I’ve had a few requests and gotten some inspiration to write a bit more of a practical post with rules and tips you can consider in how you manage your own finances. I’ve scoured my own budget for inspiration as well as a few outside sources I’ll mention too. I’ve at least tried all of these suggestions, and still actively use a large majority of them. Though all of our earnings and expenses look different and we all have unique priorities, I am convinced that there are still universally applicable “rules” and “tips” that will help all of us improve our financial well-being. So without further ado, here are some of the bigger ones that I’ve applied or in some cases can’t wait to apply!
- Save & invest first! A wise man once told me that there was never enough money to save at the end of the month, so he just started saving at the beginning of the month. Whatever you have to do, make it happen. Future you will thank you. Most financial advisors will say that saving 10% of your income for your future is enough. I’d like to suggest that maybe that’s not so true, in fact it should probably be more like 20% or more. Plus, if you’re like me, and want to be financially independent sooner than later, the more you save now will only make that happen quicker! Mr. Money Mustache wrote an article just over 6 years ago that I have referred back to a few times for two reasons. One, there is a nifty and stupidly simple calculator that helps you calculate how soon you could “retire” and he even has a table that gives a bit more of a generic answer needing only your savings rate. Check them out over at: Mr. Money Mustache and let me know what you think.
- Time is your friend, save/invest ASAP: Going along with my Rule #1 from this post, do yourself the favor of saving and investing your hard earned money as young as possible. I would argue that you should even consider saving a higher percentage of income as a teen or adult in your twenties than our older counterparts. Why? That money will have at least a decade or more of EXTRA time to grow and multiply! That could be huge. But even if you haven’t/didn’t do that, don’t worry. Start today if you haven’t already. Future you will thank me and everyone else saying this too. I made the foolish mistake of not taking this seriously until I was 20, and I can’t tell you how much I regret that!
- Pay off high-interest debt first. If you don’t, you’re letting the debt snowball get larger and larger…essentially making your task of getting out of debt harder and harder. Nobody wants that! Maybe your debt was unavoidable, maybe it was well planned, maybe it was a foolish mistake. Truth be told, it doesn’t matter how you got there, rather it’s what you do to get out of debt that makes the biggest difference.
- Always maintain a 3-6 month emergency fund. If you start dipping into it, reduce your expenses until you can rebuild it to the necessary levels. Not only will this keep you a bit less stressed when life gets weird, but it has the potential to eliminate unnecessary debt in the crazy chapters of life. That might seem like a small benefit for the task of saving that much money, but trust me…not if…but WHEN the time comes that you’ll appreciate an emergency fund, you will be so thankful if you have a sufficient one built up!
- Automate your savings and investments. Modern banking has given us a crazy amount of tools that can really help us out. Automation is one of those huge things. Every month, I have all my necessary investments and savings contributions automated. The only thing I need to do on a regular basis is buy or sell stocks in one of those accounts, otherwise they are relatively hands-free. Not only does this mean I don’t have to worry about remembering to do these transfers, but it also means that they happen…every month…no questions asked. So, even in a weird time like now for me, when I’m incredibly distracted by life, I know my investments and savings are still growing. I don’t even really have to think about it…that’s huge!
- Never impulse buy! No, I’m not perfect, I’ve made impulse purchases too! It can be a very hard thing to avoid, unless you build a mental awareness of it and create blockades for yourself to prevent it. So what works? I’ve heard people say they won’t buy anything within 30 days of finding it. I’ve heard others stick to other timelines, but frankly the time frame is your decision to make. Your lifestyle and your finances will dictate what’s best. For me, the goal is to never buy something within 24 hours of finding it. For larger purchases, I may extend that out even further.
- Review/edit your savings plan often: Like many other important documents in life (wills, constitutions, etc…) your savings plan and budget should be considered to be living documents. What does that mean? Well, life can be crazy at times, and incredibly rewarding at other times. It’s foolish and potentially dangerous to think that in every chapter of life that you’ll be capable of saving the same amount every month. As such, your plan/budget should be a bit flexible so it can accommodate the curve balls of life. That’s not to say you should plan months where savings are sub-par, but when life creates a situation where that happens, you’ll most likely have a better idea of how to recover from that. I make edits for tracking in my budget and savings plan every week, mainly to track my expenses. But as significant things come up in life, those are added and accounted for too! If you would have asked me 8 years ago if I thought I’d be earning as much as we are today, I would have laughed. I would have said you were full of crap if you’d have said I’d be married, owned a cat, been looking to adopt soon, been looking at a first mortgage, then surprisingly being out of work for 4+ months in the middle of that searching. Life can be unpredictable, your savings plan should be situation specific, but also flexible/adaptable enough to let life happen without you freaking out about your savings too.
Tips & Suggestions
- Drink more water (less soda, juice, coffee, etc…). Water is practically free compared to every other drink out there. Plus it’s not loaded with sugars, artificial flavors, harmful ingredients, and does not form any dependencies. As I’m still renting and am honestly a bit particular about my water, I splurged and bought myself a roughly $50 water filter that costs about $30/year. It helps remove a bunch of stuff out of the tap water and makes a significant difference in the taste. Definitely worth the extra few dollars a year since it’s saving me hundreds of dollars per year in other (more expensive) drinks.
- Quit smoking and reduce or eliminate alcohol. I’ve never been one to smoke, and I’m glad for a few reasons. I’ve seen it tear apart families because of both the financial waste and the issues with health. After seeing that, I’ve wanted nothing to do with it. I’ve never had an obsession with alcohol, but like most young adults, I do like a little hard liquor on occasion. That being said, I’ve reduced my consumption significantly, primarily because it can become another money pit. And quite frankly, as much as I enjoy drinking, it is not one of my highest priorities, so it doesn’t get financially treated like one.
- Befriend more frugal people. By now, most of us have probably heard the saying about “keeping up with the Joneses”. Whether you are consciously aware of it or not, we all do this to some level. I mean, you even being here and reading this means that you’ve probably bought a smartphone or at least a computer. Sure that may seem “essential” and not a luxury item anymore, but you are still using them. But, by trying to have (or at least instill the habit) frugal friends, you will all probably end up saving a bunch of money for a couple reasons. One, none of you are likely to be running out to be the first person in line for the newest tech, and two, you are more likely to form some interdependence with each other. So instead of running out and buying a crockpot, blender, or expensive lawn mower, maybe you and a couple neighbors can share one and split the cost.
- Transition your mindset from consumer to producer/side-hustle: Easier said than done, right! Of all people, I know. Just as much as the next guy or gal, I really enjoy keeping up with technology and my slew of hobbies. That can very quickly translate to me spending a lot of money on toys. I’m slowly getting a bit better about it, but it is definitely going to be a struggle for a couple more decades, I’m sure. But, the bigger picture is that, yes, we will all be consumers on some level, but we don’t have to be producers. Why? It’s typically not necessary outside of your 9-5 job. But, I won’t be the first to tell you, if you can produce anything, that is going to have its benefits. Not only will you have a sense of pride in creating something, but you could potentially create some significant financial gains if done right! In the name of saving more and becoming financially independent (FI), that could literally take you to the next level!
- Read as much as possible (especially about your finances): While I’m sure we all have heard about some famously rich person reading like a book a week, you might not have thought too much about how much you should read. Growing up, I didn’t really care to do much reading outside of the school setting. I never liked fiction, I never found a clear niche to really read into, at least that didn’t include a ton of pictures and not too many words! But, this year, I’ve committed to improve how often I’m reading. I’ve been slowly increasing it over the past 6-7 years, but this year I’ve even made a special budget category called my “Self-improvement Fund” and has largely consisted of book purchases and some other educational material. My goal, is to read at least two books per month. If I hit that goal, I have a list long enough to get me well into 2019 already, and over 90% of those books are revolving around some aspect of personal finance. Why? Well, for one, that is a topic that’s near and dear to my heart. Two, I may have improved a lot over the past few years with how I treat my hard-earned money, but I’m still far from perfect or super efficient. So, read up! Keep a tab on my page for books in my queue, and probably some reviews of ones I’ve finished in the near future.
- Grow a garden (It has more than one benefit): This has long been a little dream of mine to have a sufficient garden, such that my produce purchases at the grocery store are nearly eliminated. My family grew up with a huge garden, thanks in a big way to one of my brothers! We had a few grape vines, a slew of vegetables, some herbs, and 3 apple trees. They enabled us to have/make some really great food that was not only pretty cheap, but also very healthy. Plus, it was just in the backyard, so any of us 4 siblings could go out and “snack” on them or pick stuff for lunch or dinner during the summer months. So not only does it promote healthier eating and potentially save you money, but it can also be a fun family activity. That sounds like a win-win-win situation to me!
So, what about you? What rules or tips have helped to shape up your financial behavior? What’s worked, and what hasn’t? Why? Tell us about what you’ve tried and what has been most helpful in your life.
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