Improving your finances is a common new year’s goal, but it can be difficult to know where to start, what you have time for, and what will make a significant impact. If you’re looking to take advantage of the fresh-start effect that comes with a new year, though, focusing on the simpler, but still effective, aspects of your financial life is the best approach.
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Here are five simple steps you can take to start improving your finances in 2024.
1. Track your spending to get your baseline
For some of us, there’s a bit of a disconnect between our ideal spending habits and how we actually spend money on a daily basis. That’s why it pays to track your spending and — most importantly — review those habits to understand your starting point.
That may sound time consuming, but if you’re willing to use a budgeting app that links to your various accounts, it can actually be done passively on your behalf. Or, for a bit more work (but more financial privacy), you can instead download your statements and do the math. This option also has the benefit of letting you double-check that there aren’t inconsistencies or fraudulent charges to your account.
2. Create a budget that actually works
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The idea of budgeting can feel restrictive and boring, so it makes sense that you may want to defer to an established method, like the 50/30/20 budget. That says that half your money should go toward necessities, 30% should go to wants, and 20% to savings and debt. While this can be a useful starting point that provides clear-cut rules, the 50/30/20 budget doesn’t work for everyone, so you may need to make adjustments to fit your lifestyle or needs. For a more flexible option, you may prefer an option like zero-based budgeting, which essentially means you give every dollar you make a specific job based on your needs.
Using your spending habits as a guide, you can also see what your values and priorities actually are. From there, you’ll be more equipped to make choices about what needs to change, what you aren’t willing to compromise on, and if there are any purchases you want to go without.
Your perfect budget should ultimately be based on your circumstances and should adjust as those change.
3. Roll over old 401(k)s to an IRA
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If you’ve ever gotten a 401(k) but haven’t rolled it over to an IRA yet, this is your sign that it’s time. Why? For one thing, you may be able to access investments and educational features that weren’t available to you back then. And this way, you won’t forget that it exists come retirement. Plus, your new IRA brokerage may offer better features, such as access to educational materials to help you invest.
The exact steps will depend on the company that holds your old 401(k) and where you’re planning to house your new IRA. For example, you may have to call your brokerage to notify it of your direct rollover and have it send you a check, which you send along to your new broker along with your new account number. It may be simpler if you’re sticking with your current brokerage, but you should always shop around to make sure you’re getting the best account and features.
4. Set up automatic payments and savings transfers
Assuming you have a somewhat predictable payment schedule, setting up automatic payments for your various accounts can be a quick, easy way to make sure you aren’t getting hit with late fees. This will also shield your credit score from the damage that late payments create, which is important if you have plans to take out a loan or otherwise leverage your credit in the future.
Since you already have a workable budget in place, you should know how much you can afford to transfer to your savings accounts each month, too, so it makes sense to automate that as well. Ideally, you’d schedule these savings transfers to go out right after you get your paycheck. That way, you won’t be tempted to touch that money since you wouldn’t have access to it. You should also note that you should have the option to skip transfers to avoid overdrafts.
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5. Switch to a high-yield checking account
If you’re still banking with a company that doesn’t offer interest on your checking account funds, you’re missing out. In fact, interest rates have been quite high for high-yield checking accounts, and right now you may be able to find rates up to 5% APY. With a $5,000 balance, for example, you could earn about $250 per year with a 5% interest rate, and you wouldn’t have to lift a finger. Of course, rates on these accounts fluctuate, just as your actual balance may, so your earnings would vary as well.
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Managing your personal finances can be tricky, but with these simple, effective steps, you’ll be better equipped to tackle those bigger goals and improve your overall financial health in 2024.
