After asking what you all were interested in for blog posts, I cannot believe how many of you said “finance”. I feel like this is a such a broad topic, and I’m not really sure what’s the best way to approach it…but, I’m going to try! I should first say that Stephen and I do have two podcast finance episodes which can be found here and here.
Today though, I wanted to share some basic tips that can be helpful when starting out. I am by no means an expert, but these are a few things I’ve learned along the way.
Always pay off your credit cards at the end of the month. This is a big one that my dad always instilled in me growing up. The point behind this, is don’t buy shit that you can’t afford! If you can’t pay it off at the end of the month then you probably don’t need to be buying it. This isn’t to say that you shouldn’t have credit cards, in fact, credit cards are really important for building credit. But you don’t want to have balances left on them at the end of the month.
I will say, unfortunately Stephen and I do have credit card with balances on them. So, listen to what I say, not what I do! Just being honest here. So here’s the deal. Our personal credit cards get paid off at the end of the month, but the business credit cards not so much. We have invested a lot of money into several business ventures, and we didn’t want to take out any loans from the bank or look for investors to give up equity. So that means a lot of our investments are on business credit cards. We have a system set up that pays them down every month, and even though it’s not ideal to have those large balances, starting up businesses are investments. So it just is what it is for now. The plan is that those investments will pay off eventually.
Set aside 10-20% of your paychecks for savings. You may be reading this, and think–I don’t make enough to save anything! If you don’t save anything when you’re making less, you won’t save anything when you’re making more. Trust me on this. Even if you feel like you can only set aside 5% it’s a habit that you need to get into. My recommendation would be to put that percentage into your savings account right away, or somewhere where you won’t easily touch it. If the money isn’t really accessible to begin with, then you won’t miss it!
Little things add up. You may think that a coffee here, and a lunch out there is no big deal. But those things ADD UP. When I was going to Switzerland one summer when I was in college, I made a spreadsheet to see how much I needed to save each day in order to have a certain amount by the time of the trip. And let me tell you, it made me think twice about those random coffee runs, lunch dates, or TJ maxx runs! This isn’t to say that you should be developing a scarcity mindset around money, it’s just saying that if one of your goals is saving more that you need to be aware of the little day-to-day expenses. A good exercise is to look at all your spending over the course of 1 month and see where most of your money is going and where you can make adjustments.
Make a Budget. Going off the above point, once you see where your money is going, then make a budget accordingly. After you’ve put your money into savings each month, look at what’s left over from your paycheck. Then substract all your fixed expenses (rent, car payment, student loans, etc). Then based on what you have left you can budget accordingly. I know some people designate a certain amount of money to different areas (shopping, restaurants, groceries etc), and other people just say I have “X” amount to spend and it’s up to me how I spend it. Also, if you don’t trust yourself with using a credit or debit card, another alternative is taking that amount of money that you have to spend out in cash. Sometimes physically seeing it, can give you a better idea of what you actually have. For example, if you have $200 and you go to spend $75 at a restaurant, all the sudden that $75 seems a little more significant!
Don’t spend more than 30% of your income on rent/monthly mortgage. This is a good rule of thumb to go by when looking at apartments or buying a house. You don’t want to be house poor, or have all your income going into your monthly rent.
Have the most taken out of your paycheck for taxes. This is something I’ve always done, and need to get better at now that I am self-employed. But, when I was working full-time at the hospital (and my other jobs before that), I always had the most amount taken out of my paycheck for taxes. This way at the end of the year, I wasn’t left owing a ton of money. I always ended up getting money back which is a nice surprise!
Contribute (to your 401K) the most your company will allow you to. If your company lets you contribute to a 401K I highly recommend putting in the largest percentage possible. Here’s the thing–if you never see the money in your paycheck to begin with, you’ll never miss it! So have them take out the max from the beginning so they can match it.
If you want to start investing, I’d suggest the S&P 500. Look, I’m not going to pretend that I’m savvy when it comes to stocks! However, this is where Warren Buffet says to put your money, so I’m going to take his word for it. The S&P is a stock market index that takes the 500 largest companies in the US Stock exchange, and will fluctuate with the market but over the years it always trends upwards. When I starting college though, my dad gave me a couple thousand dollars in the S&P. He basically told me–leave this money there and just let it grow. Don’t touch it. So that’s what I’ve done!
Aim to have 3-6 months of expenses saved at all times. If you’re looking for a goal of how much to save, having your basic expenses covered for 3-6 months is a good start. This way, if something happened tomorrow, you’d have enough money saved that you wouldn’t be freaking out. This is also a good rule if you’re transitioning out of a job with a steady paycheck to something more freelance. For example, before I went PRN at my nursing job, I wanted to make sure that I have enough money saved and secured since I knew my income could fluctuate from month to month.
Have as little outgoing expenses per month as possible. What I mean by this, the more you can cut down on big expenses each month like a mortgage/rent, a car payment, student loans, etc. this is when it will become much easier to save money. You’ve probably heard it before but rich people don’t have car payments, and the new status symbol isn’t a BMW–it’s a paid off mortgage. It can be really easy to overextend yourself here. Everyone (especially on social media) seems to have the newest car, biggest house, and nicest designer bag. And like I’ve said before, there isn’t anything wrong with having those things if you can afford them. Instead though, I would really focus your time and efforts on paying off things like student loans and a car payment so you don’t have those large expenses going out every month. Then it will be easier and more enjoyable to invest in those nicer/more fun purchases. You’ll feel much better about making them knowing you can actually afford it.
Earlier this year for example, I really thought about getting a new car. I mean, I’ve had my Camry for 12 years and I work hard–I deserve it, right?! Well, it’s not that I don’t deserve it and it’s not that you shouldn’t treat yourself to nice things but I think it’s important to look at the bigger picture. I decided that if I could drop “X” amount in cash on a car, and we still have Stephen’s student loans and payments to be made on our business credit cards–that the money should be going towards those things, and not a new car for me. Now is that the most fun decision? No, obviously not. But it’s the responsible one. When we can afford to pay off all those loans/debts, then I will buy myself a new car (or when my car just dies haha, but you know what I’m saying)!
Any other tips you can add? Like I said, I’m not an expert but any means but I hope these tips were helpful starting points! xxC