Small changes don’t always lead to small results. Over time, tiny improvements of your habits could lead to a big enhancement of your financial health. Just a few small changes now can help you get out of debt, save more, and be better prepared for retirement.
It all comes down to consistent marginal gains. Here’s what a 1% improvement over time looks like compared to a 1% decline:
James Clear, an esteemed self-improvement blogger, has written about this phenomenon in the context of bettering yourself. But when I read his post, I realized that the same principles can be used to significantly improve your finances.
You might not think these tiny changes are going to make a big difference, but making even a 1% improvement in your finances can make a significant impact. Certainly not today. Probably not next week. Probably not even next year. But personal finance is about the long game, and these changes will add up over time. Let’s take a look at a few of these 1% changes.
This is a big one. I once read that when making decisions about your finances, you should take a ten-year view. When you do this, a credit card with a $100 annual fee turns into a $1,000 investment. A checking account that costs £5 per month runs you £600 (almost $750 at the time of this writing). Fees on your investment accounts add up over the course of years. Financial advisors might be charging more than you realize, putting a big dent in your investment gains.
A lot of these fees might seem inconsequential, but making small changes early can mean big payoffs later. So how do you reduce these fees? Sometimes, it might mean making changes: opening a no-fee credit card, for example, or switching to an online financial advisor that charges less to help you with your money.
It might also mean doing some digging into your investment and retirement accounts to find out exactly what you’re paying and then finding a cheaper alternative. It probably won’t feel like it’s worth it, but two or three of these small changes can easily add up to a couple hundred bucks a year. After 10 years, that’s a couple thousand. After 20, even more. It really does make a difference over time, especially if you invest your savings.
Reduce Debt Interest Rates
Just about everyone has some sort of debt. It could be credit card debt. Maybe it’s a student loan or a mortgage. No matter what kind of debt you have, a higher interest rate is going to cost you money in the long run — but there are ways you can change that.
Not many people know that you can often get a lower credit card interest rate by calling your credit card company and asking for one. Even a couple percentage points can make a big difference. Try using this script from Bankrate to ask your credit card provider for a lower rate. It just might work!
You might not have as much luck with a mortgage, auto, or student loan provider, but there are other options available, like refinancing and consolidation. Always be on the lookout for ways to reduce your interest rates, even by a little bit.
Increase Savings Interest Rates
Again, this might feel like a tiny change that doesn’t matter, especially when we’re dealing with interest rates that are below 1%. But the faster you can grow your savings, the better. Even if it’s an almost-invisible amount, it makes a difference. As an example, Wells Fargo’s Way2Save account offers a whopping 0.01% interest on your savings.
That means, if you start with $2,000 and deposit $100 every month, you’ll end up with just over $14,000 after 10 years. With Synchrony’s 1.05% savings account, you’d have over $14,800 at the end of that same period of time. It’s less than $1,000 over the course of ten years, so it might not sound like much. But it requires absolutely no effort. It might take you an hour to switch everything over. And you get $800 for it. Not a bad deal.
Online banks offer better savings interest rates and make it easy to deposit and withdraw money. It’s a no-brainer.
Cancel a Subscription
Most people probably have at least one subscription they can cancel. A magazine that you could get from the library, for example. Or a cloud storage subscription that you don’t need. Maybe an Amazon Prime streaming channel that you haven’t been watching lately. Be honest with yourself here, and cancel one as soon as you can. (If you can cancel more, great!)
You can also share subscriptions to significantly cut the cost. Share magazines with another reader, offer to split online storage plans, or share a Netflix plan. There are a lot of premium online services you can share, and those savings can add up quickly. I’ve gone from paying $10 every month for Spotify Premium, for example, to paying $3 each month. That’s $84 less that I pay every year without giving up ad-free music.
A lot of subscriptions are really cheap, but very few people only have one or two subscriptions. Sign up for a service like Truebill that will keep track of your subscriptions to see just how much you’re spending on them, and you’ll be much more motivated to cancel one or two.
Cut Out Unnecessary Purchases
How many times have you spent a couple bucks at the gas station to pick up a soda? Or a dollar at work to get chips from the vending machine? How about buying extra coins for your current smartphone game addiction? There are lots of places where you might make a very small purchase and not even think about it.
But over time, these purchases add up. Again, take the ten-year view. If you’re spending an average of $10 a week on “throw-away” purchases that you won’t appreciate or remember, that’s $5,200 you could have saved in a decade.
Everyone has different places where they’re tempted to make these kinds of purchases. Maybe you’re likely to grab a DVD when you’re at the store that you could have rented or gotten used on Amazon. Or you occasionally get a candy bar at work when you get a sugar craving after lunch. Using an expense-tracking app or just being more aware and intentional will help you break these habits.
You don’t have to give up these purchases, necessarily, but you can almost certainly reduce the cost. Bring a square of chocolate to work every day. Make a habit to go to a used bookstore instead of a new one when you have some time to kill. These little changes will add up over time.
Get the Most From Your Credit Card
There are tons of rewards credit cards out there, and most of them seem to be pretty similar to savings accounts — they offer a nominal rewards scheme, but it doesn’t really make much difference. When you take the long view, though, those rewards can really add up.
I have a card that offers 1% cash back when I make a purchase and 1% cash back again when I make a payment. For many purchases, that’s less than $0.02. But if I spent $10,000 on the card over the course of a year, I could get $200 back. Without having to do anything — the card doesn’t even have a fee.
By choosing the right cards and minimizing your fees, you can save a surprising amount of money! Just make sure to keep a close eye on your credit report and to not damage it by going crazy on cards.
Take the Long View
These changes are very small, and you won’t see benefits from them for a long time. In fact, you may never notice them. But over five, ten, twenty, or thirty years, these tiny bits of frugality could add up to thousands of tens of thousands of dollars in savings. And that’s nothing to scoff at.
How do you make 1% improvements in your finances? Which little changes have you made to improve your budget? Share your best tips in the comments below!