When it comes to finances, one can easily get overwhelmed by lofty goals. Sometimes it can seem impossible to try to save enough money for an emergency fund, let alone retirement. A better approach may be to make smaller goals.
In 2016, Facebook founder Mark Zuckerberg wanted to be in better shape. He could have easily set a tremendous goal — like running a marathon, but instead he set a very modest goal — to run one mile a day. Despite not shooting for the moon, his work on consistent results led to him being able to run 20 miles by year’s end. Consider these five very small steps your “one mile a day” goals to finally improve your finances.
Increase your 401k Contributions
A one percent increase doesn’t seem like much at first but could mean a lot in the long run. For instance, let’s say you get a 1:1 match from your employer and you currently put in $2000. If you increase your contributions by $200 (10%), you get an extra $200 chipped in by your employer, plus you don’t have to pay income taxes on that amount. So basically you are turning your $156 in after tax income, or $16/month, into $400 invested in your future. That’s a great return by itself but becomes even sweeter if you consider the effects of time. Compounding annually, this extra $400 per year could lead to an extra $90,000 in 40 years. That’s quite a return.
Reduce your expenses by 1%
Increasing your investments is great for your finances, but so is saving money. If you spend, for example, $3,000 per month on average, try to reduce your spending by $30 each month. Eat one less dinner out. Negotiate a lower payment for your car insurance. Utilize Skip-a-pay on one of your loans. Try doing a shopping ban for a month. Over a year, you’d save $360 from this change. It might not seem like much, but consider that 46% of Americans could not cover an unexpected $400 expense and this amount of money seems pretty solid.
Increase your debt payments
When you increase your monthly payment, the amount of the increase gets applied directly to reducing the amount owed, or principal. Reducing the amount of money you owe will reduce your interest charges each month as the interest rate will be applied only to the outstanding loan balance. By increasing your payments by a mere 1%, you could potentially pay off your debts months earlier than planned, paying less interest in the long run.
Aim to make 1% more income
If you can’t ask for a raise, side hustles are great ways to bring in extra income and stretch your creative mind. If you currently make $40,000, that’s an increase of as little as $400 more for the year or $33 more per month. You could sell your belongings on eBay or Poshmark, become a secret shopper or use your hobbies to sell things you make. Creating these skills will give you confidence about taking care of yourself, and you might even be able to start something longer lasting. Our friends at the financial literacy site, Phroogal, have compiled a list of creative ways to make extra money.
Create a habit of investing in others
In a survey of 600 Americans, Happy Money reported that “the amount of money [people] spent on themselves was unrelated to their overall happiness. What did predict happiness? The amount of money they gave away.” Each month, contribute a small amount of money to a “micro-philanthropy fund” and set it aside for spontaneous personal giving. In the future when you’re prompted to help someone, you’ll have some money saved up to do so. The researchers at Happy Money concluded that “If you have been focusing on trying to make more money, remember that giving some of it away can be just as rewarding as getting more of it.”
Even if you only enact these changes, you have set in motion a momentous improvement in your finances that will pay dividends in years to come, with little suffering on your part. Best of all, you don’t have to wait for the distant future to get better at your finances — you can start right now.