A Pew Research Center survey found that only 37% of Americans believed their finances would be in better shape within one year. Many reported struggling to cover their medical care or housing costs and needing to get loans from loved ones.
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If you’re unhappy with your situation, you need to figure out exactly what to focus on so you can become more financially secure. This likely involves going beyond eliminating small, frequent expenses, like your daily premium coffee.
A YouTube video from money expert Jaspreet Singh explained five changes that will have the biggest impact on your finances — start making these moves today.
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Check Your Retirement Fees
Singh said it’s common to unknowingly pay too much in fees for your retirement account. Various funds have an expense ratio that you pay for annually, depending on your earnings and investments. While the fee might seem small, it could cost you hundreds of thousands or even millions.
Singh gave examples of the VFIAX and GFACX funds with respective expense ratios of 0.04% and 1.36% and average returns of 12.5% and 12.6%. If you spent 30 years investing $1,000 per month in those funds, you’d reach $3.56 million with VFIAX versus $2.7 million with GFACX. That difference shows it’s crucial to know what you’re paying and change investments if needed.
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“If you are paying higher fees, make sure the returns are justifying the fees,” Singh said. “Because what we’ve seen through history is that, in general, high-fee accounts do not outperform the lower cost, lower fee, passively managed accounts when you look at it over the long run.”
Cut Back on Big Expenses
A report from the U.S. Bureau of Labor Statistics identified housing, transportation, food and health care as some of the largest household expenses in 2023.
While you might think of cutting back on the less important stuff, Singh recommended targeting the major expenses if you’re financially strained. For example, he said you could look for a cheaper place or vehicle and invest the savings. Other options could include splitting costs with a roommate and using alternative transportation, like carpooling or taking the bus.
According to Singh, you might save up to $1,000 each month if you’re strategic with your cuts. After you’ve built up wealth, you’ll find it more realistic to spend money on fancier things without stress.
Ask for a Raise
Increasing your income goes hand in hand with cutting expenses to build wealth more efficiently. Singh explained that even getting your employer to offer a $5,000 raise has a major long-term impact when you look at the compound interest potential.
He gave an example of investing your $5,000 raise every year for 30 years and getting a 10% average return, which he said would get you to about $1 million. If you change the timeline to 40 years, you’d reach about $2.4 million.
“This is the power of asking for that raise sooner rather than later and then taking that additional money and putting it to work,” Singh added.
Systemize Your Money
Getting yourself into a better financial position requires rethinking how you use your paycheck so that your money goes to work and makes you richer. Singh laid out three steps to take.
First, he said you need to track your spending so you know where your pay is going every month. A budgeting app or a simple spreadsheet with your income and expenses will do the job. Singh recommended using categories for expenses, which you can identify from financial statements and noting the money you invested, gave or saved.
After that, consider using the 75/15/10 plan to prevent overspending and ensure you’re working toward your money goals. Singh explained that this limits your spending to 75% of your earnings and requires investing a minimum of 15% and saving at least 10%.
With your plan in place, you can focus on investing as much as possible to build your wealth. That means making smart decisions with any extra money you get as well.
Take a Risk on Yourself
“One common trait that you will find amongst all successful people is that they were willing to take a risk on themselves,” Singh said.
For you, this might look like finally getting started with investing, making your business dream a reality or getting a degree that helps you land a higher-paying job you love. It could also be as simple as getting a book that educates you on investing or offers career tips.
Singh explained that this kind of risk-taking isn’t easy but is worth it, so you should trust yourself and not let failure discourage you. He gave the example of how his parents wanted him to become a doctor from a young age, yet he found different opportunities as an entrepreneur and content creator.
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This article originally appeared on GOBankingRates.com: 5 Most Impactful Financial Changes To Make Today, According to Jaspreet Singh
