If there’s one thing that the 2020 Covid-19 pandemic has made us realize, it’s the importance of money and personal finance.
The sudden closure of offices, restaurants, and transport hubs left hundreds of thousands of people out of work. While some had savings tucked away to weather the initial shock, thousands of others were unfortunately not so well prepared.
Now, almost a year after the pandemic started, Americans are rethinking their finances. People are looking at ways to save more and spend less. With more time on their hands, they want to build a better financial life to stay prepared for any uncertainties that might come their way.
Making the right radical personal finance decisions is easier than you think. You just need a bit of time, discipline, and financial literacy to get started.
In this article, we show you 8 radical personal finance decisions you can start making today to change your financial life.
1.Switch to an ethical financial platform that doesn’t invest in fossil fuels
You could start by switching to an online financial platform that helps you grow your wealth ethically.
Unlike large banks such as JPMorgan Chase and Bank of America that only seek profits by lending to environmentally-destructive industries such as fossil fuels, ethical financial platforms like Aspiration focus on giving customers products and services that help them do good for the planet.
Our Spend & Save Account offers customers up to 1.00% APY on their savings deposits while protecting their money from oil companies, private prisons, and weapons manufacturers. We put our customers first by allowing them to choose how much they want to pay for our banking services, even if it’s zero.
We also charge zero overdraft fees, zero dormant account fees, and zero debit card fees. Our goal is to help customers increase their wealth when they bank with us.
Aspiration goes further by donating 10% of our earnings to help struggling Americans start their own businesses and build a better life.
2. Invest in sustainable funds
Other than ethical bank accounts, you could also improve your financial life by investing in sustainable funds.
Since the signing of the 2015 Paris Agreement, which brought the world’s attention to the alarming rise in global carbon emissions, interest in sustainable investing has surged.
People seek out firms with good Environmental, Social, and Governance (ESG) scores to invest in because they provide favorable returns and commit to reducing their environmental impact. These companies tend to treat their staff fairly, refrain from fraudulent practices, and are often more profitable than their more-traditional counterparts.
If you’re interested in sustainable investing, you could take a look at Aspiration’s very own Redwood mutual fund. We’ve selected over 30 companies that are leaders in their industry when it comes to environmental responsibility, diversity, and ethics.
These firms come from industries as diverse as information technology and healthcare. They include well-known companies such as Southwest Airlines, Western Digital Corporation, and The Walt Disney Company. The firms in our portfolio were chosen using a rigorous analysis of their ESG practices.
With only a $10 account minimum, you can start investing in the Redwood mutual fund.
3. Set aside 50% of your income for savings
This is a financial management idea that’s increasingly becoming popular, thanks to the Financially Independent Retire Early (F.I.R.E.) movement. The idea behind it is simple: you save 50% or more of your after-tax income every month and funnel it into a savings account.
Others may choose to aggressively pay back debt or build an emergency fund first, but the goal is always to have enough money with you so you feel financially secure. At a time when people are saving just 12% to 30% of their income, committing to saving 50% helps you achieve your financial goals earlier than others.
People who have made this financial decision can pay back their mortgages within five to ten years. Some are even ready to retire by the age of 40 or earlier.
One of the easiest ways to pull through with this decision is to set auto-transfers on your bank account. Once you receive your salary at the end of each month, the banking system automatically transfers half of it to your savings account without you having to do anything.
4. Stick to a budget
Budgeting is key to maintaining good habits related to personal finance. For instance, setting a budget at the start of each month will stop you from overspending.
It may feel trivial to do so, but knowing how much you allocate to food, rent, utilities, and other life necessities can be quite liberating. You have more control over your money, and you might even feel empowered to say no to expenses and activities that you cannot afford.
Budgeting allows you to enjoy your money without having to worry about where your money is going. What’s important to keep in mind when creating a budget is to set a realistic quota for all of your expenses. For example, you wouldn’t want to feel deprived in one area of your life, say food, while you pay off your student loans.
Also, with a budget, you’re less likely to overspend because you’ve already set a spending limit for yourself. In the age of credit and debit cards, it’s very easy to overspend without realizing it. Budgets can help you keep yourself accountable for your financial decisions.
5. Track your daily spending
One level up from setting a budget is to track your spending every day.
By taking note of every expense you make, you stay conscious of where your money is going. It helps you think twice before making a purchase and lets you see where you might be making unnecessary spending that could instead be put in your savings or an emergency fund.
It also helps improve your financial security because you have a record of your expenses that you could cross-check with your bank statement. You’ll be able to spot fraudulent activity quickly and report it to your bank.
And if you’ve already set a monthly budget for yourself, tracking your daily expenses can help you see how much money you have left for different categories. At the end of each month, your expenses record can help you tweak your budget if need be.
6. Avoid credit cards if possible
Mark Cuban, the self-made billionaire who regularly appears on ‘Shark Tank’, once shared a piece of advice to his followers: “Cut up your credit cards. If you use a credit card, you don’t want to be rich.”
This was not a conclusion that came to him easily. After spending large amounts of money on credit card interests and fees in his 20s, Cuban realized that he was losing more money than he was saving.
He does have a point. Credit cards make spending money too easy, often putting credit card users in thousands of dollars in debt. The best way to not fall for the lure of credit cards is to avoid them completely.
Without credit cards, you only buy things when you have enough money to do so. You’re also not at risk of building a poor credit score.
If you already shoulder a large amount of debt, like student loans, it doesn’t make sense to take on credit card debt that you might not be able to pay back.
7. Spend a year without buying anything new
One of the most radical finance decisions you could commit to this year is to not buy anything new.
Online shopping websites make impulse purchases extremely easy – with just a few clicks you can order almost anything you want. But by setting yourself the goal of not buying anything new, except for food, toiletries, and other essentials, you minimize your impact on the planet and learn to appreciate the things you already own.
More than that, you’re able to differentiate between the things you need and the things you want. You’re less likely to feel tempted to buy something you don’t need.
Those who tried to commit to this goal found that they had more money to donate to important social justice causes, help friends and families who needed money and save up for retirement.
8. Set financial goals
Setting personal finance goals can help anyone become rich, not just the lucky few.
Clear goals related to personal finance can be any goal that helps you feel financially secure; from the amount of money you want to have when you retire to the amount you want to have saved up in a few years to buy a house. These goals have a target amount, an end date, and relevance to your life.
With clear financial goals, you can plan how much to set aside each week or month to reach the goal. Too often people save money without setting clear financial goals first. As a result, they may end up spending more than they should or become vulnerable when unexpected life events occur.
It takes only a few minutes to think about the financial goals that you want. If you want to improve your financial life, these are probably the best minutes of your life that you’ll ever spend.