Yes! But where to start?
"Sometimes focusing on lofty money goals like building a retirement nest-egg and paying down hefty student loan debt can feel so impossible to achieve that it actually paralyzes us and we end up doing nothing," says Henry. "Instead, create baby steps and focus on accomplishing small money wins.”
Start small. Feel good.
Baby steps we like.
1. Save up some breathing room. Ahhh, the Emergency Fund! Experts say we all need enough savings – apart from tax and retirement funds – to cover three to six months of living expenses. That’s a big number for most of us, a seemingly impossible goal if we don’t win the lottery this week.
Baby Step Focus instead on creating a comforting “pad” in your primary checking account. Accumulating and keeping a minimum balance as small as $500 can help you sleep better at night.
• Open a savings account if you don’t already have one. Set up automatic deposits, in an amount that’s sustainable.
• Apply any windfalls to savings, and in time you’ll have your Emergency Fund.
2. Go on a Spending Diet. A spending diet or freeze is just what it sounds like: a pledge to cut back on discretionary purchases for a specified period. The payoff is more than just money in the bank. Engaging in this practice, even for a short while, can shed new light on your spending patterns, and the behaviors that drive them.
Baby Step Start with a two-week freeze. Keep track of what you didn’t spend.
Next Steps Use your findings to re-assess priorities and make permanent changes that no longer feel punitive.
3. Plug the leaks.
To reduce expenses, start with the low hanging fruit. Chances are, you haven’t taken advantage of all the ways you could trim your monthly bills. How much are you paying for things you simply don’t need?
Baby Step Cut the expenses that are easy to lose.
Start by taking stock of those autopayments that can add up to a big drain on your checking account.
• Cancel memberships and subscriptions you aren’t using.
• Update your mobile phone plan.
• Shop for lower insurance rates.
Next Steps Tackle the big drains on your income.
• Switch out a pricey new car for a reliable used car.
• Refinance your house to a 15-year term if you can.
• Learn to avoid tax penalties – by making quarterly payments on time, and contributing regularly to an IRA or SEP, for instance.
4. Track your spending.
Chances are you’ve seen this advice before: Find a notebook, save receipts, write down every penny you spend, every day. And you’ve thought, “No way.”
But this exercise works. Blogger Jesse Mecham says that by his second month of tracking, he had cut his spending total in half. “I wouldn’t spend money because I didn’t want to have to write it down later,” says Mecham. “I didn’t feel deprived, dejected, boring, out of style, uncool, or weird. I really felt like I still could have anything I wanted.”
Baby Step Find a home for your list and write down every dollar you spend at Starbucks, every trinket you grab at Target. It isn’t as tedious as you may think. Tracking can become a routine you actually enjoy.
Next Steps Create a budget that reflects your actual spending habits. Find helpful budgeting tools at sites like mint.com, or download the Wallet app.
5. Pay off your smallest outstanding debt. Dave Ramsey calls this the Snowball Method. Because paying off all your debt can be overwhelming, it’s good to concentrate on your smallest debt first. This could include payments you’re making to a health care provider, a bank or a credit card company.
Baby Step Bring laser-beam focus – and every extra dollar you can scrape up – to paying off your smallest interest-bearing debt. Make larger payments to this creditor each month, while continuing to make minimum payments on larger debts.
Next Steps Pat yourself on the back when you’ve eliminated that first debt. Then use the headroom you’ve gained to aggressively pay down your next debt.
A simple strategy: Do what you can.
See more on these topics.
10 Short Term Financial Goals for the New Year
What Are Dave Ramsey's 7 Baby Steps?
5 Reasons to Try a Two-Week Spending Freeze
What I Learned from a Six Month Spending Freeze
25 Unnecessary Wastes of Money You Don’t Think About
The Notebook That Will Change How You Think About Money Forever
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