My Best Advice for My Best Friend
Create a Simple Budget
It's really hard to try to save when you don't know what you spend. But I recognize that setting up a budget can be intimidating. Start simple. I set up a spreadsheet listing out all of my major expenses: mortgage, car insurance, student loans, daycare, utilities, food, gas, etc. In the next column, list the expected or budgeted amount. I like to round up to the nearest 10. In the final column, I do some homework and list the actual amount spent. This gives me a rough idea where my money is going every month I understand that a lot of people break down their spending in more detail, but for me it was too overwhelming to scrutinize every detail. I totaled up the budgeted amount and the actual amount spent and subtracted my total take home paycheck. This gave me a general idea of how much I spent and how much I should be able to save every month.
Auto-save and Auto-pay
With that knowledge in hand, it is easy to make sure my monthly paycheck will cover all of my expenses (including my savings goals). I automate everything I can. All of my fixed expenses, the mortgage, student loans, daycare, are all set for auto-pay. I like to see my variable expenses and pay them, but my husband likes to auto-pay those too. I make sure when my paycheck auto deposits in my account, the money is scheduled to transfer out in the next day or so. Therefore, my auto-savings is withdrawn from my account without any effort. Because, the money is withdrawn immediately, I don't see it in the account and it doesn't feel available for me to spend.
Create Multiple Accounts
I have a lot of accounts. Some may say too many. With the ease of online banks, it is easy to set up multiple accounts. I have set up multiple accounts with different names - emergency fund, vacation, kids names, house projects, medical expenses, etc. The money is automatically deposited into each account in the amounts desired. In this way, I know I have a certain amount designated for each category. Then, let's say, when vacation time comes I can only spend that amount. The hardest part is not accessing these accounts prematurely. I only look at them about once a quarter to make sure there is no fraud or other problems.
Don't Waste Money on Debt
This is probably the hardest goal to achieve especially if you are already in debt. But it is important to realize that debt is a waste of money. I overheard someone say that using a credit card allowed them to buy things they otherwise wouldn't or couldn't. It made my heart sink. If you can't purchase something with cash that day, then you have no business buying it on credit. I always try to pay my credit card off in full every month. My philosophy is that credit is for accumulating rewards on money I would spend anyway or is available for only an absolute emergency.
Maximize Your 401K
You absolutely must contribute to your 401K. You need to look at it like you are paying your future self. At a minimum, you need to contribute what your employer matches (e.g., 3%). If you don't at least reach the match, then you are literally throwing money away. Once you reach the match, it should then be your objective to maximize your contribution. Even a 1% increase may be a huge gain for your future self. Try to make increases to your contribution when you get a raise. That way you won't even know what you're missing. It's hard to balance retirement with all of your other financial burdens, but it has to be a priority from day one.
Contribute to a 529 Account
If you have little ones at home, you absolutely must contribute to a 529 account. There are a ton of 529 options available. It really doesn't matter. Just pick one and contribute anything you can to the account, even $10 a month (e.g., a few coffees a month). It may not feel like a lot, but every dollar you save will help your child in the future. They are worth it.
Of course, I have lots of other advice too, but these are the most important. Start here. Get in a better position. Figure out where you are failing or where you can make improvements. Decide what is a priority in your life, for your family, for your future. And come meet me for coffee next month and let's see what we can do next.
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