Six small things you can do this year to improve your financial future

You know very well you could do a million things to improve your financial situation. The problem, though, is that changing a million things means you’ll basically have to change way too much about how you live. And who ever does that voluntarily, let alone sticks with it? If you really want to improve your finances — and your long-term financial security — you’ll have a much better shot at doing so if you just pick two to three small, achievable goals that allow you to see progress over six to 12 months. Getting those boxes checked will encourage you to keep going. “The most important thing is to keep it simple. Incremental, implementable and imperfect,” said Brent Weiss, co-founder and head of financial wellness at Facet, a financial planning firm. “The most we’ll work on is three things, because life happens,” he added. “It’s not about changing your life but changing a couple of things to improve your financial health.”

First, paint your financial picture

Before deciding on your specific two or three to-dos, Weiss suggests getting a quick snapshot of where your finances stand right now: How much money do you bring in every month? How much do you pay out? How much are you saving currently and how much are you spending? How much are your assets worth? And what are your liabilities? Once you’ve done that, look a little more deeply into your spending patterns. Break down where your money is going specifically and create a “needs” column and a “wants” column, said Rose Niang, the financial planning director at Edelman Financial Engines. So, for instance, paying your rent or mortgage is a definite need. Buying yourself flowers once a month is a want. The point is not to rob you of your wants. It’s to get a clearer sense of what money is available for you to redeploy if you decide other things are more important to you in your quest to improve your financial picture. Here are some examples of easily implemented changes you might want to make this year, depending on your priorities.

Make a 1% change

If bumping up your savings will make you feel calmer and happier, start small if money is otherwise tight. Even an increase of one or two percentage points a year can make a noticeable difference over time — whether your goal is to increase savings for retirement, college tuition, emergencies, a down payment or even a bucket-list trip. Yet it won’t take a big bite out of your discretionary income. “You’ll be surprised how you don’t notice it,” Niang said. If your savingscontributionrate for retirement in your employer’s 401(k) or 403(b) plan is very low, bumping it up by an extra percentage point or two — say, from 5% of your salary to 6% or 7% — will give you a triple advantage: more money saved, a bigger matching contribution from your employer and a bigger deduction this year on your taxes because your retirement contributions are tax deferred.

Pay down high-interest debt

Credit card interest rates are at record highs this year. So while a 1% to 2% increase in the money you put toward paying down debt can help, throwing more at it will really pay off in the short- and long-term, because too much of your hard-earned money is going to pay down interest costs rather than your principal. One option to pay down your debt while minimizing your interest costs might be to find a good balance transfer card with an initial 0% rate that can last for up to 21 months. Make sure the card has very low fees and penalties, and that you can commit to paying off your balance before the zero-rate period ends.

Guard against higher rates in other ways

Assume interest rates will remain as high as they are now or go even higher from here as the Federal Reserve continues to hike its benchmark rate in a continued bid to quash inflation. If you have been relying on your credit card as your just-in-case fund, Niang warns: “This is not the year to do that.” Better to start setting aside money now to help cover your near-term expenses if you lose your job or get hit with a pricey emergency. Niang also recommends that anyone with a variable-rate private student loan look into refinancing it into a fixed-rate loan to protect against higher rates in the future. And if you’re in the market to buy a home, the more you can put down on the property, the less you will pay in interest costs over time.

Protect what matters most to you

If you have young children and want to make sure they will be financially secure if you die prematurely, you might consider augmenting whatever life insurance policy your employer provides. You also might want to meet with an estate planning attorney to see whether a trust makes sense, given the particulars of your family and tax situation.

Make sure your portfolio is diversified

Unless you’re an investing genius who knows what the future holds, you would do well to avoid putting all your investment money into one basket. So make sure your portfolio remains diversified across stocks and bonds, different investing styles (e.g., growth and value stocks; corporate and governmental debt, etc.) and different sectors (e.g., technology, manufacturing, and health care). What exactly the splits should be will depend on both your time horizon and risk tolerance. But the goal is to ensure positive, long-term returns on your portfolio. “Markets are cyclical,” Niang noted. “So you diversify in hopes that when one side is doing badly, another is doing well.”