This is the final week of The One Month Challenge to save money and transform your finances. In previous weeks we have given tips and recommendations on things that you can do to start to make some changes in your life and see money differently. Everything that we have listed over the past month are things that we do or have done in order to save and make money.
We have lived the past few years completely free of debt and couldn’t be happier. We don’t have to worry about making mortgage payments or car payments. Life is just different when you don’t have to rely on your weekly paycheck. Our One Month Challenge is full of simple, straightforward, and uncomplicated actions that you can easily apply to your life.
1. Calculate Your Daily Interest
Knowing exactly where you are financially is sometimes the catalyst that you need to make some changes in your life. Calculating your daily interest is easy and will make you look at your loan payments differently.
To calculate your daily interest, use this formula:
(interest rate) x (current principal balance) ÷ (number of days in the year) = Daily Interest.
**Don’t forget that your interest rate is a percentage so it needs to be in that form in this calculation. For example: 4.5% interest = 0.045
2. Transform Your Finances By Checking Your Credit Score & Report
It is very easy to check your credit score nowadays. Most credit card companies provide this as a perk for having a credit card so that is the first place you can check for your credit score. Your credit score represents your credit risk. This number is used by potential lenders and creditors to help them make lending decisions.
Both your Credit Score and Credit Report are among the factors that help lenders determine your loan terms and interest rate.
A Credit Report is a detailed log of all of your lines of credit and credit based activity. It is important to check your credit report at least once per year (preferably more often). You should check your report regularly for several reasons.
One reason is to make sure that your report contains accurate information. It is common for credit reports to contain errors, which can prevent you from getting a good rate when you apply for a loan.
Another good reason to check your credit report is to make sure that you have not been a victim of identity theft or fraud. On your report, you will be able to see if there are accounts in your name that you are unaware of or if there was a credit inquiry for an account that you did not attempt to open. You can also see if an unfamiliar name or address is associated with one of your accounts which would indicate that someone may have stolen your identity.
There are several ways that you can view your credit report. The two that we would recommend are:
- Annual Credit Report.com: Free credit report every 12 months from each credit reporting company (TransUnion, Equifax, and Experian).
- Credit Karma: Free credit score and report from TransUnion and Equifax.
3. Look For Podcasts, Vlogs, Blogs or Books for Inspiration
We were inspired to start our journey to FI by listening to podcasts and hearing other people’s stories. Hearing about how other people have succeeded gave us the motivation to change the focus in our lives to something that we became really passionate about.
Books, blogs, vlogs, and podcasts are all such amazing resources in so many ways. They provide information, resources, entertainment, and inspiration.
Looking for more inspiration? Be sure to check out:
4. Make an Extra Payment Towards Your Mortgage or Loans
Making extra payments in order to decrease your debt will be helpful in the long run. If you have a sizable debt, you may not see the immediate effects but eventually you will start to see your loan debt dwindling down faster than expected.
Making extra payments and decreasing or wiping out your loan debt is especially beneficial if you have other financial goals such as purchasing a house or retiring soon.
When we had a mortgage and Jason’s six figure student loans to pay off we made it a priority to pay as much as we could towards them. In doing so, we were able to decrease the total amount of interest that we had to pay as well as ultimately finish paying off our debt faster.
If you have the means to do so, you should always try to pay extra toward your student loans, mortgage, or credit card bills.
5. Open an HSA to Transform Your Finances
An HSA is a tax advantaged savings account for individuals who are enrolled in a high-deductible healthcare plan. Contributions are pre-tax and if contributed through your employer you do not pay Social security or Medicare taxes on the contributions.
An HSA may also have an employer match. Your employer may incentivise you to choose a high deductible health care plan to lower the cost of the employer’s portion of the health care contribution. So this is definitely something that you want to ask about.
You can take two different routes when contributing to an HSA.
- You can pay for qualified medical expenses out of your balance, never being taxed on this money. In addition, you can pay cash for your medical expenses and save receipts for reimbursement at a later date.
- You also have the option to invest your HSA contributions. Generally, the custodian of the HSA account will require you to keep a certain reserve amount in cash. For example, $1000 in cash and you can invest the remainder. If you choose to keep your contribution invested, your money will compound over time. The FICA tax rate for 2020 is 7.65%.
If you choose the latter of the two options, at the age of 65 you can begin taking disbursements from your HSA for any expense without penalty. You will have to pay income taxes on any distributions that are not for medical expenses, just like you would with a traditional IRA. Your qualified medical expenses continue to be tax exempt.
6. Invest In Yourself to Make Money
Investing in yourself will help you to make improvements to your life and career that allow you to be more dynamic. We should be constantly learning and growing. Our education does not stop when school ends.
The one main reason why you should spend time and money investing in yourself is because no one else will. You are in charge and if you are not working on increasing your knowledge and enriching your life then it’s not going to happen.
Ways that you can invest in yourself to boost your finances include, but are not limited to: taking a class, reading a financial or motivational book, finding a mentor, and learning a new skill.
7. Spend on Experiences, Not Things
Happiness over material items quickly fades whereas moments of our life are memorable. If you are to think about something that made you happy in the past year would you think about something that you purchased? Probably not. You are more likely to think about a moment in time or an experience that made you happy.
You should cultivate a sense of gratitude for what you already have to help you curb the desire to want more. Material things eventually fade into the background and become a part of our norm. While the happiness from material items diminishes over time, experiences become an ingrained part of our identity. Experiences create life-long memories and connect us to other people, our community, and the world.