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The 7 Smartest Things You Can Do for Your Finances

The seven smartest things you can do for your finances revolve around your spending habits, investment strategies, and savings approach. At times, managing your budget and making detailed plans isn’t enough. For instance, when you need to cover an emergency or an unexpected cost, you’re more likely to incur credit card fees, overdraft charges, or both. Similarly, a job loss or an income change could also turn your finances upside down. Therefore, a few budgeting tricks will allow you to weather short-term changes and, just as importantly, maximize your long-term savings and investment returns.

In light of this, here are the seven smartest things you can do for your finances (without being ranked in a specific order):

1. Minimize Fees

Miscellaneous fees are difficult to track because they come from different sources. Examples of those include credit card interest expenses, monthly bank account maintenance fees, and overdraft charges. These costs also vary from time to time, which makes it tricky to accurately include them in your budget. For instance, you may incur a larger interest expense on your credit card after using it to fix your car, cover a medical cost, or take care of another unexpected bill. Similar situations may require you to make instant bank transfers and/or overdraft your account. In turn, you would have to pay the associated fees.

To clarify, here are the average annual fees that American households incur:

In total, this adds up to $332 per year or almost $27 per month. To put that into perspective, the average household pays $160 each month for gas. If you manage and minimize your fees, the savings could also cover a sizable portion of your internet bill. Moreover, these amounts add up in the long term, especially for those who are thinking about retirement savings or a college investment fund. Therefore, the sooner you minimize fees, the more that you will save.

2. Set Credit Card Milestones

Credit card issuers usually increase their customers’ balance when they make several consecutive payments. When a cardholder pays on time for six months in a row, their credit balance would increase from $400 to $1,000 (as an example). This helps you save money on overdraft fees or emergency loans when an unexpected expense comes up. Equally as important, clearly defined timelines can largely motivate you to adhere to your financial goals and spending limitations.

3. Opening a Private IRA Account

Individuals and married couples can open multiple IRA portfolios. In fact, investors who take the time to learn about the markets could generate more returns than what they earn on their Social Security funds or employer-sponsored 401k. If your current workplace doesn’t offer a retirement program, you can rollover your private portfolio when you change jobs or get promoted. In other words, you have the option to have your IRA account managed by an employer in the future.

Having said that, you shouldn’t open an IRA portfolio unless you can meet the annual deposit requirements. Otherwise, you may incur large fees. The same would happen when you make an early withdrawal. As mentioned in the first of the seven smartest things you can do for your finances, fees can add up and cause a budgeting headache.

Investing 401K and IRAs

4. Open a Margin Account

Unlike a cash portfolio, margin accounts allow you to invest more money than what you deposit. To clarify, when an investor funds their margin balance with $2,000 or more, brokers would give them double that amount to invest. For example, if you deposit $3,000 into a margin account, you may use up to $6,000 on investments. Nonetheless, this also means that your losses could magnify. Investors who carefully manage their risk, however, may generate much more profits from a margin account (in comparison to a cash portfolio).

5. Automatic Savings Transfers

Many banks will allow you to set up automatic monthly transfers from your checking account to your savings. Moreover, because these transactions are scheduled in advance, you don’t incur any fees on them. This is also important because it makes reaching your savings goals easier and less stressful. Even a small monthly amount, such as $10 or $15, can add up over the years and come in handy during an emergency.

6. Account for Potential Income Changes

At times, it is difficult to predict future changes to your income. For example, seasonal and retail or services employees work less hours during the months of the year when demand is slow. Similarly, the state or federal government could increase income taxes (which are taken out of your monthly paycheck). Not having a plan for this is one of the main reasons why people get into debt.

Your strategy revolves around having a flexible budget. For instance, some streaming services (such as Netflix or Amazon Prime) can be temporarily halted if needed. Unlike cable companies, these platforms don’t require you to commit to a contract, which would harm your credit score if you cancel ahead of time. Other ways to attain financial flexibility include managing your credit card spending and giving yourself enough room to save.

7. Set a Monthly Priority List

The last (but not least) of the seven smartest things you can do for your finances allows you to prepare for the possibility of a lower income and other types of emergencies or unexpected expenses. This doesn’t necessarily mean that you have to cut spending immediately. However, a good place to start would be by ranking your monthly expenses based on priority. 

Food and water, rent/mortgage payments, transportation, and utilities are certainly the most important living costs. Others, such as your phone and internet bills, can be lowered by managing consumption. Budget items like video and music streaming platforms could be cut out if needed, especially since most service providers allow users to “pause” their subscriptions.

Above all else, your priorities should be based on your personal circumstances and budget. Those who work from home, for example, need reliable and high-speed internet, but they could save on gas by limiting their driving. On-site employees, meanwhile, will still have to cover transportation costs. However, they may be able to lower their internet bill or phone data plan. This largely depends on each person’s needs and habits.

Budgeting and Financial Planning

The 7 Smartest Things You Can Do for Your Finances: Making a Plan

Every person and household’s budget is unique. This includes their savings balance, available credit, retirement benefits, and investment approach. However, as our list shows us, all of these aspects should complement each other and define your financial strategy. For instance, if you have enough savings and/or a sizable credit balance, you can weather through an emergency without incurring too many fees or interest expenses in both the immediate and distant futures. A private IRA and/or margin account, meanwhile, will maximize your returns and prepare you for a comfortable retirement. In fact, with these small tricks, you may even get to retire early.

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