7 things to do with your money that will put you light-years ahead of your friends

PFI Disclosure 1

  • If you want to be better with money in 2020, there are a few things you can do that will have a big impact.
  • For example, start tracking your spending to find out where you can save more; put your money in a high-yield savings account to help it grow; and eliminate any high-interest debt.
  • To lay a foundation for building long-term wealth, save a portion of your income in a retirement account and invest in the stock market.
  • Read more personal finance coverage.

The vast majority of Americans are undersaved for retirement, saddled with debt, and stressed about money.

The good news? Your financial situation is not set in stone. A few smart decisions, like monitoring your spending, saving as much as you can, planning for the future, and seeking professional help, can set you on a path to wealth that will leave your friends wondering how they can get there, too.

1. Track your spending

Most people have no idea how much they spend on food or clothes or even utility bills every month. They just hold their breath and hope they don’t run out of money. Sound familiar? That laissez-faire strategy may work for a short while, but it’s not sustainable. It’s difficult, if not impossible, to save money when you don’t know how much you spend in the first place.

If sitting down for 30 minutes to an hour to go through all your bank accounts stresses you out, try an app like Mint or Personal Capital. Once you link up your bank accounts and credit cards, your spending patterns will become clear and you can identify what’s worth spending money on and what you could probably do without. Awareness is a crucial quality of people who are good with money.

2. Open a high-yield savings account

Only 25% of Americans have a high-yield savings account, according to a Credit Karma survey. The other 75% are leaving free money on the table.

A high-yield savings account keeps your money safe and accessible, just like a regular savings account, except it can earn up to 20 times more interest. Generally you’ll find the best savings interest rates at online banks, such as Ally or Wealthfront. If you’re serious about reaching any type of savings goal, whether it be setting up an emergency fund or a house down payment fund, there’s no downside to opening a no-fee high-yield savings account.

3. Meet with a financial planner

Financial advisers aren’t just for people with established careers or large net worths. Everyone from teens to retirees can benefit from meeting with a financial planner. Not only can they help you manage your investments and identify goals, but they give you tools and strategies to practice good money habits everyday.

People who work with a financial adviser are more likely to report happiness, confidence, and stability in their financial and personal lives, a Northwestern Mutual survey found. They also know exactly what to do when they get a raise, they don’t tinker with their investments, and they balance spending now versus saving for later.

SmartAsset’s free tool can help find a financial planner to get your money on track »

4. Contribute 10% of your income to a retirement account

Americans are largely undersaved for retirement. Some don’t think they make enough money while others simply aren’t worried about saving for an event that’s decades in the future, but data shows that those who start saving and investing earlier have an incredible advantage over those who put it off.

Get ahead while you can and contribute part of your pretax salary to your retirement account at work or open an IRA at a bank or brokerage. Experts recommend saving 10% of your income, except if you’re paying off high-interest debt. Any debt you have that’s charging an interest rate above 9% — close to the average return of the stock market — should be your priority.

5. Eliminate high-interest debt

Regardless of the type of job you have, how much money you earn, or the balance in your bank account, high-interest debt is never your friend. Carrying a balance negatively impacts your credit, which can affect your ability to take out any type of loan, rent an apartment, or get approved for a credit card, and it costs you way more than you think.

If the interest rate on your credit card, personal loan, auto loan, or student loan is higher than 8% to 9%, it’s time to devise a strategy for paying it off as soon as possible. When you’re not beholden to monthly debt payments, you free up more money to invest, which can have the biggest impact of all.

6. Invest in the stock market

The stock market scares a lot of people, and understandably so. There’s risk involved in investing that isn’t present when you put money in a savings account or CD. But with more risk comes greater earning potential, especially if you’re investing for the long-term — as in, decades.

You don’t have to have deep knowledge of the stock market to benefit from investing. In fact, most experts say the simpler your investments, the better. That usually means avoiding individual stocks whose value can rise or fall dramatically, and sticking with low-cost index funds, a type of all-in-one investment that diversifies your money across a broad selection of stocks or bonds.

Start investing simply through your retirement account and if you want more options, or you max out your 401(k), open a brokerage account.

7. Buy life insurance to protect your family’s future

Life insurance isn’t as complicated or expensive as you might think. And it’s certainly not just for high-earners or parents.

A good rule of thumb for deciding whether you need life insurance? If you support anyone financially, — whether it be a partner, children, or aging parents— have a large debt load, work a dangerous job, or are a business owner, you should consider buying a policy. In exchange for a typically low monthly premium, your family will be taken care of financially if you die during the policy term.

At the very least, check with your company’s HR team to find out if you’re offered coverage through your job. It’s usually not enough, but it’s a good place to start.

Policygenius can help you find the right life insurance coverage for your needs, at the right price »

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