Money Management

Living without emergency savings is the worst. Read on for real tried-and-true tips to improve your cash flow situation in the new year. 

The data on Americans’ personal finances is depressing. According to SecureSave, 63% of American workers couldn’t cover a $500 bill out of their savings. Living without emergency savings is no fun at all (to put it mildly), and if you need some help breaking out of this lifestyle, I’ve got some tips for you.

No great thing is achieved without effort, and I understand that some of these moves may be out of reach for some readers. But even employing just one or two of them can help your emergency fund grow this year.

1. Decrease regular expenses painlessly

No, this is not where I tell you that your days of coffee shop lattes and unbridled joy are over. Cutting all the fun spending out of your life is a great way to feel miserable and end up giving up on trying to save more. So don’t do that!

Instead, see what everyday expenses you can lower to free up more cash in your budget. Shop around for a new car insurance policy. Speaking of your car, could you swap a new car for a used one with lower payments? Internet service providers charge an arm and a leg these days — if you have multiple options in your city, see what kind of deal you can get to save money every month.

It’s also worth auditing some of your non-essential expenses. Got an expensive gym membership? Why not walk or jog around your neighborhood and supplement with a one-time cost for a cool piece of home gym equipment? If you’ve got a Netflix subscription you barely use, consider canceling it.

2. Increase your income

This is far and away the most effective means I have found for getting out of that paycheck-to-paycheck life. If you’re currently in a good job that is working for you, but perhaps doesn’t pay as much as you’d like (what job ever does?), approach your boss to discuss the possibility of a raise if it’s been a while.

You may not succeed at appreciably improving your salary this way; it’s often easier to get paid more if you change jobs (or even careers). A career change is rarely easy — I went through it myself in 2021, and it took submitting over 400 job applications to get hired for my first role in my new career. And then I became a full-time freelancer in 2023. This was a drastic move to be sure, but I think it was worth it.

If you’re ready to get out there and job hunt, you should know the job market slowed down ever so slightly heading into Christmas, but unemployment is still at historically low levels. This means that as we start off the new year, it’s a good time to polish your resume and LinkedIn profile and put yourself out there. Extra income can improve your life in so many ways, and finally earning enough to save money for unplanned bills (and future financial goals) feels amazing.

3. Pay down debt

If you’re carrying a lot of high-interest debt, it’s likely eating up more of your income than you’d like. Getting out from under it is a good move that can improve your financial well-being and help your paycheck stretch further. Increasing my income was how I managed to pay off all my debt in 2022, along with using the debt snowball method, but there are lots of options.

A balance transfer credit card can give you a break from interest, often for a year or more. A debt consolidation loan gives you a fixed interest rate and a set payoff timeline. Whatever you choose, be sure to make a plan and know that paying off debt can give you more financial breathing room.

4. Try automation — and pay yourself first

If you have managed to free up money to save, you might face another problem. Getting good at saving money involves habit-building, and a lot of people struggle with this. Automating your savings contributions can help a great deal, though. Decide how much you want to save every week or month, and set up an automatic transfer from your checking account to your savings account. This way, you don’t have to remember to move the money.

Another tip that really helped me? I paid myself first. When I get paid by any of my clients, I immediately take out Uncle Sam’s cut (freelancers pay quarterly estimated taxes, so I must always plan for this). Then I decide how much I want to save, and send money to my high-yield savings account. I treat tax payments and savings contributions as must-pay bills, and saving is never an afterthought. I saved a solid chunk of money to buy a house later this year by using this technique, lest you doubt its efficacy.

2024 could be the year you finally bust out of the paycheck-to-paycheck cycle, and these tips can help. Good luck to you — money in the bank to cover unplanned expenses is worth striving for.

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Investing can make you a millionaire, but you need to be smart about the amount that you put into your brokerage account. Here’s how to hit your target. 

Becoming a millionaire can provide a lot of financial security. And it’s not an unreasonable goal for most people, even though it may feel as if it is. The reality is, if you have a long investing timeline and you make smart investments in your brokerage account, you can eventually end up with seven figures.

If you’re getting started investing this year and you’re hoping to hit your millionaire target in 30 years, here’s how much you’d need to invest on a regular basis to end up hitting your goal.

This is what you’d need to invest to become a millionaire in 30 years time

Many people can expect to earn around a 10% average annual return over the long haul if they make reasonable investments.

In fact, you don’t need to be a skilled investor to do that, as you can put your money into a financial index called the S&P 500 that has consistently produced 10% average annual returns for decades. The S&P 500 tracks the performance of around 500 large U.S. companies, and is a pretty safe investment as long as you leave your money alone for the long term.

Assuming that you can earn this 10% average return over your investing career, if you are getting started investing this year and you want to become a millionaire in 30 years, you would need to invest $506.60 per month.

This amount may seem like a lot, but it may actually be pretty doable for many people. The Bureau of Labor Statistics reported that median weekly earnings for full-time workers was $1,118 in the third quarter of 2023. With an annual salary of around $58,136.00, the average American could hit the goal of contributing the required $506.60 per month if they were investing a little over 10% of their income. And since many people get employer matching funds if they invest in a 401(k), they wouldn’t even necessarily need to come up with the full $506.60 on their own, as their company could help them out.

Of course, some people earn less than average, and finding $506.60 per month will undoubtedly be harder for them — or perhaps even impossible. But they should still save what they can while working toward increasing income and investing more later in life.

And those who are starting to invest late will need to put aside a larger sum each month in order to become a millionaire if they don’t have 30 years. If you have just 15 years until you want to achieve millionaire status, you’d need to invest $2,622.80 per month. This amount is a lot higher because you aren’t benefiting as much from the long window of compound growth that happens when your investments earn returns that are reinvested and earn returns of their own.

How to make sure you hit your target

If you are serious about wanting to become a millionaire in 30 years and you’re starting to invest in 2024, the best way to make sure you end up with a seven-figure nest egg is to set up automatic transfers from your checking account to your brokerage firm or to have money taken out of your paychecks and put into your 401(k).

You can sign up for a 401(k) right now by asking your employer how to do it. If you have access to this workplace plan, you may be entitled to matching contributions made from your employer as well as tax breaks. And the money you’re contributing can be taken from your pay even before you get a paycheck or direct deposit. If you don’t have a 401(k), on the other hand, it’s pretty easy to set up automatic contributions to an IRA or other retirement account through your bank or broker.

If you have $506.60 transferred into your account every month, invest your money, and leave it alone for 30 years, you may just find yourself a millionaire at that time. So start investing today — and dream of what your millionaire lifestyle will look like.

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Utility costs can get expensive in the winter, but there are ways around this. Here’s how I keep my payments manageable all year round. 

When I first moved out on my own, I dreaded getting winter utility bills. As a lifelong Wisconsin resident and someone who is perpetually cold, my bills used to spike when the temperatures dropped and that made it difficult for me to budget effectively.

But then I learned about a total game-changer that I still use to this day. And it could help you out too.

Predictable utility payments are possible

Utility payments are tricky because they vary depending on your usage. If you have a month where you’re using more heat or electricity than normal, you’re going to see that reflected in your bill — but not until after you’ve already spent that money.

For years, I thought this was just something I’d have to deal with, and then I learned about utility budget billing. This is a service many utility providers offer that enables you to get a predictable monthly utility payment all year round.

Utility companies look at your usage over the previous 12 months and divide this by 12 to get an average monthly payment. That’s how much they bill you every month of the year, so there are no spikes in the winter. It makes it a lot easier to plan your budget because you’ll know exactly how much to earmark for utility costs.

Your utility provider will update your bill about twice per year based on updated rates and usage information. So you will have the occasional bill change, but it probably won’t be a massive increase unless your usage has changed significantly in the last year.

That is one pitfall you have to watch for, especially in your first year on a utility budget billing plan. Sometimes, knowing you have a predictable payment coming can cause you to be less careful about how much heat and electricity you’re actually using. If your usage rises significantly, you’ll probably see a big increase when the utility provider recalculates your bill — and an impact on your personal finances. But if you’re careful to keep your usage to a minimum, this shouldn’t be an issue.

How to enroll in a utility budget billing plan

Contact your utility provider to see whether a budget billing plan is an option for you. If it is, inquire about how much you would pay per month and how often the company would reevaluate your rates.

You should also ask about whether there are any administrative fees associated with switching to a budget billing plan. If there are, make sure you’re comfortable with these before signing up.

Finally, ask about refund policies. Some companies will charge you extra if you use more electricity than anticipated, which is understandable. But they may not refund you if you use less than expected. If this concerns you, a budget billing plan may not be right for you.

It doesn’t hurt to explore your options, even if you ultimately decide not to go forward with a budget billing plan. For many, though, it could make utility bills a little less painful each month and it might even help you keep more money in your checking account.

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Buying a home in this market without a W-2 job is “even harder mode.” Read on to learn how you can get approved for a mortgage loan if you work for yourself. 

Buying a house isn’t necessarily ever “easy,” per se, but it’s safe to say that it’s more difficult now than before the COVID-19 pandemic changed our world. The reason for this is two-fold. First, mortgage rates are higher than they were in the salad days of 2020 and 2021. They started to climb at the start of 2022 — during the first week of that year, the average rate on a 30-year mortgage loan was 3.22% (per Freddie Mac). Now? You’re looking at 6.61% for that same mortgage.

Home prices are up overall too. The National Association of Realtors reported that the median cost for an existing home was $387,600 in November 2023, and that’s a bump of 4% over just a year prior.

High rates and high prices mean that current homeowners are more reluctant to list their homes and jump into the fray with the rest of us, worsening the problem. The same NAR report noted that November 2023 saw an inventory of just 1.13 million homes for sale — that sounds like a lot, but it’s not enough to satisfy demand.

Buying in “even harder mode”

What if you’re hoping to buy a home in this difficult market, but you’re self-employed? Join the club. If you don’t have a predictable income, you pose a larger risk to a mortgage lender. Mortgage lenders assess whether a given mortgage applicant will be able to pay them back, based on income, credit, and a variety of factors. So if you’re self-employed, it’s in your best interest to make the following moves to show them you can be trusted.

1. Pay down debt

Going into homeownership with as little existing debt (say, on credit cards) as possible is a good move no matter your job situation, but it might be even more crucial if you’re self-employed. If your income fluctuates, a lender will wonder whether you’ll consistently earn enough money to satisfy all your financial commitments, especially the large mortgage loan it’s extended to you. If you don’t have a bunch of debt payments to make regularly on top of your mortgage, utilities, insurance, and other bills, you’ll look even better to a lender.

2. Boost your credit score

Your credit score is one of the most important factors in mortgage loan approval, so approaching yours with a laser focus will pay off. In addition to paying down existing debt, getting better about making all your payments on time, every time, will also boost your score. Payment history makes up a whopping 35% of your FICO® Score.

Another move to make? Get copies of your credit reports (free from AnnualCreditReport.com) and read through them for errors. Credit report errors are common, and if you spot any, you can dispute them with the credit bureau that issued the report. Once they’re removed, you’ll see a score bump.

3. Make a larger down payment

While a 20% down payment is the general recommendation for home buyers (as it’ll allow you to avoid paying for private mortgage insurance on a conventional loan), it’s not necessarily a hard requirement. That said, if you’re self-employed, a 20% down payment will likely work in your favor with a lender. If you can’t swing 20%, I understand, and I’m in your shoes. My target is a 10% down payment, and that, coupled with my exemplary credit score and no other debt, will see me through.

4. Keep excellent income records

Finally, as a self-employed borrower, you’ll need to provide additional proof of income to a mortgage lender when you’re applying. As such, it really pays to keep excellent records of your earnings. You won’t be able to show a lender regular paycheck stubs or W-2 forms that reflect an entire year’s wages from a traditional job. Instead, you’ll provide bank statements, tax returns, and profit and loss statements. Keeping good records will also make it easier come tax time, so I recommend this move to all self-employed people, regardless of whether they want to become homeowners.

Buying a house at all right now is definitely “hard mode” — but doing it while self-employed is even harder. Give yourself the best shot at success with these moves.

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Got a raise for the new year? Here’s how to make the most of it. 

Getting a raise isn’t a given. If your paycheck is about to get larger in the coming weeks, consider yourself fortunate.

If you’re in line for a raise in 2024, it’s important to put that money to good use. Here are a few smart things to do with your upcoming pay bump.

1. Build or boost your emergency fund

An astonishing 63% of Americans don’t have enough money to cover an unplanned $500 expense, says SecureSave. If you’re getting a raise and don’t have a stocked emergency fund (or any emergency fund at all), then make sure to send that money straight into your savings.

Your best bet is to set up an automatic transfer out of your checking account and into your savings account so you don’t have a chance to spend the extra money. If you tell yourself you’ll do your best to transfer funds into savings at the end of the month, you might fall short.

Now, when we talk about a completely funded emergency fund, that generally means having enough cash to cover at least three full months of essential expenses. But if that target seems way out of reach, aim lower. Set a goal of saving enough to cover one month of bills and take it from there if you need to. That’ll at least buy you some protection.

2. Pay off lingering credit card debt

Maybe you racked up a credit card balance over the holidays. Or maybe you took on some debt last year when your car needed repairs and you didn’t have the money in your savings account to cover them.

Either way, the sooner you pay off a lingering credit card balance, the more interest you can keep from accruing. So once you’re done building your emergency fund, use your raise to tackle this important task.

In fact, it’s a good idea to continue sending money into your savings automatically every month if you’re trying to pay off credit cards. That way, you’ll have funds to tap for that purpose, and you won’t run the risk of accidentally spending money that was supposed to be earmarked for debt payoff purposes.

3. Set up an automatic transfer to your IRA

You may be many years away from retirement. But eventually, you’re going to need money to live on in the absence of a paycheck from work. So the sooner you start funding your IRA, the better.

This year, savers under age 50 can put up to $7,000 into an IRA. If you’re 50 or older, that limit rises to $8,000. And if you’re funding a traditional IRA, every dollar you contribute is a dollar of earnings the IRS can’t tax you on this year, as long as you’re under the income limits.

Meanwhile, a modest IRA contribution could go a long way over time. The stock market’s average annual return over the past 50 years has been 10%.

So let’s imagine you contribute $5,000 to an IRA in 2024 and don’t retire until 2054. With that return, in 30 years, you’re looking at a nest egg worth about $87,200. And while that figure alone may not be quite enough to retire on, it’s a pretty large sum of money to result from one year’s worth of contributions alone.

Now, just as it’s a good idea to set up an automatic transfer from checking to savings when you’re trying to build an emergency fund, so too should you employ this tactic in the course of funding an IRA. That way, you’re more likely to stay on track.

Getting a raise in 2024 could do a lot of great things for your personal finances. The key, however, is to make these moves before you get used to having extra money in your paychecks. So set up your automatic transfer now rather than wait.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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