Welcome to the first article of the Top 100 Money Hacks series, where each tip takes five minutes or less.
Our days are crowded: Sleep (when we can manage it), shower, eat breakfast, get ready, commute, work all day, commute home again, eat, wind down, sleep. Repeat. With these “essentials” seeming to take 20+ hours of a 24-hour day, it’s no wonder we don’t drink enough water or get a fraction of the exercise we should, much less manage our finances.
But we do have the time.
Believe it or not, nearly every method of improving your finances takes just 5 minutes. Most can be completed in 5 minutes, while others can at least be started in 5 minutes and give you the power to combat the inertia of a task that feels too big begin.
You’ve got this! In the time that it takes you to wait for your coffee, sit through a round or two of commercials, or check social media, you could be making yourself a millionaire.
In this 5-part weekly series, we will be examining 100 ways to improve your finances that can be done in 5 minutes or less.
Part 1: Budgeting
Start simple by just doing one task today. Try another tomorrow. And, if you make a habit of regularly checking off items on this list, your future self will thank you!
Let’s start with Part 1: Budgeting, or “how to allocate the money you have and plan for the future”
1) Make a simple budget. You cannot manage what you do not measure. Making and monitoring a real budget is perhaps the most vital step to your financial well-being. I’m a big fan of the 50/20/30 rule: devote 50% of your income to essentials, 20% to saving, and 30% to discretionary/fun. This savings figure, 20%, is the amount of money you should be saving for retirement and longer-term goals. Doing so will put you profoundly ahead of your peers on the road to financial independence. 67% of people don’t budget at all. For example, if you’re making $60k, calculate $60,000 x 2 ÷ 10 = $12,000 per year… or $1,000 per month.
Let’s make this even easier:
2) Update your budget regularly. Once your simple budget is made, get in the habit of comparing it to your actual expenses and improving it over time. You can even begin to develop a yearly budget to account for expenses that occur less than once per month. There is no such thing as an unexpected expense, and you should plan for these less-frequent one-time expenses (a medical bill, a car repair, a tax expense, a fine, an appliance repair) in your budget over time. Every single dollar should have a designated purpose at the beginning of the month, and no expense should be truly unexpected. Using the above example, the individual devoted $1,000 per month to retirement savings and has $4,000 remaining per month. Calculate the absolute essentials out, including taxes, rent, utilities, food, and healthcare. Allocate a percentage to your emergency fund, if you don’t have one. Devote the next portion to paying down your higher interest debt, if you have any. Assign the next allotment to longer-term savings goals, like retirement savings, a house, a car, or investments. Whatever percentage you have left over can be your discretionary/fun money. Stick to your goals, and be careful not to let this slip away as your finances improve. Don’t think you can get away with spending and “saving whatever’s left over at the end of the month;” there won’t be anything left! Save first.
3) Prioritize your financial goals. Too often, we think about our financial goals in an abstract way. “Pay off my student loans.” “Buy a house.” “Retire early.” Yet, few have written down these goals on paper or a spreadsheet and calculated precisely what it would take to make this happen. Take some time every month to prioritize your financial goals, rather than hoping you’ll find money at the end of the month to devote to them. Take concrete steps, one at a time, towards achieving these goals.
4) Sign up for a budgeting tool. Tools like Mint (free), Clarity Money (Free), Personal Capital (Free), or YouNeedABudget “YNAB” (Free trail w/monthly fee later) often let you connect your bank accounts, retirement accounts, credit cards, and other financial accounts in a single place. You can set goals, classify expenses, and calculate your net worth instantly. Check and update it weekly (or daily) to better keep track of your money. They can also give you spend alerts when you’ve gone over budget or if a bill is due soon. I use Mint and love it.
5) Calculate your net worth. Whether you use Mint/YNAB or figure it all out by hand, calculating your net worth every month (or more) frequently is essential. Net worth = Assets – Liabilities. Assets are everything significant that you own: your house, your car, your retirement accounts, your investments, any “payables” owed to you by friends, family, or businesses, and anything else that has significant resale value (no, your 50” television and custom rims don’t count). Liabilities are everything you owe: your student loans, your credit card debt, your mortgage, your car loans, and anything you owe to family, friends, or lenders. Take a few minutes to create a chart and see how this number changes over time. Your net worth is the single best barometer of your financial health.
6) Automate one aspect of your savings. Again, the best way to save money is to automate it so you never have to “decide” to save or spend. Most payroll companies let you deposit to multiple accounts, so make one of these your emergency fund, your retirement fund, or your long-term goal fund. Most banks let you make a recurring payment like this as well. Start by having this 20% taken out of your paycheck each week and automatically submitted to savings (ex. your IRA or your company’s 401k plan) before you pay for anything else. I call this the “save first, essentials second” mentality.
7) Create an IRA or other investment account. An IRA or Individual Retirement Account is one of the greatest vehicles for savings and can have outstanding tax benefits. Half of Americans and nearly 90% of people across the globe don’t have a single dollar invested. All it takes is 5 minutes and $100 or less to start saving for retirement. I recommend Vanguard and Fidelity. The key is to find a company that has options with no minimums and zero/ultra-low expense ratios. If you don’t have an account, don’t be intimidated and don’t worry about the specifics just yet. You can do it. Just sign up for an account, link a bank account, make an initial contribution to a zero/low cost index fund (VTI or FZIPX), and set up an auto-contribution if you can. Don’t rely on your pension; don’t rely on social security; rely on yourself.
8) Contribute to your IRA. In just a few minutes per month, you can easily set up a one-time or recurring contribution to your IRA. You can set this up either directly through your broker or even with your payroll to automate your savings (see #6!). In 2019, you can contribute up to $6,000, so if this is your goal, make a monthly contribution of $500 or about $120 per week.
9) Set essential bills to auto-pay. Assuming you always leave a reasonable balance in your checking account, which I would recommend, it makes sense to set your truly essential bills to auto-pay each month so you don’t get hit with late fees. For example, setting utilities, rent/mortgage, insurance, and minimum credit card payment to auto-pay could save you money on fees long term. Make sure you don’t use auto-pay as an excuse to spend more.
10) Plan out the timing of purchases during the year. Being patient and planning ahead can save you 20% or more or many major purchases. The best time book travel? January, February, and August. Fitness equipment? January and February. Holiday decorations? After the holidays. Gym memberships? June and July. Cars? August and September when the dealers need the prior year’s models off the lot. Halloween candy? After Halloween. Wedding dresses (wait… plural?…)? December when they need to make room for new year’s designs. Best days to book travel? Tuesdays, Wednesday, and Saturdays. Budget these expenses into a your yearly budget and enjoy the savings (or should that be “SAVING???”).
11) Review your monthly bank statements. Taking a few minutes to go through your bank statements is an excellent financial habit to develop. Even if you only identify one or two fraudulent transactions or unnecessary recurring expenses and correct them, your time was well worth it. Reconcile this with your budget to see how you did each month.
12) Review your monthly credit card statement. Similar to the above, look for fraud, bogus fees, or unnecessary transactions on your card statements and fix any findings. Don’t neglect this.
13) Adjust your tax withholding. I’m not a tax adviser, but you should review your tax withholding if any of the following apply: you get married, you have a child, you had a substantial refund last year, you had a substantial tax liability last year, or your income is changing significantly from expectations. You may need to claim more “allowances” if you’re withholding too much for taxes or claim fewer allowances if you’re not withholding enough for taxes. If you’re self-employed, a business owner, or a 1099 contractor, you may need to ensure that you’re sending the right quarterly estimated installments to the IRS. If you’re not from the U.S., check your local and federal responsibilities to make sure you’re not over or under paying.
14) Make a meal plan for the week. Budgeting = Planning. With a simple meal plan, you’ll waste less food, eat healthier, save time, stay orderly, and avoid using a restaurant as your kitchen. This small task pays for itself time-wise and budget-wise many times over.
15) Make an inventory sheet for your refrigerator or freezer. Americans waste about 40% of their food, and most other developed countries aren’t much better. Waste often starts with simply not knowing what is in your kitchen, and taking 5 minutes per week to track you inventory has been proven to reduce waste significantly. You spend at least this amount of time throwing out moldy leftovers and going back to the grocery store anyway. Start with this or purchase an inexpensive reusable like this.
16) Prepare snacks for the car or office. Save yourself a trip to the drive through or vending machine by preparing or purchasing healthier snacks, in bulk, for times when you need a quick snack. Doing so can cut your empty calories by 50% and your costs by 75% over the alternatives.
17) Take the first step towards estate planning. Budgeting is a life-long endeavor. For a larger estate, you will want to contact an estate attorney from the beginning. For the smaller simpler estates, you can create a simple will yourself or at least begin to summarize your assets and wishes until you do have the time to work with an attorney. In a document like a will, be sure to include the basics like stating your full legal name and address and age, testifying that you are of sound mind and not under duress, naming an executor, identifying you heirs with no ambiguity, including witnesses, and getting the document notarized. The more work you put in yourself, the more you’ll save in legal fees (and the more trouble you might prevent between your heirs).
18) Write down and evaluate today’s expenses. When you’re first getting started with your budget, make a nightly habit of writing down everything you spent money on that day, including automated payments, and consider one simple thing: Did each purchase bring you joy? This exercise shouldn’t make you feel guilty, but you should reflect upon what spending is actually necessary and begin to take steps towards forming better habits. Be willing to change your behavior when you realize what’s really important to you. As this process becomes familiar, you can start doing this monthly for the larger purchases only.
19) Write down how you spent your time for the day. Budgeting is as much about allocating your time as it is your money. Writing down your time spent each day is a great habit that I’ve been trying to develop more thoroughly myself. Take a few minutes to write down, in 15-minute increments, exactly what you did that day. Use a digital template if it’s easier. Be as honest and specific as possible. You’ll likely find that you waste a bit more time that you realize, and you can slowly work to better manage your time throughout the day.
20) Set a reminder. Set a reminder on your phone or calendar to do anything on these “100 Tips” posts, whether it’s something to do multiple times per day (walking, drinking water) or once per year (annualcreditreport.com, shopping your internet/cell plan).
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