As a blogger I constantly worry if I am supporting over consumerism and irresponsible spending. At the end of the day I can say Oh, I LOVE this item and it was so worth it to me but I have to hope that people are making the right decisions based on their own financial situation. But since finance is a passion of mine (it is my day job after all) and since so many of y’all are looking to focus on your own finances in 2019 I thought it might be good to take a step back from fashion and talk about the money honey!
I don’t claim to have all the answers or to be an expert, but I’ve learned a lot between my education, my career and to be honest making some bad financial decisions myself so I’ve complied a list of 20 guidelines for financial success from the basics to saving for the future.
The Basics
1. You absolutely must be able to cover the four walls – your home and all utilities and maintenance – and your necessary expenses (food, car, gas) before you can think about anything else. I am writing this post under the assumption that this is a given – if you are struggling in this area please seek financial advice and help from a professional. I recommend looking into Financial Peace University or a similar program.
2. Have an emergency fund. If you need to use it that’s fine (it’s there to use during emergencies!) but then replenishing the fund is your #1 priority – this means cutting out all non essential spending until the funds are replaced. A “starter” emergency fund is at least $1K but a fully funded emergency fund is 3 to 6 months of expenses. Savings beyond that should be in investment funds. Read my post about building a starter emergency fund here.
3. Have a budget – how your money is spent every month should not be a mystery to you. You need to have a plan for your money every single month and stick with that plan and make adjustments as needed to fit your lifestyle. Savings should not be whatever is left over at the end of the month – it should be included in your budget. I shared about my personal budget process here.
4. Protect yourself and your loved ones – health insurance, auto insurance, home or renters insurance , and life insurance should be mandatory expenses and they all cover different areas of your life. Putting your sob story on go fund me should not be your plan B.
5. The only things in life you are entitled to is the things you can afford. I’m sorry if your friends can afford nice vacations, a big wedding or luxury cars and I’ve been there but keep up with your own accounts before keeping up with the Jonses.
Debt and Credit
6. In general debt is a bad idea but I live in the real world and sometimes debt is an investment – my student loans were an investment in my current income, my car note is an investment in not showing up at work looking like a hobo and thus keeping my job, my mortgage is building wealth. However, consumer debt is living beyond your means. It is possible to live beyond your means with these “investment debts” too – buying a fancy car, too big of a house or yes, even over education.
7. Regarding debt – Be careful about what you purchase with credit and have a clear repayment plan (for example taking advantage of a 12 months 0% interest loan on a big ticket item) Never put something consumable on a credit card – i.e. vacations, dinners out. We took advantage of Lowe’s 24 month 0% credit to buy our riding lawn mower – this is money we would have spent anyway having a lawn service but at the end of the two years instead of continuing with a service we will have our lawn mower that should last for at least 10 years paid off.
8. Credit cards can be used wisely to reap benefits – for example using a credit card for expenses and paying off the balance monthly can allow you to accumulate points towards flights, hotel stays, cruises, etc – we have a Carnival card and use our points as onboard credits.
9. Some big financial gurus (cough cough Dave Ramsey) do not believe in credit. Again, I live in the real word. Your credit score not only determines your ability to borrow money but is also often used when renting an apartment (I’ll touch on that down below) and even your job. As a financial analyst I simply cannot have a bad credit score and get a job. Personally I think it is irresponsible to tell people to not care about their credit score.
10. Student loan debt SUCK and pretty much death is the only way to escape them. But if you’re reading this chances are you either already have it or you don’t. If you don’t and are considering going back to school look into tuition reimbursement from your company and talk to people in your desired career to see if it’s really needed. Do I NEED a MSBA for my job, no but it has given me a competitive edge and I honestly can’t say I’d be in the same spot I am now without it. If you already do have them pay on time – if you are facing a hardship pick up the phone and work out a plan, this is actually pretty easy. Do not do what I did and just ignore the problem – it took me years to get back in good standing and I racked up A LOT of interest. This pretty much goes for any debt – companies want their money back and will work with you in hard times.
Spending
11. Actually look at your benefits and select the plan that is best for you instead of the default plan (if your company has multiple options) for example – I moved to an HSA (health savings account) plan this year as I don’t expect any major medical needs this year but we plan on trying to start a family in 2020. It’s important to have insurance but don’t spend more than you need on coverage you really don’t need.
12. Studies have shown that we are happier spending on experiences rather than things – there’s nothing wrong with spending on frivolous things you can afford but even then spend wisely. There are times when physical items will bring you joy and this is different for each person but there is a difference between having joy in having something and hoarding 10 of it. And by “afford it” I mean buy it for cash or on a card you will pay off this month.
13. A lot of people out there will tell you there’s never a perfect time to start a family but if you are young and not in a good financial position than actively trying to have children is simply irresponsible. Get your shit in order first – sorry not sorry. At a minimum you should have a starter EF, health insurance and income in excess of your monthly bills before even thinking about it.
14. Spending is all about priorities – unless you are already wealthy chances are you will have to choose what your priorities are. Some people make travel a priority and live modestly to afford it, some people prioritize a fancy car – there’s no wrong answer but remember that unless you can afford it on 80% of your income or less you can’t have it all.
15. Be generous when you can – make it your goal that “when you can” is anytime. This is more my personal morality rather than actual financial advice but from a practically standpoint if you make it your goal to have excess money that you could give away you’ll be doing just fine. Whether you choose to keep all your excess or share is between you and your conscious.
Building Wealth
16. Once you have no consumer debt and a fully funded emergency fund AT LEAST 10% of your income should be going into savings – ideally 15 to 20%. Save for your future first and then budget the rest of your income. Some people also believe in tithing – this also comes first.
17. Renting and leasing will cover your current needs but are building someone else’s wealth – buy smart and build your own wealth. I am SUPER passionate about this and have a post dedicated to this issue here.
18. Always invest in your 401K and do not borrow against it unless you have a real emergency your emergency fund cannot cover. Wanting new kitchen countertops is not an emergency. The taxes on borrowing from your 401K SUCK – I know from experience. If your company offers a match not investing is just leaving money on the table – invest AT LEAST as much to take advantage of your company’s match.
19. Mutual Funds (which is what your 401K is most likely invested in) are for long term financial growth – don’t stress out about the market performance month over month, it will recover. Unless you’re a fund manager , than that’s kinda your job. But seriously, let the fund managers worry about it.
20. CDs are great for locking in a slightly higher interest rate for savings you will not need to access until the maturity date. If your future plans for the money is more than five years away put it in a mutual fund – if less than 5 years CD. Also, you can put money in a mutual fund and move to a CD as the need date becomes closer – for example lets say your child is entering high school and your mutual fund has done well but whispers of a recession make your nervous – move the funds to a four year CD (also, make your kid do their homework so they get a scholarship)
These guidelines aren’t meant to be the end all be all of financial wisdom but just some general good ideas to think about. If there’s a topic you’d like to see me go more in depth on like my housing , emergency fund or budget post leave me a comment below.
xx,
