $26/hour! Sign up to become an English Tutor here.
F. Drive: Put your car to work in the ride-sharing economy. By driving others around during your spare time, you can earn thousands of dollars every month. Alternatively, you can rent out your car on Turo.
G. Sell Services: You can sell all kinds of services to others using platforms like: Freelancer, 99designs, Fiverr, and Upwork. There is someone looking for your skills, so go make some money!
You can easily make an extra $20,000 to $80,000 per year with some of these work from home jobs. This effectively improves your ability to pay off debt, save/invest for retirement, and achieve financial independence.
In addition to starting a side gig, you can also make extra money every month by taking paid surveys. There are several legitimate online surveys that will pay you to give your opinions on products, services, programs, and more.
Surveys won’t make you rich, but they can supplement your income by up to $200 every month. I have covered in detail how you can identify legit survey sites that pay here.
⇒ Some of the best paying online surveys you can join today include:
You should aim to earn cash back whenever you make a purchase online or in-store. And, why not? All the popular cash back apps are free to use and with offers as high as 30% in some cases, you could be leaving a significant amount of money on the table if you are not signed up.
My favourite cash back apps for grocery shopping include:
Checkout 51: Get a $5 sign up bonus and up to 30% in cash back.
In addition to cash back rewards, these free apps also pay you when you refer a friend.
6. Cut Your Expenses
In step #4, I touched on how to improve your financial life by increasing your income. Another important aspect of good money management is to cut your expenses. There are tons of ways to slash your monthly expenses and bills including:
Negotiate your bills so you pay less. We were able to negotiate lower rates on our phone, cable, and internet bills and have saved 75% on this cost over the last two years. While I have not found apps that automatically negotiate bill payments in Canada, some great options for U.S. residents include Trim Financial Manager and Paribus.
Canadians should check out the Paytm app to earn rewards when they pay their monthly bills.
Eat out less: The average U.S. household spends over $3,000 per year on food outside the home. You can save thousands of dollars every year by making your own meals. If you are looking for easy, nutritious, and cheap meal options, try the $5 meal challenge.
Comparison shop for everything: Shop around before making purchases to save money. You can shop around for a cheaper car, home, and life insurance. We saved about $300 in the last two years on homeowner’s insurance (with similar coverage) by shopping around.
Cut your water and energy bills by using water and electricity efficiently.
Cancel unwanted subscriptions – Gym, TV, magazines, and more.
Shop at a dollar store. Some items are just cheaper to buy at a dollar store.
Stop paying unnecessary banking and investment fees. Avoid the monthly bank charge by opening a free online bank account e.g. Tangerine Bank (Canada) or Ally and Schwab Bank (U.S.). On the investing side of things, avoid high-fee mutual funds and consider the low-fee ETFs used by robo-advisors.
Automate your bill payments to avoid late payment fees and damage to your credit score. Auto-paying your bills may also get you some discounts.
It is easy to formulate a plan in your mind to save money this year. However, the reality is that most savings goals never really see the light of day. It is no wonder that 69% of Americans have less than $1,000 in their savings account, and on the Canadian side, the situation is no different.
One strategy for ensuring you meet your savings goals is to automate it using the “automated savings plan” feature that is popular with most savings accounts today. Automated savings mean that a specific amount of money leaves your chequing and is deposited into your savings account on a periodic basis.
Some of the popular automated savings apps available in Canada include Mylo and Wealthsimple Roundup. In the U.S., you can use Acorns, Wealthsimple and Empower. Mylo, Acorns and Wealthsimple help you save/invest your spare change, so you do not radically have to change your lifestyle in order to start saving.
Your finances will greatly improve when you get into the habit of “paying yourself first.” At least 10% (more is better) of your income should go into a savings or investment account.
The sooner you start to invest, the better your chances of becoming financially-free. Time is literally money when it comes to building a great investment portfolio. Unless you are carrying credit card debt that needs to be paid off ASAP, you should be putting away money into an investment account regularly. Again, pay yourself first!
Max-out your contributions to tax-free or tax-deferred registered accounts, such as TFSA, RRSP, 401(k), and IRA. If your employer offers a contributions-match, maximize it so you don’t leave money on the table.
Cut your investment fees by avoiding high MER mutual funds. High fees negatively impact your long-term returns. It is important to note that more than 80% of fund managers do not outperform their benchmark index, so you are often better off buying into a passive index fund or ETF that can generate market returns.
When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds. – Warren Buffett
If you are a DIY investor, you can lower your trading costs by using a discount broker that offers commission-free ETFs, for example, Questrade. Sign up with Questrade and get a $50 bonus here.
Simplify your investing. Not everyone is comfortable with managing their own investment portfolio and re-balancing it as required. If you want to save on fees and invest on autopilot while maximizing your returns, consider using the services of a robo-advisor.
Using a robo-advisor for your investments may also save you from becoming a victim of your own behavioural biases.
9. Improve Your Credit Score
Monitor your credit score for free this year using Borrowell (Canada) or Credit Sesame (U.S.). Credit monitoring helps you to quickly detect identity theft, fraud, and errors that can significantly damage your credit profile.
An excellent credit rating means you qualify for credit at competitive interest rates, thus saving you money. With Borrowell and Credit Sesame, you also get access to a free credit report that is updated every month along with your score, and at no charge to you. Applying to access your free credit score takes less than 5 minutes, so it’s not a big hassle.
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10. Try DIY
The internet has made it easier to find out how to do things yourself. You can visit Youtube or several other DIY websites for free tutorials, and start saving money. Some easy DIY tasks you can try today include:
An investment in knowledge pays the best interest. – Benjamin Franklin
Increase your knowledge and improve your skills by continuously reading and learning. Investing in yourself is one of the most important investments you will ever make. Through education, you may be able to: increase your income-earning ability, increase your capacity to provide solutions to real-life problems, broaden your general understanding and thinking ability, and feel fulfilled and satisfied with your life.
In the area of finances, there are many personal finance books you can read this year to increase your understanding of investing, debt management, budgeting, and more, including:
Organizing your home and getting rid of things you do not need will not only help you have more room to breathe fresher air, but it can also fatten your wallet.
Sell unused/not needed items using your local online marketplaces, Craigslist, Kijiji, Amazon, eBay, etc. Remember to not make purchases on impulse. When you have an urge to buy things, give yourself some days to mull it over and be certain it is really necessary.
Consider getting rid of one thing for every other item you buy. Use Decluttr to easily sell your unused CDs, DVDs, books and electronics.
Focus on quality over quantity. Why buy five variations of one thing if one quality well-made version can serve you just as well.
Cancel unused subscriptions.
In the spirit of decluttering, also:
Organize your investment/banking accounts and avoid having them spread all over the place – consolidate your accounts wherever it makes sense.
Learn to say “No” to relationships that are not healthy or beneficial to you. Cut ties that are detrimental to your physical, mental, and financial health.
13. Stop Living To Impress Others
I shall be telling this with a sigh somewhere ages and ages hence: Two roads diverged in a wood, and I… I took the one less traveled by, And that made all the difference. – Robert Frost
It is inbuilt into human nature to desire the affirmations of others. We yearn for it more than we are willing to admit. However, if you are going to better your life financially, you must be willing to “walk your own walk.”
Do not spend money you don’t have to buy things you don’t need in order to impress your neighbours or your friends. The reality is that many people dig themselves into debt holes simply because they are not willing to dare to be different…to be real.
Americanism: Using money you haven’t earned to buy things you don’t need to impress people you don’t like. – Robert Quillen
This year, impress yourself by setting financial goals, creating a budget, and accomplishing your goals.
These 14 tips will help you improve your finances today. To summarize:
Start by creating financial goals that are challenging enough to get you on the road to financial freedom. Your goals should be S.M.A.R.T.
Follow up with a budget that is detailed and clarifies where your money comes from and where it goes.
Work on increasing your income and cutting your expenses
Believe in yourself and accept responsibility for your failures and successes.
Be a continuous learner and be determined to chart your own course.
Don’t count on luck and when you do, remember that “luck is what happens when preparation meets opportunity” – Seneca.
Do you have any more tips you are planning to implement this year to improve your finances? Drop them in the comments below!
Enoch Omololu is a personal finance enthusiast and a veterinarian. He has a master's degree in Finance and Investment Management from the University of Aberdeen Business School and has a passion for helping others win with their finances. His writing has been featured or quoted in The Globe and Mail, Toronto Star, MSN Money, Financial Post, The Motley Fool and many other personal finance publications. Read more...