Are your finances suffering from neglect? Many of our money habits can seem pretty insignificant on a day-to-day basis, but when you add them up, they can make a big difference. With the holidays behind us, the new year can be the ideal time to give your money a fresh look—and a fresh start.
Eliminate even some of these budget busters, and your bank account will thank you.
- Carrying a credit card balance. Not paying your credit card in full every month is one of the biggest ways to waste money. On average, credit card companies currently charge an annual interest rate of about 16%—and that's if you have good credit; with poor credit, you can pay considerably more. As an example, if you only pay the minimum each month on a $1,000 balance, you'll end up paying about $560 in interest over the course of seven years. Add in a late fee, and you’re even more in the hole.
- Not researching car financing. After you've spent countless hours researching a new car, it can feel overwhelming to dig into the details of how to finance it. But take your time with this important step. With contracts sometimes stretching out six or more years, you can end up paying a massive amount over time—and easily get stuck owing more than the car is worth. The dealer may not be offering the best terms, so know your options before you step onto a lot.
- Not paying attention to investment fees. As an investor it's natural to focus on the performance of each individual security, overlooking the impact of fees. But saving 1%, or even 0.5%, can make a big difference over time. For example, if you earn a 7% return for 40 years, a $1,000 initial investment will grow to almost $15,000. But if you just pay an extra 1% in fees, this return will be reduced to about $10,000.
- Paying for too many subscription services. From streaming services to gym memberships to your favorite food-of-the-month club, subscription services can add up fast. According to a recent study most consumers don't even know how much they spend on these items. So if you haven't recently tallied up your monthly total for those things that automatically show up on your doorstep or screen, do that pronto. You may be shocked at what you find and inspired to trim away some of the excess.
- Going overboard on personal services. I love pampering as much as the next person, but I also know how easily the costs add up. So, take a few minutes to tally up all of these charges—from haircuts to color, to manicures and pedicures, to the occasional massage. And how about personal training at the gym? These are all wonderful services, but you may be able to save a bundle by whittling them down to the ones you care about most—and can afford.
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Much like the budget busters, the following boosters aren't difficult or complicated—but they're all powerful ways to improve your bottom line, especially over time.
- Be a strategic spender. I'm not suggesting you obsess over every penny, but being mindful about your spending can save you a bundle. Think comparison shopping, researching sales, buying last year's model, and sometimes just walking away from an unnecessary purchase. If you enjoy eating out on a regular basis, how about planning lunch instead of dinner? And remember, paying more doesn’t always get you more—a big-name brand might be more show than go.
- Commit to your savings. Here's an idea: take all of that money you've saved by eliminating your budget busters and direct it to savings. Every month. Automatically. And possibly even more. And you know what? If you do this every single month, the rest of your budget will pretty much take care of itself. Once you've got your savings on track (think emergency fund, retirement savings, and the money you want for other important goals), the rest is yours to spend—without guilt or worry.
- Be an investor. If you're a dedicated saver, kudos to you—but if your goal is to build long-term wealth, investing is the key. Saving is all about security and making sure your money is readily available whenever you need it. That's important. When you invest, you take on more risk, but you're also giving yourself the opportunity for a greater return. One caveat: if you're new to investing, it's essential to learn the basics—and seek out professional advice when you need it.
- Start saving for retirement early. Retirement is one of the biggest things you will ever have to save for, so it's essential to take advantage of one of your greatest assets: time! Not only does starting early give you more years of compound growth, but it also helps you ride out the inevitable market declines. Another imperative: always invest enough in your company retirement plan to capture the maximum match. Skipping a match is like turning down part of your paycheck or saying no to a bonus!
- Use tax-advantaged accounts. From a 401(k) to an IRA or even a health savings account, don't overlook the power of a tax deduction, tax-deferred growth, or a tax-free withdrawal. The rules for each kind of account are a little different, but all can increase your bottom line by reducing your income tax bill. Don't let these great opportunities from Uncle Sam slip away.
So there you have it. As we head into 2022, my hope is that these suggestions will inspire you to give your finances a fresh look. With just a bit of care, you’ll be paving the way for a financially healthy and happy new year.
Have a personal finance question? Email us at firstname.lastname@example.org. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.