A few rare times over the course of my 20s, my friends have asked me for financial advice.
I know what you’re thinking. Bridgett, you write bullshit astrology advice on the internet and are currently employed by a company that pays you to make animal content*— why in the world would anyone go to you for financial advice?
I don’t really know, dear reader! But I do know that helping my friends feel like they can sort of wrap their heads around the intimidating beast that is personal finances pushes me to a point of giddy mania.
I have referenced the book I Will Teach You to Be Rich by Ramit Sethi in a few different blog posts. It taught me a lot about personal finance when I was a broke college student that still hold up for me today as a not-broke almost-thirty-something. I usually just tell the people who ask me for financial advice (okay, it was exactly three friends over the course of ten years) to go read I Will Teach You to Be Rich because it’s going to give them all the info they need and that way I am not liable for any friendship fiduciary malfeasance.
But I recently re-read that book and I found it has lost its magic in the years since I first read it. I can’t really point to too many specific critiques; it just didn’t hit me in the same impactful way.
So, if you are looking for expert advice from a reliable source, go ahead and read the book. If you want paraphrased mish-mosh advice from someone who read that book and also listened to Freakonomics pretty consistently before I got bored of podcasts where it’s just white men talking to each other, this is the blog post for you!**
(*amongst other things!)
** Because I care about you and because I truly cannot handle it when someone is upset with me, even an internet stranger, I asked the two people who I go to for financial advice to proofread this blog post. They provided GENEROUS and THOUGHTFUL feedback (thank you Lara and Mike!!!) which I have incorporated into this piece.
1. Create a budget.
Budgets are kind of boring, but the first way to get a handle on your finances is to first have a clear picture of what’s happening with your money every month. So they are the biggest pillar of any financial foundation, IMO.
Here’s a template you can use that I’ve been using for about 10 years now:
The way you spend your money is going to fluctuate from month to month, so I wouldn’t be too worried about sticking strictly to the budget you set. I think budgets are great big picture tools that help you understand where you’re at financially in broad strokes. How much rent can you actually afford to pay? Is $200/month really enough for going out to eat? How much do all of those random little $5-$12/month subscriptions actually add up to?
Creating a budget and then evaluating your spending against it every once and a while can help you understand your spending habits and make smart decisions about your money. Once you know how your money’s coming in and where it’s going, you can make more confident decisions about the rest of the items on this list.
2. Automate your finances as much as possible.
Put all your bills on autopay and schedule recurring transfers for your savings and investments.
I know this can feel a little scary when your money is spread thin, but automatically paying the things you know you’ll have to pay every month (like utilities) and scheduling small monthly transfers into savings and investments (starting with $50 or $100/month if you can afford it and working up from there) helps build healthy financial habits and frees your brain up to think about other things.
Many financial experts recommend putting 20% of your salary towards savings and at least 10% towards retirement.
While that might not be doable for you right now, I’ve found them to be helpful goals to shoot for. I started off putting $100 in my savings and $50 towards retirement every pay period when I first started working full-time. I’ve increased both of those numbers any time I’ve gotten a bump in salary over the years, and now both my savings and retirement accounts are looking pretty healthy! So even if you have to start small, do it just to start building the habit.
SmartAsset has a lot of cool little personal finance tools that you can use to wrap your head around things like saving, retirement, and home buying. Here’s an example I mocked up with their Savings Calculator tool. If you had $1000 to kick off your savings and then invested $200/month every month for the next 5 years, you’d end up with over $13K!
What I love about automating my bill payments, savings, and investments is that it helps me think about my finances in terms of a b u n d a n c e ! ! ! Because I’ve already covered the important stuff, it means everything left in my checking can be spent on whatever I want! As a bougie binch who loves $30 candles and getting “nice meats” at Whole Foods, this feels like unlocking the next level of the video game that is being an adult.
Here are some tips to help you get started:
How to Automate your Personal Finances: Step-by-Step Guide
How much time do you spend managing your finances? Just the day-to-day stuff - paying bills, transferring money from…
3. Set up a high-interest savings account.
“High-interest rate” is one of those phrases that is labeled as “warning! bad!” in my mind because I am used to thinking about interest rates in relation to things like my student loan debt or credit card debt, where I want the rate to be as low as possible. But the truth about interest rates is that they can work both for you and against you. High-interest rates are bad when applied to your debt, but they’re awesome when applied to your savings.
Interest rates are historically low right now due to the pandemic recession, but over the long term, keeping your savings in a high-interest savings account makes a big difference. These accounts have interest rates around 0.50% right now, which is huge compared to a regular savings account where the interest is usually closer to 0.05%. 😔😔😔
Another added benefit of my high-interest savings account is that in a totally different bank than my checking. When my checking and savings were both at PNC, my savings had a habit of magically disappearing because I would be constantly transferring it back over to my checking when that account was low. Now that it takes 2–3 business days to transfer money from my Ally account to PNC, the money tends to stay in the place I originally intended.
I have an Ally high-interest savings account which I really like. Here are some other options from NerdWallet:
7 Best High-Yield Online Savings Accounts of February 2021 - NerdWallet
Track spending, reduce debt, improve your credit, find the best credit cards. Join the millions of people who use…
4. Keep an emergency savings account.
Now that you’ve got a high-interest savings account set up, it’s time to build up your emergency savings. Emergency savings is that money that’s set aside for big financial hits you can’t plan for. Your emergency savings also gives you extra confidence/security in case you need to make a big expensive change in your life. I have a friend who lovingly calls her emergency savings her “Fuck Off Fund,” because if she ever needed to tell an employer or a significant other to fuck off, she’d have enough money to make a quick pivot without worrying about it too much. It’s a delightful framing.
People say you should try to save 3–9 months of expenses in your emergency savings. (This is why it’s good to have a budget! You can’t get a realistic picture of what your monthly expenses actually are without one!) I once talked to a financial planner (not the life insurance salesman I describe below — a different guy) who said a healthy emergency savings for most people is $15,000. In the end, it’s really up to you:
What amount of money do you need to have in the bank to feel financially secure should an emergency happen? Pick a number that would make you feel comfortable and confident and aim for that.
One more note here: My Ally account allows me to divide my account into buckets, so I have one bucket for my emergency savings and buckets for other financial goals like a home downpayment, money for a wedding, and a vacation fund. I really like being able to see how much I have dedicated toward each financial goal at a glance. If you have a savings account that allows you to do something similar, try it out!
5. Save for retirement.
If your work offers a retirement savings plan, enroll in it. Much like automating your savings (but actually even better), your retirement savings will get invested before the rest of your paycheck hits your checking account, making it really easy for you to save.
Even if you can’t put 10% of your salary towards retirement (not many people can! it’s really hard!), you should absolutely invest enough to max out any company matching programs. Not every company does this, but when they do, it is an extremely rare instance of FREE MONEY in this world. Company matches can come in many shapes and forms. Talk to your HR person or the liaison for your company’s retirement accounts to figure out how to make the most of yours.
After maxing out my work 401K match and then a little extra, I contribute to a Roth IRA (IRA= Individual Retirement Account). A Roth IRA is a great option for people who don’t have retirement investing plans offered through their work. I also just like having another place to save for retirement that is separate from my employer 401K account. Two big benefits of Roth IRAs:
- Your money is taxed before you deposit it, so you won’t have to pay taxes on it when you take it out when you retire.
- Early withdrawal rules for a Roth IRA are typically more flexible than a Traditional IRA. (Although ideally, you will leave it there and not touch it until retirement.)
Here are some other things to consider before opening a Roth IRA:
How and Where to Open a Roth IRA - NerdWallet
A is a true gift for retirement savers: While there's no immediate tax benefit, withdrawals in retirement are…
Once you open an IRA, then it’s time to invest your money! We are extremely lucky to live in a time where we have learned that it doesn’t take a hedge fund and lots of fancy tricks to invest your money wisely. You’re actually a lot better off investing your money in a low-cost index fund than trying to out-smart the market. There was a fairly recent epic bet between Warren Buffet and a hedge fund manager which proved this to be true:
Personally, I love going the robo-advisor route and just consistently putting money away in my Betterment account and letting the bots magically pick my investments based on my financial goals:
Betterment Review 2021: Pros, Cons and How It Compares - NerdWallet
Betterment is a clear leader among robo-advisors, offering two service options: Betterment Digital has no account…
If you want to be a little more hands-on, NPR’s Life Kit has a good starter guide on how to invest your money:
How To Invest - Even During A Pandemic
When COVID-19 began, the stock market fell off a cliff - leaving less experienced investors wondering, "should I sell…
6. Use the snowball method to pay down debt.
Let me be clear: Dave Ramsey is a bad person. But right out of college, I inhaled many episodes of financial advice podcast to try to figure out how I was going to climb my student loan debt mountain. The best thing I learned about in all that listening was a debt repayment strategy called the debt snowball method.
I wrote about paying off my first big chunk of student loan debt here:
How I Paid Off $12K Worth of Student Loan Debt Less Than A Year Out of School
So let me just re-state what I wrote in this earlier post about what worked well for me:
With the snowball method, you pay off the smallest amount of debt first and then work your way up to bigger and bigger amounts from there. This is what I did, and it turned repaying my student loan debt into a huge emotional rush that felt awesome. Some of my loans were $300 and $800, so I knocked those ones out first. Then I moved my way up to the $2000 and $5000 ones. Even though those took more time to pay off, I didn’t lose hope because I knew how good it felt to get those confirmation emails from Sallie Mae saying that I’d paid my loan in full.
Something else I wrote in this piece that still rings true today and feels really, really important:
One thing finance people never talk about is how intensely emotional money is. (And if they did, imagine how much faster all of us psych/soc majors would pay off our loans.) Use that emotional understanding to your advantage, and do things with your debt and savings that make you feel empowered and excited, not bored out of your mind or paralyzed by fear.
7. Don’t carry a balance on your credit card if you can help it.
The one exception to the debt snowball rule might be credit card debt, because interest rates on credit cards are stupid high. (Here’s why.)
By paying off your credit card balance each month, you get all the benefits of a card (ease of use, points collection, extra protection on purchases) without having to pay for those bad high-interest rate charges I was talking about earlier. Unlike student loan debts or mortgages, where interest rates live around 2–6%, the average credit card interest rate is 17.87%! 😱😱😱
If you have several kinds of debt you’re trying to pay off, it’s good to pay the minimums on everything else and prioritize paying off your credit card debt. Credit card debt is the man trying to keep you down. Don’t let him.
8. Don’t blindly trust financial advisors.
Earlier in my twenties, I worked with a guy who was a “financial advisor” but he really just wanted to sell me life insurance. He didn’t really give me that much advice, and mostly just made a commission off the life insurance he sold me. I ended up firing him (which felt really good!) but not before paying for life insurance I didn’t actually need for a few years.
Life insurance is an area that is tangential to personal finances that feels pretty murky to me. I think whether or not you need it will depend on each person’s individual situation. Just do your research before deciding to work with a financial advisor and make sure you’re getting what you really need. Chances are if you don’t have that much money (like less than hundreds of thousands of dollars), your finances are not complicated enough to need a financial advisor to make the most out of them and Google can point you in the right direction. 🤷
Okay, I think that’s it. At least for now.
If you are just getting started on building your own financial foundation, I would block off an upcoming Saturday morning/afternoon and do these things:
- Create a budget for yourself using this template as a guide so you know have a broad understanding of your monthly expenses.
- Set as many of your bills as you can to autopay so you don’t have to think about them.
- Set up a high-interest savings account through Ally or a similar online bank and set up a monthly or bi-weekly recurring transfer into that account. Start with $50 or $100 and build up from there to 20% of your income if you can. Pick an emergency savings goal you want to work towards and write it down. Your bank might even allow you to rename your savings account with the name of your goal, which I find helpful/inspiring. (For example, my high-interest savings account is named Emergency Savings — $15K.)
- If you have a job with a retirement savings option, check your employee handbook to see if there’s a company match and invest enough to max that out. If you have questions, email your HR manager and they can point you in the right direction.
- Whether you have a work retirement savings or not, set up a Roth IRA. Just like with your high-interest savings, set up a recurring transfer into that account of $50 or $100 on a monthly or bi-weekly basis. Build your way up to 10–15% of your income over time.
- Create a plan to pay off any debt you have. Prioritize credit card debt because it’s likely going to be the most expensive over time due to high-interest rates. Use the snowball technique to keep yourself motivated.
And that’s where I would start.
None of this is fancy or glamorous. It won’t get you rich quick. But the real trick to personal finances that will make you feel confident and empowered over time is creating healthy habits that you can maintain (even with you need to start with a small amount of money now).
It might not feel like much to put $50 into your emergency savings or retirement fund each month, but having those structures in place means it’ll be easy for you to increase the amount you save or invest as your income increases.
Just take a few little steps to get started. In ten years, you’ll be glad you did.