If someone asked you to drain the ocean by scooping the water with a teaspoon, you’d probably pass. The task is too large and the tool too small to accomplish it … ever. A lot of people feel that way about their finances. They think what they make will never be large enough to cover what they want and need to do. So they pass. But there are things you can do right now to improve your finances. And none of them involve a teaspoon. It’s easier than that.
Time moves quickly and life is expensive, so you’ll be better off in the long run if you take a few steps now.
We suggest you pick a day this month to review a couple of things, take a little bit of action, and you will profit from it. Is your lucky number 22? Then on the 22nd of the month, do the following three things to improve your finances:
1. Review your asset allocation.
Your asset allocation is not a crock-pot. Don’t set it and forget it.
Get in the habit of checking your asset allocation in your 401(k) or IRA statements. Most funds send you a nice statement showing a colorful pie chart with your asset allocation. The chart makes it easy to see what “buckets” you are invested in.
The main three asset classes are equities (stocks), fixed income (bonds), and cash equivalents (money market instruments).
Avoid having all of your money in one asset class.
Your ideal asset allocation depends on your stage of life and your tolerance for risk. There are online calculators to help you determine the best allocation for your current stage of life.
Be proactive and review and realign your asset allocation.
2. Diversify your assets.
Now that you’ve looked at your asset allocation, drill down to the next level and explore what assets you have within those “buckets”. And diversify.
Don’t put all your eggs in one bucket. (Bucket, basket. Potato, po-tah-toe.)
What we mean is don’t pick just one area to invest in. Some people like real estate, others enjoy following high-tech, some people trust gold. That’s all well and good, but don’t put all of your money into one type of asset.
Diversification reduces your risk. For example, if you had all your money in Facebook last week, you had a really bad week. Or if you only invest in California real estate and they experience another terrible fire or earthquake, you are hit hard by something you can’t control.
But you can control your risk, by diversifying your assets.
3. Don’t wait.
It’s tempting to wait until you have “more money” to start investing. But don’t do it. The day rarely comes when you wake up and think, “We have way too much cash lying around, let’s starting investing some of it.”
Start today with as much money as you can. Invest it. Use auto deposit or apps that round up your purchase and add the extra to savings for you like, Qapital. Whatever you do, start today.
The sooner the better.
In fact, if you had 30 years until retirement and you saved $500/mo. You would have a $1 million at retirement. If you wait 20 years and only have 10 years to save for the same $1 million goal, you have to put $5,000 a month.
Compounding interest is like a superhero. It rescues you when you need it the most.
Explain this concept to your kids. You may be surprised, but they will totally get this idea AND they have the time to do something about it.
Millennials get the idea of savings. The numbers show they are doing a better job than Gen X-ers at putting away money. They are starting earlier than our generation, which will help them so much in the long run.
We know money isn’t the most exciting thing to discuss with your spouse, but it really does make a difference. Two people rowing a bow can always beat the person rowing solo.
Dedicate some time to address these three things you can do right now, you’ll be glad you did.
Make it happen!
Scott & Bethany Palmer
The Money Couple
Creators of the 5 Money Personalities
[Video] Talking about 3 Things You Can Do Today To Improve Your Finances on The Everyday Show in Denver.