Financial Basics
- Create a Financial Calendar
If you don’t seem to remember to pay your quarterly taxes or pull a
credit report, think about using your calendar to set appointment
reminders for these important money to-dos in the same way that you
would set an appointment for your an annual doctor’s visit.
- Check Your Interest Rates
Q: Which debt should you pay off first? The one with the highest
interest rate?
A: The one with the smallest balance! For more
information, check out the
Debt Snowball
Q: Which savings account should you open?
A: The one with
the best interest rate.
- Track Your Net Worth
Your net worth is the difference between your what you've got and
what you owe. This is the big-picture number that can tell you where
you stand financially. Use it to see how much progress you're making
toward your financial goals—or warn you if you’re backsliding.
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Budgeting
- Create a Budget
This is the starting point for every financial goal in your life.
Here’s a link to
EveryDollar, a free budgeting tool
- Consider an All-Cash Diet
If you run out of money before you run out of month you definitely
need to create a budget. If you have a budget and are still
overspending, you need to understand why. One way to limit optional
spending is to use the envelope method. This involves creating an
actual envelope for several of your expenses. For example, a Grocery
envelope, a Dining Out / Coffee envelope, a Clothing envelope, an
Entertainment envelope, etc.
Each paycheck you go to your bank
and take out actual Cash, and place your budgeted amount into each
of your envelopes. As you go shopping, dining, etc. you can only
spend what is in that specific envelope, and no more. No debit
cards. No credit cards. ONLY what is in that specific envelope. For
example, if your Coffee shop envelope is empty halfway thru the
month, then you don't go to the coffee shop until your next
paycheck. You may have to make your own coffee at home.
Paying cash and only cash will ensure that you don't spend more than
you have in your budget.
- Take a Daily Money Minute
Set aside a minute or two each day to review your recent spending. This
simple spot-check helps identify
problems immediately, keep track of goal progress—and set your
spending tone for the rest of the day!
- Allocate at Least 20% of Your Income Toward Financial
Priorities
By priorities, we mean building up emergency savings, paying off
debt, and padding your retirement nest egg. Seem like a big
percentage? Here’s why we love this number.
- Budget About 30% of Your Income for Lifestyle Spending
This includes movies, restaurants, and happy hours—basically,
anything that doesn’t cover basic necessities. By abiding by the 30%
rule, you can save and splurge at the same time.
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Get Money Motivated
- Draft a Financial Vision Board
You need motivation to start adopting better money habits, and if
you craft a vision board, it can help remind you to stay on track
with your financial goals.
- Set Specific Financial Goals
Use numbers and dates, not just words, to describe what you want to
accomplish with your money. How much debt do you want to pay off—and
when? How much do you want saved, and by what date?
- Adopt a Spending Mantra
Pick out a positive phrase that acts like a mini rule of thumb for
how you spend. For example, ask yourself, “Is this [fill in purchase
here] better than Bali next year?” or “I only charge items that are
$30 or more.”
- Appreciate Yourself
Sure, it may sound corny, but it works. Just ask this author, who
paid off $20,000 of debt after realizing that taking control of her
finances was a way to value herself.
- Make Bite-Size Money Goals
One study showed that the farther away a goal seems, and the less
sure we are about when it will happen, the more likely we are to
give up. So in addition to focusing on big goals (say, buying a
home), aim to also set smaller, short-term goals along the way that
will reap quicker results—like saving some money each week in order
to take a trip in six months.
- Banish Toxic Money Thoughts
Hello, self-fulfilling prophecy! If you psych yourself out before
you even get started (“I’ll never pay off debt!”), then you’re
setting yourself up to fail. So don’t be a fatalist, and switch to
more positive mantras.
- Get in Shape
Your finances and your body.
One study showed that more exercise leads to higher pay because you
tend to be more productive after you’ve worked up a sweat. So taking
up running may help amp up your financial game. Plus, all the habits
and discipline associated with, say, running marathons are also
associated with managing your money well.
- Be Appreciative
Savoring means appreciating what you have now, instead of trying to
get happy by acquiring more things.
- Get a Money Buddy
According to one study, friends with similar traits can pick up good
habits from each other—and it applies to your money too! So try
gathering several friends for regular money lunches, like this woman
did, paying off $35,000 of debt in the process.
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Raise Your Earning Potential
- Negotiate a Better Salary
If you give away your current pay from the get-go, you have no way
to know if you’re lowballing or highballing. Getting a potential
employer to name the figure first means you can then push them
higher.
- Negotiate More Than Just Your Salary
Your work hours, official title, maternity and paternity leave,
vacation time, and which projects you’ll work on could all be things
that a future employer may be willing to negotiate.
- Unemployment - Don’t Shortchange Yourself
At the height of the recent recession, only half of people eligible
for unemployment applied for it. Learn the rules of unemployment.
- Make Salary Discussions at Your Current Job About Your
Company’s Needs
Your employer doesn’t care whether you want more money for a bigger
house—it cares about keeping a good employee. So when negotiating
pay or asking for a raise, emphasize the incredible value you bring
to the company.
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Be Debt Free
- Start With Small Debts to Help You Conquer the Big Ones
If you have a mountain of debt, studies show paying off the little
debts can give you the confidence to tackle the larger ones. For
more information, check out the
Debt Snowball
- Don’t Ever Cosign a Loan
If the borrower—your friend, family member, significant other,
whoever—misses payments, your credit score will take a plunge, the
lender can come after you for the money, and it will likely destroy
your relationship. Plus, if the bank is requiring a cosigner, the
bank doesn’t trust the person to make the payments. Bonus tip for
parents: If you’re asked to cosign a private loan for your college
student, first check to see if your kid has maxed out federal loan,
grant, and scholarship options.
- Every Student Should Fill Out the FAFSA
Even if you don’t think that you’ll get aid, it doesn’t hurt to fill
out the form. That’s because 1.3 million students last year missed
out on a Pell Grant—which doesn’t need to be paid back!—because they
didn’t fill out the form.
- Always Choose Federal Student Loans Over Private Loans
Federal loans have flexible terms of payment if your employment
dreams don’t exactly go according to plan after college. Plus,
federal loans typically have better interest rates. So be smart
about the loans you take out—and try to avoid these other big
student loan mistakes.
- Student Loan Payments / Repayment Options
Just call up your lender and ask whether they offer graduated,
extended, or income-based plans. Read more about these options here.
- Opt for Mortgage Payments Below 28% of Your Monthly
Income
That’s a general rule of thumb when you’re trying to figure out how
much house you can afford. Learn more about this number here. And
then indulge in some voyeurism and see what other couples can
afford.
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Shop Smarter
- Evaluate Purchases by Cost Per Use
It may seem more financially responsible to buy a trendy $5 shirt
than a basic $30 shirt—but only if you ignore the quality factor!
When deciding if the latest tech toy, kitchen gadget, or apparel
item is worth it, factor in how many times you’ll use it or wear it.
For that matter, you can even consider cost per hour for
experiences!
- Spend on Experiences, Not Things
Putting your money toward purchases like a concert or a picnic in
the park—instead of spending it on pricey material objects—gives you
more happiness for your buck. The research says so.
- Shop Solo
Ever have a friend declare, “That’s so cute on you! You have to get
it!” for everything you try on? Save your socializing for a walk in
the park, instead of a stroll through the mall, and treat shopping
with serious attention.
- Spend on the Real You—Not the Imaginary You
It’s easy to fall into the trap of buying for the person you want to
be: chef, professional stylist, triathlete.
- Ditch the Overdraft Protection
It sounds nice, but it’s actually a way for banks to tempt you to
overspend, and then charge a fee for the privilege. Find out more
about overdraft protection and other banking mistakes to avoid.
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Save for Retirement
- Start Saving ASAP
Not next week. Not when you get a raise. Not next year. Today.
Because money you put in your retirement fund now will have more
time to grow through the power of compound growth.
- Don't Cash Out Your Retirement Account Early
Dipping into your retirement funds early will hurt you many times
over. For starters, you’re negating all the hard work you’ve done so
far saving—and you’re preventing that money from being invested.
Second, you’ll be penalized for an early withdrawal, and those
penalties are usually pretty hefty. Finally, you’ll get hit with a
tax bill for the money you withdraw. All these factors make cashing
out early a very last resort.
- Save Money to Get Money
The famous 401(k) match is when your employer contributes money to
your retirement account. But you’ll only get that contribution if
you contribute first. That’s why it’s called a match, see?
- When You Get a Raise, Raise Your Retirement Savings, Too
You know how you’ve always told yourself you would save more when
you have more? We’re calling you out on that. Every time you get a
bump in pay, the first thing you should do is up your automatic
transfer to savings, and increase your retirement contributions.
It’s just one step in our checklist for starting to save for
retirement.
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Build and Track Credit
- Review Your Credit Report and Credit Score Regularly
This woman learned the hard way that a less-than-stellar credit
score has the potential to cost you thousands. She only checked her
credit report, which seemed fine—but didn’t get her actual credit
score, which told a different story.
- Avoid Credit!
Otherwise known as your credit utilization rate, you calculate it by
dividing the total amount on all of your credit cards by your total
available credit. And if you’re using more than 30% of your
available credit, it can ding your credit score.
- If You Have Bad Credit, Get a Secured Credit Card
A secured card helps build credit like a regular card—but it won’t
let you overspend. And you don’t need good credit to get one! Here’s
everything you need to know about secured credit cards.
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Get Insured
- Get More Life Insurance
That’s because the basic policy from your employer is often far too
little. Not convinced? Read how extra life insurance saved one
family.
- Get Renters Insurance
It, of course, covers robberies, vandalism, and natural disasters,
but it could also cover things like the medical bills of people who
get hurt at your place, damages you cause at someone else’s home,
rent if you have to stay somewhere else because of damage done to
your apartment—and even stuff stolen from a storage unit. Not bad
for about $30 a month!
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Prepare for Rainy (Financial) Days
- Make Savings Part of Your Budget
If you wait to put money aside for when you consistently have enough
of a cash cushion available at the end of the month, you’ll never
have money to put aside! Instead, bake monthly savings into your
budget now. Read more on this and other big savings mistakes—and how
to fix them.
- Keep Your Savings Out of Your Checking Account
Here’s a universal truth: If you see you have money in your checking
account, you will spend it. Period. The fast track to building up
savings starts with opening a separate savings account, so it’s less
possible to accidentally spend your vacation money on another
late-night online shopping spree.
- Open a Savings Account at a Different Bank Than Where You
Have Your Checking Account
If you keep both your accounts at the same bank, it’s easy to
transfer money from your savings to your checking. Way too easy. So
avoid the problem—and these other money pitfalls.
- Direct Deposit is (Almost) Magic
Why, you ask? Because it makes you feel like the money you shuttle
to your savings every month appears out of thin air—even though you
know full well it comes from your paycheck. If the money you allot
toward savings never lands in your checking account, you probably
won’t miss it—and may even be pleasantly surprised by how much your
account grows over time. Find out other ways to get your emergency
fund started.
- Consider Switching to a Credit Union
Credit unions aren’t right for everyone, but they could be the place
to go for better customer service, kinder loans, and better interest
rates on your savings accounts.
- There Are 5 Types of Financial Emergencies
Hint: A wedding isn’t one of them. Only dip into your emergency
savings account if you’ve lost your job, you have a medical
emergency, your car breaks down, you have emergency home expenses
(like a leaky roof), or you need to travel to a funeral. Otherwise,
if you can’t afford it, just say no. We explain more here.
- You Can Have Too Much Savings
It’s rare, but possible. If you have more than six months’ savings
in your emergency account (nine months if you’re self-employed), and
you have enough socked away for your short-term financial goals,
then start thinking about investing.
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Investing
- Pay Attention to Fees
The fees you pay in your funds, also called expense ratios, can eat
into your returns. Even something as seemingly low as a 1% fee will
cost you in the long run. Our general recommendation is to stick
with low-cost index funds.
- Rebalance Your Portfolio Once a Year
We’re not advocates of playing the market, but you need to take a
look at your brokerage account every once in a while to make sure
that your investment allocations still match your greater investing
goals. Here’s how to rebalance.
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