Between budgeting, saving, investing and managing your credit, you may have a lot of financial tasks on your plate. Implementing a few simple strategies can help you be more effective—and make things a little less complicated. That's probably a win-win for your financial life. Try these seven hacks to set your personal finances up for success.
1. Pay Yourself First
When your paycheck hits your checking account, you might be in the habit of paying all your bills first before setting money aside for flexible spending and saving. Any leftover funds may then go toward your financial goals. Paying yourself first takes the opposite approach. The idea is to first set aside a portion of your income for saving or investing, then pay your bills. Whatever is left after that can be used for discretionary purchases. This method prioritizes your short- and long-term financial goals. That may include:
- Building your emergency fund
- Saving a down payment for a home
- Funding your kids' college education
- Completing home improvement projects
- Starting a business
- Padding your travel fund
To pay yourself first, select a savings target that works for your budget. Then set up recurring automatic transfers to your main savings account or multiple accounts.
2. Set Financial Reminders
Your phone can double as a handy personal finance tool. Just as you might use your calendar app to remind you of upcoming events and appointments, you can also set important financial reminders.
Bill Due Dates
Your debt payment history makes up 35% of your FICO® Score☉ , used by 90% of top lenders. Setting up automatic payments, which we'll talk about shortly, is a simple way to ensure that your bills are paid on time. Getting an alert on your phone also allows you to budget accordingly. These reminders can be useful for regular bills as well as expenses you pay manually, like one-off medical bills.
Reminders to Check Your Budget
Even the most effective budget needs periodic attention. That might mean setting a weekly reminder to review your income and spending. You may have encountered a surprise expense that disrupted your budget—or earned more than you originally expected. Taking a few minutes to check in on your plan can help prevent overspending and keep your finances on solid ground.
3. Automate Your Bills and Savings
Forgetting to pay a bill can trigger late fees and negatively impact your credit score. In fact, a payment that's late by 30 days or more will appear on your credit report for up to seven years. Setting up automatic bill payments is a simple way to avoid penalties and keep your credit score going strong. Look to recurring monthly bills like your:
- Mortgage or rent
- Homeowners Association (HOA) fees
- Utilities
- Phone
- Credit cards
- Student loans
- Auto loans
- Personal loans
Reviewing your budget can ensure you have sufficient funds to cover upcoming payments. It's also wise to set a reminder for non-monthly bills that are automatically paid at different times throughout the year. (More about this in a minute.)
4. Nickname Your Bank Accounts
This sounds simple, but assigning different nicknames to your bank accounts could help prevent overspending. For example, you might name one savings account "Emergency Fund" and another "Home Down Payment Fund." The next time you're tempted to dip into your savings, seeing those names in black and white may be enough to deter you. And if you're paying yourself first, you'll have the satisfaction of watching those balances increase month after month.
5. Increase Your Retirement Contribution by 1% Each Year
Dialing up your retirement contributions by just 1% annually can make a big difference in your retirement nest egg. It may not sound like a lot, but that's the beauty of it—it's only a 1% decrease in your paycheck today. Let's say you're 35 years old and earn $60,000 a year. Increasing your retirement contribution by only 1% could allow you to retire with an extra $85,000, according to Fidelity Investments.
Having said that, one rule of thumb is to set aside 15% of your income for retirement when you're in your 20s and 30s. That number jumps up to 20% in your 40s and beyond. If you're not hitting those targets yet, settle on a number that feels right for your budget. Increasing that amount by at least 1% each year could pay off in the long run.
6. Consider an HSA if You Have a High-Deductible Health Plan
If you have a high-deductible health plan (HDHP), medical costs might be taking a big bite out of your budget. A health savings account (HSA) is a potential way to strengthen your finances. It allows you to save pre-tax dollars in a special account you can use to cover qualified medical expenses. That includes everything from deductibles to copays to prescription drugs. HSAs have several perks:
- Contributions are tax deductible
- Your funds grow tax-free
- You won't be taxed on withdrawals that are used for qualified medical expenses
Depending on your tax rate, an HSA could shave hundreds of dollars off your tax liability. And once you turn 65, HSA funds can also be used as taxable retirement income.
7. Budget for Non-Monthly Expenses
Certain expenses may pop up at odd times throughout the year. Some examples include:
- Insurance premiums
- Holiday spending
- Birthdays and other gift-giving occasions
- Child care bills
- Tuition payments for yourself or your family
Preparing for non-monthly expenses can help stabilize your budget. Take your total estimated spend, divide that amount by the number of months you have before it's due and then add that number to your monthly budget. Let's say your annual homeowners insurance premium is $2,000 and it's due in 12 months. That works out to about $167 per month that you can automatically transfer to your savings account.
The Bottom Line
There's no magic bullet for managing your finances, but these simple hacks could make things a bit easier. It's all about removing barriers that make it harder to meet your financial goals and protect your credit. Free credit monitoring with Experian can help with the latter. Whenever something new appears on your credit report, you'll be the first to know.