Skip Navigation

Small Steps to Improve Your Finances

December 2015

Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

The end of the year is a great time to take stock of your financial situation and develop financial New Year’s resolutions and action plans to achieve them. According to a University of Scranton study published in the Journal of Clinical Psychology, the top five New Year’s resolutions for 2014 were: 1. lose weight, 2. get organized, 3. spend less, save more, 4. enjoy life to the fullest, and 5. stay fit and healthy. Resolution #3 directly involves personal finances while two others (#2 and #4) are indirectly related (e.g., organized people are likely to keep their finances on track and financially secure people are able to live life to the fullest).

Below are 10 small steps to improve your personal finances during the coming year:

Check Your Cash Flow - Figure out how much money you have coming in each month and how much you pay out for household expenses. The Rutgers Cooperative Extension Spending Plan Worksheet can be used to identify sources of income and expenses.

Increase Your Emergency Reserve - Set aside at least three months in a liquid savings product such as a money market fund or bank or credit union savings account. Six months is even better. Emergencies happen throughout life where people need fast cash. Examples include car repairs, bouts of unemployment, and last minute plane tickets for a family funeral.

Pay Yourself First - Make savings a priority as soon as you are paid. The simplest way to save is through direct deposit where money is placed automatically into a bank account, investment product (e.g., mutual fund), or employer retirement savings account (e.g., 401(k) plan) before you have a chance to spend it. For more information, see

Maximize Compound Interest - Compounding means “earning interest on interest” as is especially powerful over time. The earlier money is saved and the longer it compounds, the greater its effect. Another key factor is the amount of savings. Obviously, the more money saved, the better. Time + Money = Magic, the magic of compound interest. Use this calculator to see for yourself:

Use Credit Wisely - Ideally, pay credit card bills in full to avoid interest charges. If this is not possible, pay more than the minimum due or it could take years, even decades, to pay off an outstanding balance. For additional credit management tips, take the Rutgers Cooperative Extension Wise Credit Management Quiz at

Shop Carefully - This advice goes for everything from groceries to clothing to a new car. One way to shop wisely is to “do your homework” by checking product features and prices on websites, newspaper ads, and phone apps, and “liking” retailers on Facebook and/or following them on Twitter. Another is to negotiate with vendors by suggesting a lower price (e.g., “I’ll give you $10”) or a discount for paying cash. A third strategy is to find good deals via alternative sources including thrift shops, consignment shops, and online auctions.

Insure Valuable Assets - For many people, their most valuable asset is their earning ability. Disability insurance is key to providing continued income in the event of an accident or illness. Other important insurance includes liability coverage to insure against the risk of damages to others, homeowners or renters insurance to protect property and provide liability coverage, life insurance to provide income for dependents, and health insurance to help cover medical expenses.

Check Your Tax Withholding - Income tax refund identity theft cases have increased significantly in recent years. For this reason, it is best not to have a large tax refund that can be delayed if you become a victim. To keep tax withholding in line with next year’s expected tax liability, complete the worksheet attached to the W-4 form that is filed with your employer.

Dollar-Cost Average Investment Purchases - Invest the same dollar amount at regular time intervals. For example, $100 in a mutual fund every month. The price per share (called the net asset value or NAV) will move up and down over time. When the price is down, investors buy more shares of an investment (e.g., stock or mutual fund). When the price is up, fewer shares are purchased. For more information, see

Invest for Retirement on the Job - Depending on where you work, sign up to participate in an employer 401(k), 403(b), 457, or Thrift Savings Plan. Then decide what percentage of your pay to invest and select from among plan investment options. Invest at least the maximum amount (e.g., 6% of pay) that is matched by an employer.

The ten steps described above can help you take charge of your finances. Every small step is a step in the right direction.