Getting started with a new project can be a daunting task.
And when the goal is to fortify your finances — given all our issues and beliefs around money — our procrastination levels skyrocket.
But as with any new job to be done, the smaller you can make it, the easier it is to execute.
And the momentum you build from accomplishing that "one thing" propels you into tackling the next task on your list.
So with that in mind, I wanted to share some small (but mighty) ways to boost your financial health. So you can take the next most significant step in achieving your version of financial freedom with as little procrastination as possible.
Your task today is simple:
- Have a scroll of the list below
- Find something you're not doing yet, and
- Take that first step to get it done.
Note: Many of these are US-based tips. But you can always submit a question here, and we'll happily help you with some research or point you in the right direction.
#1 Fund a Roth IRA
A Roth IRA is a type of retirement account with significant tax advantages.
It's also a super simple way to start investing and maximize your chances of early retirement (whatever that looks like for you).
- You can invest in whatever you want; index funds, individual stocks, bonds, anything!
- You pay taxes on the amounts you contribute — not your earnings.
- Lower-income taxpayers may be eligible for the "saver's credit" if they contribute to an IRA.
- You're penalized if you withdraw your earnings before you're 59½ (but you can always withdraw your principal penalty-free. However, there are some rules to consider (check them out here.)
- The max you can invest is $6,000 (under 50 years old) and $7,000 (+50) per year currently.
- If you make more than $137,000 a year, there are restrictions on how much you can contribute (and over a certain income, you can't open one at all.)
Funding a Roth IRA is a long-term investment opportunity. And the sooner you make it a priority, the sooner you can sit back and watch your money grow.
First step: Open an investment brokerage account with a trusted investment company. And fund it with the minimum principal.
Note: A discount brokerage like Vanguard, Schwab, or Fidelity lets you make the choices, charges only nominal fees, and offers online access. This makes it easy to manage your investment account yourself.
A couple of tips if you live outside the US:
- In Australia — The equivalent to a Roth IRA would be a contribution to your "super." A post-tax contribution would mimic the Roth IRA. In contrast, a pre-tax contribution would mimic the traditional IRA or traditional 401k plan.
- In the UK — The closest UK equivalent to a Roth IRA or Roth 401k would be an ISA. Money paid in is post-tax, but growth inside the scheme is tax-free, and so are withdrawals.
#2 Double down on your savings rate (but remember to enjoy life too!)
Independence, at any income level, is driven by your savings rate.
There's a fine line between being diligent and being overzealous when it comes to saving.
Unfortunately, for many of us, that line often feels invisible. And the cost of that unknown can be catastrophic to our feelings of contentment.
Not knowing what's "enough" can lead to living too much for the future and not enjoying life in the present. Or worse, comparing your situation to someone else's (which never ends well).
To push past any feelings of doubt or indecision about your savings rate, you have to strip away any comparisons. And first — focus solely on what you want. And what's possible for your specific situation.
From a purely quantitative standpoint, it makes sense to try to save anywhere between 10-20 percent of your income each month.
And if you're doing that, there's no need to put additional pressure on yourself or restrict your lifestyle to where it becomes unenjoyable — just to save more.
If you're starting from scratch — going with a smaller figure, say 5% of your monthly income, is an excellent place to begin. And will likely feel more doable.
So don't worry if you're not in a position to hit that 20 percent goal just yet.
#3 Get Free Money: Invest enough in your employer's retirement plan to get the match
Employer-sponsored retirement plans — 401k (US), superannuation (AUS), pension (UK) — are excellent because as long as you promise to invest your money for the long term, in exchange, you get some substantial tax advantages.
The main one — you get to invest pre-tax money.
Of course, you'll still get taxed when you eventually withdraw it. But this upfront bonus gives you anywhere between 25-40 percent more money to invest.
Giving you a greater starting value for compound growth.
But that's not even the best thing.
You see, if your company offers a contribution match, you now have access to free money.
Here's what I mean — let's say you make $100,000 a year, and your employer offers a 1:1 match up to 5 percent.
If you contribute $5,000 per year (5% of your salary), your employer then matches the $5,000, so your actual investment is $10,000.
Here's the first thing you should do (if you're not already taking advantage of this)
Find out whether your company participates in the employer match. And if they do — set the amount you want to invest in each paycheck, and have them take it out automatically. So you don't even notice.
And, if you're already the kind of smart cookie who is taking advantage of this, you likely know someone who isn't. So encourage them to do the same.
Pay it forward!
#4 Find out if you're eligible to contribute to a health savings account (HSA)
HSAs let you set aside money on a pre-tax basis to pay for qualified medical expenses.
Now, this is already helpful — as it can lower your overall health care costs.
But the great thing is, the (tax-free) money you put aside doesn't just sit there. You can invest it so it grows.
Important note: This isn't an option for everyone.
So before you get too excited and start googling the pros and cons of HSAs — the question you need to answer first is:
Do you have a high-deductible health plan?
If the answer is yes — you should have the opportunity to pair an HSA with your account. If not, you won't have the option (but you might want to consider changing your plan!)
#5 Calculate your real hourly wage
Most people have an unrealistic view of their actual earnings from the work they do.
As Vicki Robin shares in her book, Your Money or Your Life, the overly simplified way many of us look at our wage is "I earn a thousand dollars a week, I work forty hours a week, so I trade one hour of my life energy for twenty-five dollars."
But that's unlikely to be accurate.
Because what we don't take into account are all the hidden costs directly related to our employment.
Here are some examples of all the time and monetary expenses that can be directly associated with your job:
- Commuting: Getting to and from work often requires an expenditure of both time and money (parking fees, tolls, petrol, train fare, etc.)
- Costuming: The clothes you buy and wear to maintain a professional presence and the time and money spent on personal grooming.
- Meals: Additional coffees, takeout lunch, or dinner ordered in because you're tired and don't feel like cooking.
- Daily Decompression: If it takes a while for you to decompress from your daily job, that "while" is a job-related expense.
- Escape Entertainment: How much of your weekend entertainment do you consider your just reward for sticking it out at a tedious job?
- Vacations: If you're using holidays to recover from the job, this could be a job-related expense.
- Job-related Illness: Stress, terrible physical work conditions, interpersonal conflict, and increased germ exposure can all contribute to your health.
- Other expenses: Consider what you pay for because you can't do it yourself, e.g., daycare, housekeeping, gardening. Or time spent looking at job listings and networking.
These things add up. And can drastically decrease your in-your-pocket pay.
If you did your own calculations and added up the time and money spent within each of the categories above (split out across the year) — what kind of dip would your current hourly rate take?
What time expenditures and monetary expenses would disappear from your life if you didn't need the job you have?
The point here is to think about those trade-offs in relation to other options you might be able to entertain for work.
For instance, you could take a lower-paying (more fulfilling) job if you no longer had to commute and worry about car costs and maintenance. And still, find your earnings on par with what you get right now. You might even find your time is freed up to fund side projects and other passive income streams.
#6 Ease into investing with a target-date fund
Target date funds are an easy investment choice because they remove complexity from the equation.
Also known as lifecycle, dynamic-risk, or age-based funds — they allow you to automatically diversify your investments based on when you plan to retire.
In other words, they eliminate the need for you to choose and rebalance your investments (which takes time and energy most of us don't have).
- You won't have to actively invest, monitor, and rebalance on your own. As a target date fund will take care of that (often complex) work for you.
- Your fund will take into account when you hope to retire. So if you're younger, they'll start you off with more aggressive investments. Then as you get older, they'll shift you to a more conservative approach.
- As a general rule — they're low-cost and tax-efficient.
- If you prefer active management, with real human beings tracking market trends and making choices — this is not the solution for you.
- Target date funds work on one variable alone — when you plan to retire. A more custom solution based on your exact needs might yield slightly better returns.
- Expenses can add up. Because target-date funds are collections made up of other funds, the fees can fluctuate.
If you lack the desire to monitor your portfolio constantly, then a target-date fund could be the perfect solution for easing yourself into the world of investing (especially if you're just getting started.)
Reducing decisions and the effort required to execute your plans is a huge advantage.
#7 Create a conscious spending plan
“Create a budget!” is the kind of worthless advice that personal finance pundits feel good prescribing, yet when real people read about making a budget, their eyes glaze over.
The problem with budgets is they're often forged from wishful thinking.
Which makes them almost impossible to stick to.
This is why I wanted to introduce you to an alternative idea from one of my favorite finance writers, Ramit Sethi.
It's called the Conscious Spending Plan.
The idea is to create a purposeful plan for your spending. So you can put yourself in a position to automate your savings and investing. And make your other spending decisions crystal clear.
Conscious spending means you decide exactly where you’re going to spend your money - for going out, for saving, for investing, for rent - and you free yourself from feeling guilty about your spending. Along with making you feel comfortable with your spending, a plan keeps you moving toward your goals instead of just treading water.
Knowing what you love to spend money on (e.g., high-quality food and ingredients and in-home entertainment) and what you don't really care about (e.g., keeping up with fashion trends and having the latest iPhone) simplify your decisions.
And this small step of considering what you deem "worth it" will make any financial plan easier to execute.
Ok, so first steps:
Creating a conscious spending plan involves identifying the four major buckets where your money goes every month and actively assigning a percentage to each.
Below you can see the buckets and roughly how much of your take-home pay you can allocate to each one.
- Fixed costs (rent, utilities, debt, etc.) — 50-60%
- Investments (401k, Roth IRA, etc.) — 10%
- Savings (vacations, gifts, down-payment, emergency fund etc) — 10%
- Guilt-free money (eating out, drinking, movies, clothes, wellness, etc.) — 20-30%
To figure out how your current spending matches up — your best bet is to work through your last few months of statements and record what you spent.
Of course, you don't have to do this forever; it's just to get started and give you a clear idea of where all your money goes (because, newsflash! Many of us don't even know.)
Once you've done that, I suggest reading this post, where you can dive deeper into creating your plan and automating the important stuff.
#8 Explore a source of passive income
Passive income requires less work than other income options — like exchanging time for money. And can give you tremendous flexibility and freedom.
But before we dive into some potential possibilities, it's important to note that passive income isn't about not working.
It's having something work for you while you sleep.
If you don’t find a way to make money while you sleep, you will work until you die.
A new source of income will still take time to set up (some more than others). But if you're patient enough to create it and keep it going — it's a fantastic way to fuel your financial freedom.
To give you some ideas of what passive income can look like, here are five popular options for you to explore:
- Buy cash-flowing assets: This is a "make money with money" option — things like dividend investing, business lending, and real estate.
- Affiliate Commissions: Earn a commission for referring leads and customers to other products and services (a personal favorite of mine).
- Create and sell an online course: Turn your expertise into a high-value product. Then promote it in the places where your audience hangs out the most.
- App Development (SaaS): Solve a problem with software! You'll need some skills (or money to hire), but if you can make, market, and sell something valuable, this can be an excellent way to build an additional income.
- Rent out your home or spare room: Airbnb has paved the way for people like you and me to turn their extra space into extra cash. You can even hire a 3rd party service to manage your bookings, guest communication, and cleaning.
There is undoubtedly the perfect option for you to build another income stream into your life. And your best bet is to let your strengths, values, and interests guide you toward what that is.
#9 Boost your credit score
Simple but super effective.
Mainly because our most significant purchases are almost always made on credit, and people with good credit save tens (maybe hundreds) of thousands of dollars on these purchases.
Your credit score not only affects the amount of money you have access to, but it determines the interest rates you're offered if you choose to borrow in the future.
Good credit = less risky to lenders = better interest rates.
It's that simple.
The first step is to check your credit score, which you can do easily online:
- In the US — you have a free option at creditkarma.com or an option with a small fee at myfico.com.
- In the UK — you can use experian.co.uk, equifax.co.uk or transunion.co.uk
- In Australia — you can use illion.com.au, experian.com.au or equifax.com.au
Then, depending on how good or bad it is (the higher your score, the better), you can take some steps to improve it.
Three simple ways to boost your score are:
- Pay bills on time — Payment history is the single most significant factor that affects credit scores, and late payments can stay on your credit reports for 7½ years.
- Ask for higher credit limits — When your credit limit goes up and your balance stays the same, it instantly lowers your overall credit utilization, improving your credit.
- Dispute credit report errors — A mistake on one of your credit reports could be pulling down your score. Fixing it can help you gain an easy boost.
#10 Maximise the money in your retirement account
If you're contributing money to a retirement account, awesome!
But did you know you're leaving money on the table by letting it just sit there?
Instead of using that fund as a glorified savings account, you can choose to invest that money and make it work for you instead. Taking it one step further by investing the money you contribute helps you avoid losing out on thousands of tax-free earnings.
You'll need to decide whether you want to pick your own investments or choose the easier alternative of a target-date fund.
But either way — be sure to invest the money you transfer into your account (this was a huge "aha' moment for me!)
#11 Set aside some "fun money" for experimentation
FOMO weighs heavy in the finance world.
And while it makes sense to keep your investment strategy boring and simple — if you want to be able to dabble in more volatile investment options, set yourself up with a "fun money" account. And use those reserved funds to invest in things with a higher risk (that might lend to a higher reward.)
The only caveat, be prepared to lose the money.
That way, you can happily play around with options like crypto and stocks and not worry about the fate of your financial future resting on their success.
Pick one thing!
Decision fatigue and overwhelm are powerful procrastination triggers.
So I urge you to dial back your dreams of accomplishing everything on this list today and simply get started with one thing you're not doing.
- If you're new to the personal finance game — setting a savings goal for each month is an easy next step.
- If you've been saving for a while but not doing much on the investing side, look at your retirement account set up and see if you can maximize it.
- If you're already knee-deep in index funds — consider a new side project that might help you reach financial independence sooner than expected.
The key is to pick something that makes sense for your specific situation. And take action on it as soon as possible.