Financial Progress Through Micro Actions
6 second take: Making progress towards improving your financial status doesn’t need to be difficult. Here are 10 easy steps you can take to improve your finances.
Micro actions are small actions that take little of your time, require only a modest effort, and consume few resources. Across time, micro actions can produce large results. Small and easy actions can indeed lead to big changes for your finances.
Many people want to get better financially. Far fewer take action, especially not ongoing action that will make significant long-term change. Micro actions are nice simple ways to make significant changes across time. You can set yourself up for success by taking little actions that lead to big results.
Here are 10 quick and easy micro actions you can take to begin improving your financial future right away.
1. Make Retirement Plan Contributions
Increase your 401(k) (or other retirement plan) contributions by 1 percent of your income. Funding a comfortable retirement is a nearly universal concern, yet few people are taking sufficient action. Increasing your contribution rate by just 1 percent of your pay each year can be a painless way to make a real difference in your retirement lifestyle.
Many plans allow changes only during open enrollment so you may need to wait until that time — then increase each year, if possible, until you are making maximum contributions.
2. Establish an Emergency Fund
Set up an emergency fund or increase your existing emergency fund contributions by $20 per week. An emergency fund is essential to help prevent slipping backward when life throws you an inevitable curveball. This will help make it easy — or easier — to recover from a financial setback.
If you don’t have one, you can simply start with putting $20 per week into a dedicated checking or savings account.
If you do have an emergency fund, it’s a good idea to periodically increase your contributions to maintain the account value in terms, offsetting the effects of inflation. Consider reviewing and adjusting on an annual basis.
3. Start Principal Payments
Set up an additional principal payment to your mortgage — or to your down payment fund if you are an aspiring homeowner. Paying off debt has a guaranteed return. Even an extra $100 per month can take years off the average mortgage.
Begin with what you can reasonably afford and increase your additional payments annually as cash flow allows. Consider reviewing and adjusting on an annual basis.
4. Shop Property/Casualty Insurances
Shop your auto and renter’s or homeowner’s insurances. This is also a good time to make sure your coverages are appropriate for your current needs. You may be able to increase deductibles and reduce premiums, if appropriate in your situation.
You can avoid premium creep by periodically shopping these coverages. Consider doing this each year prior to your policy’s renewal.
5. Adjust Your Tax Withholdings
Most people are over withheld and give the government an interest-free loan of their money. Though it is generally more convenient to be slightly over withheld than under withheld, there is no reason for people to get large refunds when they could put the money to work for themselves instead.
Consider doing this on an annual basis. Just after you do your taxes is a great time — but start now and then update annually. You may also need to make changes if a major life event alters your tax situation. Enlist the aid of a tax professional if appropriate.
6. Consider Your Budget
Update — or begin — your budget. It does not need to be complex, but we know from history that wealth accumulation increases and financial stress decreases when you work within a budget. But situations change, and budgets need to be updated. Update at least annually and when you have any major changes in income or expenses.
7. Begin Meal Planning
Meal planning can help reduce unnecessary trips to the store, or unnecessary orders if you have your groceries delivered. It also helps reduce food waste as you purchase only what you need for the week. Meal planning saves you both time and money. This is ongoing — for many people once they start, they’ll wonder why they didn’t do it much sooner.
8. Review and Update Beneficiary Designations
It is amazing how often you hear of funds being left to a hated ex-spouse or other individual when you know that is absolutely not what the deceased wanted. Situations change, and if your beneficiary designations don’t keep up your hard-earned wealth could end up going somewhere you would rather it doesn’t.
This is a quick and easy and easy way to improve your finances. It should be done annually, and whenever a change necessitates review.
9. Maintain a Donation Box
As you find items that you can give away, add them to the box, then donate them whenever the box gets full. You can keep a record with the box, for your tax records. Donating can help you spend less, as reviewing what you have and are giving away can help you think of purchases differently.
One effective strategy, if you seem to have more stuff than space, is to donate two items for every new purchase you make.
Donating can help you with taxes and also reduce your clutter and unnecessary purchases. This is an ongoing process.
10. Select One Target Area
Pick a target area — one area in your financial life where you would really like to see meaningful improvement. Make this a focus area for micro actions. Take a micro action right away, then schedule another for next month, or next week if you’re ambitious.
Small actions compound over time, and you can make significant progress with your finances through easy continued actions. Attempting large change can be daunting — and difficult to start. Little changes are very doable, and they add up. Work on one area until you are comfortable and on track, then shift to another.
The Bottom Line
The list could easily be 20 small changes or 100 small changes. Small changes work for big results. The key to successful micro changes, as a strategy, is that the changes are relatively easy, requiring little in the way of time or effort, and they consume few resources, while also helping improve your financial status.
For those not inclined to go it alone, an appropriate micro action might be to schedule a first meeting with a financial advisor or financial coach. Whether you do it yourself or with help, you may find that taking positive action is contagious.
You take a few micro actions, then you find yourself actively seeking out more. That’s a good thing; change builds upon change. It is the compounding across time that makes the big difference. You can make big changes without necessarily making a big effort. You just have to start, and you have to keep going.